T2 Biosystems
Annual Report 2015

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2015 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 suchshorter 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule405 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 and post 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 definitiveproxy 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, or a smaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer Accelerated filer ☒ Non-accelerated filer Smaller reporting company 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 June 30, 2015, 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 wasapproximately $185.9 million based on the closing price for the common stock of $16.23 on that date. Shares of common stock held by each executive officer, director, and their affiliated stockholdershave 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 4, 2016 was 24,248,859. 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 referenceinto Part III of this report. Table of ContentsTABLE OF CONTENTS PagePART I. Item 1. Business 4 Item 1A. Risk Factors 30 Item 1B. Unresolved Staff Comments 60 Item 2. Property 60 Item 3. Legal Proceedings 60 Item 4. Mine Safety Disclosures 60 PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities 61 Item 6. Selected Consolidated Financial Data 62 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 64 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 79 Item 8. Financial Statements and Supplementary Data 80 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 106 Item 9A. Controls and Procedures 106 Item 9B. Other Information 107 PART III. Item 10. Directors, Executive Officers and Corporate Governance 107 Item 11. Executive Compensation 107 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 107 Item 13. Certain Relationships and Related Transactions, and Director Independence 107 Item 14. Principal Accountant Fees and Services 107 Item 15. Exhibits, Financial Statement and Schedules 108 1 Table of ContentsFORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements about us and our industry that involvesubstantial risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisionsfor forward-looking statements contained in Section 27A of the Securities Act of 1933, or the Securities Act, andSection 21E of the Securities Exchange Act of 1934, or the Exchange Act. All statements other than statements of historicalfacts contained in this Annual Report on Form 10-K, including statements regarding our future results of operations andfinancial position, business strategy, prospective products and product candidates, their expected performance and impacton healthcare costs, marketing authorization from the U.S. Food and Drug Administration, or the FDA, regulatoryclearance, reimbursement for our product candidates, research and development costs, timing of regulatory filings, timingand likelihood of success, plans and objectives of management for future operations and future results of anticipatedproducts, are forward-looking statements. These statements involve known and unknown risks, uncertainties and otherimportant factors that may cause our actual results, performance or achievements to be materially different from any futureresults, 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,” “predict,” “potential”or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this AnnualReport on Form 10-K are only predictions. We have based these forward-looking statements largely on our currentexpectations and projections about future events and financial trends that we believe may affect our business, financialcondition and results of operations. These forward-looking statements speak only as of the date of this Annual Report onForm 10-K and are subject to a number of risks, uncertainties and assumptions described under the sections in this AnnualReport on Form 10-K entitled “Item 1A.—Risk Factors”. These forward looking statements are subject to numerous risks,including, without limitation, the following: ·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 productcandidates; ·the length of our anticipated sales cycle; ·our ability to gain the support of leading hospitals and key thought leaders and publish the results of ourclinical trials in peer-reviewed journals; ·our ability to successfully manage our growth; ·our future capital needs and our need to raise additional funds; ·the performance of our diagnostics; ·our ability to compete in the highly competitive diagnostics market; ·our ability to obtain marketing authorization from the FDA or regulatory clearance for new productcandidates in the United States or any other jurisdiction; ·federal, state, and foreign regulatory requirements, including FDA regulation of our product candidates. ·our ability to protect and enforce our intellectual property rights, including our trade secret-protectedproprietary rights in T2MR; and These forward-looking statements represent our estimates and assumptions only as of the date of this AnnualReport 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 these2 Table of Contentsstatements to actual results. The following discussion should be read in conjunction with the financial statements and notesthereto appearing elsewhere in this Annual Report on Form 10-K. Our actual results may differ materially from thoseanticipated 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 operationstogether 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 theresults described in or implied by the forward-looking statements contained in the following discussion and analysis.3 Table of ContentsPART I. Item 1. BUSINESS Overview We are an in vitro diagnostics company that has developed an innovative and proprietary technology platform thatoffers a rapid, sensitive and simple alternative to existing diagnostic methodologies. We are using our T2 MagneticResonance platform, or T2MR, to develop a broad set of applications aimed at lowering mortality rates, improving patientoutcomes 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 sampletypes, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection aslow as one colony forming unit per milliliter, or CFU/mL. Our initial development efforts utilizing T2MR target sepsis,hemostasis, and Lyme disease, which are areas of significant unmet medical need in which existing therapies could be moreeffective with improved diagnostics. On September 22, 2014, we received market authorization from the U.S. Food and Drug Administration, or the FDA,for our first two products, the T2Dx Instrument, or T2Dx and the T2Candida Panel, which have the ability to rapidly identifythe five clinically relevant species of Candida, a fungal pathogen known to cause sepsis. We have launched thecommercialization of the T2Dx and T2Candida in the United States and we have built and continue to expand a direct salesforce that is primarily targeting the top 450 hospitals in the United States that have the highest concentration of patients atrisk for Candida infections. Our next three diagnostic applications are called T2Bacteria, T2HemoStat, and T2Lyme, which are focused onbacterial sepsis infections, hemostasis, and Lyme disease, respectively. In late 2015 we initiated the collection of patientblood samples to support clinical trials for T2Bacteria, and we plan to initiate clinical trials for T2HemoStat in 2016. Weexpect that existing reimbursement codes will support our sepsis, hemostasis and Lyme disease product candidates, and thatthe anticipated economic savings associated with our sepsis products will be realized directly by hospitals. 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 afflictingimmunocompromised, critical care and elderly patients, sepsis is a severe inflammatory response to a bacterial or fungalinfection with a mortality rate of approximately 30%. According to data published by the U.S. Department of Health andHuman Services for 2011, the cost of sepsis is over $20 billion in the United States, or approximately 5% of the totalaggregate costs associated with domestic hospital stays. Sepsis is typically caused by one or more of five Candida species orover 25 bacterial pathogens, and effective treatment requires the early detection and identification of these specific targetpathogens in a patient’s bloodstream. Today, sepsis is typically diagnosed through a series of blood cultures followed bypost-blood culture species identification. This method has substantial diagnostic limitations that lead to a high rate of falsenegative test results, a delay of up to several days in administration of targeted treatment and the incurrence of unnecessaryhospital expense. In addition, the Survey of Physicians’ Perspectives and Knowledge About Diagnostic Tests forBloodstream Infections in 2015 reported that negative blood culture results are only trusted by 36% of thosephysicians. Without the ability to rapidly identify pathogens, physicians typically start treatment of at-risk patients withbroad-spectrum antibiotics, which can be ineffective and unnecessary and have contributed to the spread of antimicrobialresistance. According to a study published by Critical Care Medicine in 2006, in sepsis patients with documentedhypotension, administration of effective antimicrobial therapy within the first hour of detection was associated with asurvival rate of 79.9% and, over the ensuing six hours, each hour of delay in initiation of treatment was associated with anaverage decrease in survival of 7.6%. We believe our sepsis products, which includes T2Candida and T2Bacteria, will redefine the standard of care insepsis 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 forpatients with bloodstream infections can be delayed up to 72 hours due to the wait time for blood culture results. In anotherstudy published in Clinical Infectious Diseases in 2012, the delayed administration of appropriate antifungal therapy wasassociated with higher mortality among patients with septic shock attributed to Candida infection and, on that basis, thestudy stated that more rapid and accurate diagnostic techniques are needed. 4 Table of ContentsOur pivotal clinical trial demonstrated that T2Candida can deliver actionable results as fast as three hours, with anaverage time to result during the trial of 4.2 hours, compared to the average time to result of one to six or more days typicallyrequired for blood-culture-based diagnostics, which we believe will enable physicians to make treatment decisions andadminister targeted treatment to patients in four to six hours versus 24 to 144 hours for blood culture. We believe thatT2Bacteria will also deliver actionable results within these timeframes because this diagnostic panel operates similarly toT2Candida and is designed to run on the same instrument as T2Candida. In November 2015, the Company presented datademonstrating the ability of our T2Bacteria Panel to provide the rapid and sensitive identification of the six sepsis-causingbacteria included in the panel, directly from whole blood, with limits of detection as low as 1 CFU/ml. The six clinicallyrelevant bacteria included in our T2Bacteria Panel are Staphylococcus aureus, Enterococcus faecium, Escherichia coli,Klebsiella pneumoniae, Pseudomonas aeruginosa, and Acinetobacter baumannii. The six bacteria in our T2Bacteria Panelwere selected because, when combined with the use of T2Candida and the practice of empirically administering broadspectrum antibiotics, the rapid detection of these bacteria may enable 95% of patients with sepsis to receive rapid andappropriate therapy. These bacteria comprise 55% of all positive blood cultures. Candida is the leading hospital-acquired bloodstream infection, afflicting more than 135,000 patients per year inthe United States, and the most lethal form of common bloodstream infections that cause sepsis, with an average mortalityrate of approximately 40%. This high mortality rate is largely due to a delay in providing targeted therapy to the patient dueto the elapsed time from Candida infection to positive diagnosis. According to a study published in Antimicrobial Agentsand Chemotherapy, the Candida mortality rate can be reduced to 11% with the initiation of targeted therapy within 12 hoursof 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 astudy published in the American Journal of Respiratory and Critical Care Medicine, providing targeted antifungal therapywithin 24 hours of the presentation of symptoms decreased the length of hospital stay by approximately ten days anddecreased the average cost of care by approximately $30,000 per patient. Furthermore, in April 2015, Future Microbiologypublished the results of an economic study regarding the use of T2Candida conducted by IMS Health, a healthcareeconomics agency. In that economic study, IMS demonstrated that an average hospital admitting 5,100 patients at risk forCandida infections could save approximately $5.8 million annually due to decreased hospital stays for patients, reduction inuse of antifungal drugs and other associated savings. The economic study further showed T2Candida can potentially reducethe costs of care by $26,887 per Candida patient and that rapid detection of Candida reduces patient deaths by 60.6%. Mostrecently, results from a data analysis of T2Candida for the detection and monitoring of Candida infection and sepsis werepublished comparing aggregated results from the use of T2Candida to blood culture-based diagnostics for the detection ofinvasive candidiasis and candidemia. The analysis included samples acquired from more than 1,900 patients. Out of 55prospective patient cases that were tested with T2Candida and blood culture, T2Candida detected 96.4% of the patients (53cases) compared to detection of 60% of the patients (33 cases) with blood culture. Based on this data, the Companyexpanded the T2Candida IFU label to include this data and to state that T2Candida provides superior sensitivity ascompared to blood culture for the detection of candidemia and invasive candidisasis. Due to the high mortality associated with Candida infections, physicians often will place patients on antifungaldrugs while they await blood culture diagnostic results which always take at least 5 days to generate a negative test result.Antifungal drugs are toxic, may result in side effects and can cost over $50 per day. Our T2Candida Panel’s speed to resultcoupled with its superior sensitivity as compared to blood culture may help reduce the overuse of ineffective, or evenunnecessary, antimicrobial therapy which may reduce side effects for patients, hospital costs and potentially, the growingresistance to antifungal therapy. This inappropriate therapy is a driving force behind the spread of antimicrobial-resistantpathogens, which the United States Centers for Disease Control and Prevention, or the CDC, recently called “one of our mostserious health threats.” Another significant unmet clinical need that we believe can be addressed by T2MR is the timely diagnosis andmanagement of impaired hemostasis, which is a potentially life-threatening condition in which a patient is unable to promotethe appropriate formation of blood clots to stabilize excessive bleeding or prevent the formation clots to avoid excessiveclotting. For trauma patients with potentially impaired hemostasis, diagnostic results are typically required in fewer than 45minutes to aid clinicians in making the most effective treatment decisions. The need for rapid diagnosis is not met by currentdiagnostic methods, which typically involve multiple instruments and can take hours to process a patient specimen. As aresult, physicians often make critical decisions for treatment of impaired hemostasis with limited or no diagnostic data. 5 Table of ContentsWe believe that T2MR can also address the significant unmet need associated with Lyme disease, a tick-borneillness that can cause prolonged neurological disorders and musculoskeletal disease. For patients with Lyme disease, earlydiagnosis and appropriate treatment significantly reduces both the likelihood of developing neurological andmusculoskeletal disorders, as well as the significant costs associated with treating these complications. Multiple diagnosticmethods are used to test for Lyme disease today, which are labor-intensive, can take weeks to process, and are subject to highfalse negative rates due to their inability to detect the disease. Because of these limitations, patients are frequentlymisdiagnosed or treatment is significantly delayed for this disease. Within the Lyme disease market in the United States, theCDC estimates that the number of patients who present with symptoms is approximately 360,000 and that there areapproximately 3.4 million tests run each year in an effort to diagnose Lyme disease, each of whom we believe may beappropriate to be tested with our T2Lyme panel. We believe our combined initial annual addressable market opportunity for sepsis, hemostasis, and Lyme disease isover $3.7 billion in the United States alone, when the market opportunity for T2Candida, T2Bacteria, T2Lyme and our initialhemostasis diagnostic panel is combined. Within the sepsis market in the United States, we estimate that there areapproximately 6.75 million critical care and immunocompromised patients who present with symptoms and are at high riskfor a bloodstream infection who would be appropriate to be tested by our T2Candida Panel. These patients, along withapproximately two million additional patients who receive treatment in the emergency room setting, are also highlysusceptible to bacterial infections, for a total of approximately 8.75 million patients who would be appropriate to be testedby our T2Bacteria Panel. Within the hemostasis market, for trauma alone, there are over ten million patients in the UnitedStates annually who present with symptoms of impaired hemostasis. These patients often require rapid and frequenthemostasis assessments to determine the presence and severity of abnormal coagulation, or blood clotting. Our Strategy T2MR enables rapid and sensitive direct detection of a range of targets, and we believe it can be used in a variety ofdiagnostic applications that will improve patient outcomes and reduce healthcare costs. Our objective is to establish T2MRas 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, LaboratoryDirectors and Hospitals. We expect our sepsis products to meaningfully improve patient outcomes whilereducing costs to hospitals. We have established a targeted, direct sales force in the United States, which isinitially focused on educating physicians and demonstrating our clinical and economic value proposition tohospitals that have the highest populations of at-risk critical care and immunocompromised patients. Webelieve a sustained focus on these hospitals will drive adoption of T2Dx, T2Candida and future T2MR-baseddiagnostics. As a part of this effort, we will continue to work with thought leaders, conduct clinical and healtheconomic studies and seek publication and presentation of these studies. ·Establish a Recurring, Consumables-Based Business Model. We are pursuing a consumables-based businessmodel for our products by securing placements of the T2Dx at hospitals and driving utilization of ourdiagnostic panels starting with T2Candida. We believe this strategy will foster a sustainable and predictablebusiness model with recurring revenue streams. ·Broaden Our Addressable Markets in Infectious Disease and Hemostasis. Our product development pipelineincludes additional instruments and diagnostic panels that provide near-term and complementary marketexpansion opportunities. Our next sepsis product candidate will focus on bacterial infections, will run on T2Dxand is expected to address the same high-risk patients as T2Candida, while also expanding our reach to a newpatient population at increased risk for bacterial sepsis infections. We also are utilizing T2MR to address thechallenges of providing rapid hemostasis monitoring, along with rapid and sensitive diagnosis of Lyme disease.In late 2015 we initiated the collection of samples to support clinical trials for T2Bacteria, and we plan toinitiate clinical trials for T2HemoStat in mid-2016. We are targeting to commercialize these product candidatesafter obtaining marketing authorization or regulatory clearance. ·Broaden Our Addressable Markets Beyond Infectious Disease and Hemostasis. We intend to expand ourproduct offerings by applying T2MR to new applications beyond sepsis, hemostasis and Lyme disease. We planto conduct internal development and to work with thought leaders, physicians, clinical researchers and businessdevelopment partners to pursue new applications for T2MR. We believe the benefits of our6 Table of Contentsproprietary technology, including the ability to rapidly and directly detect a broad range of targets, in a widevariety of sample types, will have potential applications within and outside of the in vitro diagnostics market,including environmental, food safety, industrial and veterinary applications. For example, in early 2015 weentered into a joint collaboration with Canon U.S. Life Sciences to develop a novel test panel to rapidly detectLyme disease. The test panel is being developed using our T2MR technology applied for the direct detection ofbacteria associated with Lyme disease. ·Drive International Expansion. We plan to commercialize our current products and product candidates inEuropean and other international markets, and we have initiated a clinical study in Europe for T2Candida andT2Dx. We have received CE marking for T2Candida and T2Dx and are in the process of developingdistribution networks for these markets. In early 2016, we executed distribution agreements with distributors inSpain and Italy, and we are now working with them to commercialize our products in those countries. Our Technology Platform T2 Magnetic Resonance Platform Overview We have built an innovative and proprietary technology platform that offers a rapid, sensitive and simple alternativeto existing diagnostic methodologies. T2MR is a miniaturized, magnetic resonance-based approach that measures how watermolecules 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, such as proteins; and ·a broad range of hemostasis measurements. For molecular and immunodiagnostics targets, T2MR utilizes advances in the field of magnetic resonance bydeploying particles with magnetic properties that enhance the magnetic resonance signals of specific targets. When particlescoated with target-specific binding agents are added to a sample containing the target, the particles bind to and clusteraround the target. This clustering changes the microscopic environment of water in that sample, which in turn alters themagnetic resonance signal, or the T2 relaxation signal that we measure, indicating the presence of the target. For hemostasis measurements, particles are not required because T2MR is highly sensitive to changes in viscosity ina blood sample, such as clot formation, stabilization or dissipation, which changes the T2 relaxation signal. This enables therapid identification of clinically relevant hemostasis changes. We also believe T2MR is the first technology that can rapidly and accurately detect the presence of moleculartargets within samples without the need for time- and labor-intensive purification or extraction of target molecules from thesample, 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. Thisenables T2MR’s low limit of detection, such as 1 CFU/mL, compared to the 100 to 1,000 CFU/mL typically required forPCR-based methods. Over 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 the potential applications for T2MR extend within and outside of the in vitrodiagnostics market, including environmental, food safety, industrial and veterinary applications. Our Instruments Utilizing T2MR, we have developed and received FDA marketing authorization for T2Dx, a bench-top instrumentfor sepsis, Lyme disease, and other applications, and we are developing T2Plex, a compact, fully integrated instrument forhemostasis applications. 7 Table of ContentsT2Dx T2Dx is an easy-to-use, bench-top instrument that is capable of running a broad range of diagnostic tests and is fullyautomated from patient sample input to result, eliminating the need for manual work flow steps such as pipetting that canintroduce risks of cross-contamination. To perform a diagnostic test, the patient sample tube is snapped onto our disposabletest cartridge, which is pre-loaded with all necessary reagents. The cartridge is then inserted into T2Dx, which automaticallyprocesses the sample and then delivers a diagnostic test result. The initial panels designed to run on T2Dx are T2Candida and T2Bacteria, which are focused on identifying life-threatening pathogens associated with sepsis. In 2014 we received FDA marketing authorization for T2Dx and T2Candida,and in late 2015 we initiated the collection of samples to support clinical trials for T2Bacteria . T2Lyme, which is indevelopment, will also run on T2Dx. T2Plex We are also applying T2MR to develop T2Plex, which we believe will be the first compact, fully integratedinstrument capable of rapidly providing comprehensive hemostasis measurements. T2Plex will run our T2HemoStat panel,which includes a broad set of hemostasis measurements, including platelet function, clotting time and clot degradation, alsoknown as fibrinolysis. We expect to initiate a pivotal clinical trial for T2Plex and T2HemoStat in mid-2016. Sepsis Overview Sepsis is an illness in which the body has a severe, inflammatory response to a bacterial or fungal infection. It is alife-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 ofapproximately 30%, almost double the mortality rate of acute myocardial infarction, or heart attack. One out of every twohospital deaths in the United States is attributable to sepsis. 8 Table of ContentsIn 2013, the U.S. Department of Health and Human Services reported that sepsis is the most expensive hospital-treated condition in the United States, with an economic burden to hospitals exceeding $20 billion annually, almost doublethat of acute myocardial infarction. The high cost of treating sepsis is primarily driven by the extended hospitalization ofpatients. We believe there are many effective, targeted therapeutic choices that could reduce overall hospitalization costs ifapplied earlier, but clinicians need to more rapidly identify the specific sepsis-causing pathogens in order to make moreinformed, 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. The following table reflects key statistics from the 2013 U.S. Department of Health and Human Services studyregarding the five most expensive hospital-treated conditions: U.S. hospital Percentage costs of total Rank Condition (in billions) inpatient costs 1 Sepsis $20.3 5.2%2 Osteoarthritis 14.8 3.8 3 Complication of device, implant or graft 12.9 3.3 4 Liveborn 12.4 3.2 5 Acute myocardial infarction (heart attack) 11.5 3.0 Over 1.6 million individuals are diagnosed with sepsis each year, 1.35 million of whom are at high risk for infectiondue to their suppressed immune system or their presence in critical care units. Virtually all of these patients are rapidlytreated with broad-spectrum antibiotic drugs because there is no diagnostic manner for determining the type of infection. Ofthese 1.35 million patients with sepsis and at high risk for infection, approximately 40% do not respond to broad-spectrumantibiotic treatment. Of these patients that are non-responsive, approximately 25% of them have a Candida infection, withthe remaining patients having a bacterial infection. Broad-spectrum antibiotics do not treat these Candida and bacterialinfections as more targeted drugs are required. We estimate that approximately 15 million patients are tested for blood stream infections in the United Statesannually. Of these, approximately 6.75 million are at high risk for a Candida infection and an additional two million, orapproximately 8.75 million, in total are at high risk for a bacterial infection. We believe that our sepsis products have thepotential 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. There is also a significant market opportunity outside the United States for improved sepsis diagnosis, as thisdisease burdens other countries with similarly high mortality rates and high costs. Each year, over 18 million cases of sepsisare diagnosed worldwide, with estimated mortalities exceeding five million patients, making it a leading cause of deathworldwide. 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 containingnutrients formulated to grow fungi and bacteria. Before blood culture indicates if a patient is infected, pathogens typicallymust reach a concentration of 1,000,000 to 100,000,000 CFU/mL. This growth process typically takes one to six or moredays because the pathogen’s initial concentration in the blood specimen is often less than 10 CFU/mL. A negative test resultalways requires a minimum of five days. A positive blood culture typically means that some pathogen is present, butadditional steps must be performed to identify the specific pathogen in order to provide targeted therapy. These additionalsteps, which typically must be performed by a highly trained technician, may involve any of (i) a staining procedure forinspection on a microscope slide, (ii) PCR amplification and (iii) mass spectrometry. These steps require a preceding positiveblood culture specimen because they need a high concentration of cells generated by the blood culture process for analysis. For PCR-based diagnostics, there is a requirement for extraction of target cells from the sample into a clear solution,where 90% or more of the cells can be lost. Extraction into a clear solution is needed because existing diagnostic detectionmethods cannot detect the targeted pathogen due to the complex background of the sample itself.9 Table of ContentsWhile PCR amplifies the target signal, this loss of target cells impairs the ability to detect, resulting in typical limits ofdetection of 100 to 1,000 CFU/mL, which is insufficient for species-specific sepsis diagnostics. Blood culture-based diagnostics have substantial limitations, including: ·Time to Result Delays Targeted Treatment. Blood culture-based diagnostics typically require a minimum ofone and as many as six or more days to identify a pathogen species, and blood culture always requires at leastfive days to generate a negative test result. ·Antimicrobial Therapy Can Cause False Negative Results. Antimicrobial therapies may be administered to apatient prior to taking a blood sample. As a result, the therapeutic agent is contained in the blood sample and itsability to stop or slow the growth of pathogens can delay or completely inhibit the growth of the pathogenduring 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 alland can require up to five or more days to reach sufficient concentrations to be detected by blood culture-baseddiagnostics. 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 falsenegative diagnosis. For example, C. glabrata, one of the most lethal species of Candida due to its growingresistance to antifungal therapy, often requires more than five days of growth to reach a detectableconcentration, and therefore is frequently undetected by blood culture. ·Labor-Intensive Workflow Increases Costs and May Delay Targeted Treatment. Blood culture is only thefirst step in identifying a pathogen that causes sepsis. After a blood culture is determined to be positive, highlytrained technicians are required to perform multiple post-culture procedures on the blood culture specimen toidentify the specific pathogen. These additional procedures can be expensive and time-consuming and maydelay targeted treatment. Given the typical one-to-six day time to result for blood culture-based diagnostics, the first therapy for a patient atrisk of sepsis is often broad-spectrum antibiotics, which treat some but not all bacteria types and do not address fungalinfections. Some physicians may use first-line, antifungal therapy for patients at very high risk for fungal infection, or useantifungal therapy if the patient is not responding to broad-spectrum antibiotics while they are still awaiting the bloodculture-based result. This therapeutic approach may still not treat the growing number of patients infected with theantimicrobial-resistant species nor may it be the best choice, as the type of therapy is dependent on the specific pathogencausing the infection, which is unknown. This inefficient therapeutic approach has resulted in unnecessary treatment of a significant number of high-riskpatients with expensive and often toxic therapies that can worsen a patient’s condition. Such treatments may extend for manydays while clinicians await blood culture-based diagnostic results. The overuse of ineffective, or even unnecessary,antimicrobial therapy is also the driving force behind the spread of antimicrobial-resistant pathogens, which the CDCrecently called “one of our most serious health threats.” The CDC has specifically noted increasing incidence of Candidainfections due to azole- and echinocandin-resistant strains and considers it a “serious” threat level. According to the CDC, atleast two million people in the United States acquire serious infections each year that are resistant to one or more of theantimicrobial therapies used to treat these patients. At least 23,000 of these people are estimated to die as a direct result of theresistant 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 coststo society as high as $35 billion, due to lost productivity. Our Solution T2MR delivers what we believe no other technology currently available can: a rapid, sensitive and simplediagnostic platform that enables sepsis applications, including T2Candida and T2Bacteria, that can identify specific sepsispathogens directly from an unpurified blood sample in hours instead of days at a level of accuracy equal to or better thanblood culture-based diagnostics. We believe T2MR sepsis applications provide a pathway for more rapid and targetedtreatment of infections, potentially reducing the mortality rate by as much as 75% if a patient is treated within10 Table of Contents12 hours of suspicion of infection and significantly reducing the cost burden of sepsis. Each year, approximately 500,000patients in the United States die from sepsis. According to a study published by Critical Care Medicine in 2006, in sepsispatients with documented hypotension, administration of effective antimicrobial therapy within the first hour of detectionwas associated with a survival rate of 79.9% and, over the ensuing six hours, each hour of delay in initiation of treatment wasassociated with an average decrease in survival of 7.6%; the survival rate for septic patients who remained untreated forgreater than 36 hours was approximately 5%. We believe T2MR sepsis applications address 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 enableidentification of sepsis pathogens directly from a patient’s blood sample at limits of detection as low as 1CFU/mL. ·Rapid and Specific Results As Fast 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 forblood culture, to deliver actionable results as fast as three hours. ·Accurate Results Even in the Presence of Antimicrobial Therapy. T2MR is the only technology that canreliably 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 highlyskilled technicians. Our first FDA authorized products, T2Dx and T2Candida, focus on the most lethal form of common blood streaminfections that cause sepsis, Candida, which has an average mortality rate of approximately 40%, and according to a 2005report published in Antimicrobial Agents and Chemotherapy, this high mortality rate can be reduced to 11% with theinitiation of targeted therapy within 12 hours of presentation of symptoms. Currently, a typical patient with a Candidainfection averages 40 days in the hospital, including nine days in intensive care, resulting in an average cost per hospitalstay of over $130,000 per patient. In a study published in the American Journal of Respiratory and Critical Care Medicinein 2009, providing targeted antifungal therapy within 24 hours of the presentation of symptoms decreased the length ofhospital stay by approximately ten days and decreased the average cost of care by approximately $30,000 per patient. Inaddition, many hospitals initiate antifungal drugs, such as Caspofungin or Micafungin, while waiting for blood culture-baseddiagnostic results. We estimate this practice costs approximately $500 per patient and is currently in use for over 40% ofhigh-risk patients on average and for all high-risk patients in some hospitals. A negative result from T2Candida can providetimely 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 effectivetherapy, which will significantly improve patient outcomes and reduce hospital costs. We further believe that the adoption ofT2Dx and T2Candida can decrease both the high mortality rate and excessive costs of Candida infections because theseproducts can enable clinicians to make earlier and more informed decisions by providing positive test results to directtherapy and negative test results to reduce the use of antifungal drugs. We surveyed 111 decision-makers involved with laboratory purchasing, including laboratory directors, hospitaladministrators and infectious disease physicians, in a web-based survey to seek their views on acceptable pricing forT2Candida in exchange for an honorarium. Based on the survey, we believe that with 96.4% sensitivity, 95% specificity anda cost savings of $650 per tested patient, T2Candida would be adopted by nearly 50% of physicians at a selling price of$200 per test. However, we expect that cost savings will be $800 per patient and we observed overall sensitivity of 91.1%and specificity of 99.4% in our direcT2 clinical trial described below. Additionally, in this survey, 95% of laboratorydirectors and hospital administrators, along with 89% of infectious disease physicians, either “strongly agreed” or “agreed”that initiating appropriate antifungal therapy within 12 hours of the patient presenting with symptoms would be likely toprovide the following benefits: ·reduction in the mortality rate from an average of 40% to approximately 10% for candidemia patients; 11 Table of Contents·direct cost-savings as a result of an average of nine fewer days of hospitalization for each candidemia patient,including two fewer days of stay in the intensive care unit; and ·a meaningful decrease in antifungal therapy utilization in a hospital due to cessation of therapy based on anegative test result. The surveyed physicians also indicated that, on average, they would order T2Candida for approximately 75% oftheir patients considered at-risk for Candida infections. In the United States, we are focusing our sales efforts on the 450hospitals that have the highest concentration of patients at risk for Candida infections. In each of these institutions, over5,000 patients present with symptoms of candidemia annually. We believe that with appropriate sales efforts and medicaleducation, all of these patients will eventually be tested, representing a total recurring revenue opportunity of $1 million ineach of our target accounts. We are also developing T2Bacteria, a multiplex diagnostic panel that detects the major bacterial pathogensassociated with sepsis that are frequently not covered by first-line antibiotics. T2Bacteria will also run on T2Dx and isexpected to address the same approximately 6.75 million symptomatic high-risk patients as T2Candida while also expandingour reach to a new population of patients who are at increased risk for bacterial infections, including an additional twomillion people presenting with symptoms of infection in the emergency room setting. We expect that T2Bacteria willachieve similar performance capabilities and provide similar benefits as T2Candida. Clinical Utility direcT2 Clinical Trial—Clinical Infectious Disease In 2013 and 2014, we conducted a pivotal clinical trial for our T2Dx Instrument and our T2Candida Panel, or thedirecT2 trial. Our direcT2 trial consisted of two patient arms. The first arm, known as the Prospective Arm, consisted of 1,501samples from patients with a possible infection. The second arm, known as the Contrived Arm, consisted of 300 samples, ofwhich 250 patient specimens were labeled contrived because each contained a known quantity of Candida CFUs that weremanually added to each sample, or spiked, at clinically relevant concentrations, while the remaining 50 patient specimenswere specifically known not to contain Candida. The direcT2 trial was designed to evaluate the sensitivity and specificity ofT2Candida on T2Dx. Sensitivity is the percent concordance, or the percentage of sample results that agree with a reference, orcomparative, method for positive results. Specificity is the percent concordance to a reference method for negative results. Ifa sample does not agree with the result of a referenced method, it is considered discordant. In our clinical trial, theProspective Arm was compared to blood culture and the Contrived Arm was compared to the known state, which means thatit was in the known presence or absence of added Candida organisms. The design of the direcT2 trial was reviewed by the FDA as part of pre-submission communications. The purpose ofthe direcT2 trial was to determine the clinical performance of T2Candida running on T2Dx by identifying the following: ·clinical specificity of T2Candida results as compared to Candida negative blood culture results in specimenscollected from patients in the Prospective Arm; ·clinical specificity of T2Candida results as compared to Candida negative samples collected from patients inthe Contrived Arm; ·clinical sensitivity of T2Candida results as compared to the known Candida-positive specimens collected frompatients in the Contrived Arm; and ·clinical sensitivity calculations of T2Candida results compared to the Candida-positive blood culture results inspecimens 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 inthe T2Candida Panel) were prepared and run in a blinded manner at the same clinical sites used for processing theprospective samples. The positive contrived samples were prepared by spiking clinical isolates into12 Table of Contentsindividual patient specimens at concentrations determined through publications and discussions with the FDA to beequivalent to the clinical state of patients who presented with symptoms of a Candida infection. 20% of the positivecontrived samples were spiked at concentrations levels of less than 1 CFU/mL. The contrived samples were collected frompatients referred for a diagnostic blood culture per routine standard of care — the same population of patients from whomprospective samples were collected. Unique isolates of the species were used for each patient sample, which means a total of50 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 analyticalverification study to determine the limit of detection, or LoD, for each species identified by our T2Candida Panel. The LoDwas defined as the lowest concentration of Candida that can be detected in 95% of at least 20 samples tested at a singleconcentration. The T2Candida Panel reports three results, where species are grouped together according to their responsiveness totherapy. 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 foreach reported result. There are five relevant species of Candida, each of which were analyzed in the direcT2 trial. Each are listed inabbreviated 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 letterof the first word and the full second word; for example, Candida krusei is abbreviated as C. krusei. In the tables below, wealso abbreviate each species name by the first letter of the second word; for example, Candida albicans and Candidatropicalis is A/T. The following tables illustrate the results of the direcT2 trial. The primary sensitivity and specificity analysis ispresented in Table A, followed by sub-analyses in Tables B and C. Additional data on the LoD and the time to results ofT2Candida and T2Dx are included in the remaining tables. Table AT2Candida Performance Characteristics Overall Overall Sensitivity Specificity Number of Tests (%) 234/257 (91.1%) 5114/5146 (99.4%) Table BOverall 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% 13 Table of ContentsTable CStudy 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 DT2Candida Limit of Detection Final LoD Species CFU/mL C. albicans 2 C tropicalis 1 C. parapsilosis 3 C. glabrata 2 C. krusei 1 Table ESensitivity 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% 14 Table of ContentsTable FSensitivity 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 GSensitivity 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 HTime to species identification or negative result for T2MR and Blood Culture Blood Culture T2DxTime 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 notinclude discordant results because a comparison of the duration of time to positive result requires that both the bloodculture result and the T2Candida result be positive for a given specimen. Similarly, a comparison of the duration of timeto negative result requires that both the blood culture result and the T2Candida result be negative for a givenspecimen. We therefore would exclude any sample with a discordant result where blood culture yields one result andT2Candida 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 MagneticResonance 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% (seeTable A) with the specificity by test result ranging from 98.9% to 99.9% (see Table B);15 Table of Contents ·in the Contrived Arm of the study, the average specificity was 99.8%, with the specificity by test result rangingfrom 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 resultranging from 98.8% to 99.9% (see Table C); ·in the Contrived Arm of the study, the average sensitivity was 91.6%, with the sensitivity by test result rangingfrom 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 withC. albicans and C. parapsilosis in their bloodstream; ·T2Candida detected at least one infection that was not identified by blood culture, which was determined to bea Candida infection seven days after the T2Candida result was obtained. This case is considered a discordantresult 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 clinicalsymptoms or microbiological evidence of infection, the study findings indicate that the true sensitivity andspecificity 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 (seeTable D). In the Contrived Arm of the study, T2Candida positively detected 97.9% of the samples spiked at andabove the LoD while also detecting 72.6% of all samples spiked at concentration levels below the LoD (seeTable E); ·in the Contrived Arm of the study, T2Candida detected 97% of cases at or above 1 CFU/mL and 70% of casesbelow 1 CFU/mL (see Table F); ·in the Contrived Arm of the study, T2Candida detected 98% of cases at or above clinically relevantconcentrations of Candida, ranging from 95% to 100% detection depending on the Candida species (seeTable G); ·T2Candida demonstrated an average time to positive result of 4.2 hours compared to blood culture average timeto result of 129 hours; ·T2Candida demonstrated an average time to negative result of 4.4 hours compared to blood culture averagetime to result of >120 hours; and ·T2Candida has a negative predictive value of 99.8% in a standard population. Negative predictive value is theprobability 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 andearly 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 themanagement and prognosis of the disease. ·The ability to rapidly and accurately exclude the possibility of candidemia can have significant implications inclinical practice, by decreasing the number of patients who need to be on empiric antifungal therapy, and thusdecreasing the incidence of resistant strains, the potential of side effects of antifungal treatment, and substantialhealthcare costs.16 Table of Contents ·A key advantage of T2MR over other biosensors is that it does not require culture and sample purification orpreparation. Massachusetts General Hospital Study — Science Translational Medicine We co-authored a study with investigators from Massachusetts General Hospital, or MGH, to evaluate the sensitivityand specificity of T2MR to detect Candida compared to blood culture-based diagnostics. Results from the study werepublished in an article entitled “T2 Magnetic Resonance Enables Nanoparticle-Mediated Rapid Detection of Candidemia inWhole 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 relevantspecies of Candida, and was able to detect each of the species at an LoD ranging from 1 to 3 CFU/mL. ·T2MR was tested across 24 whole blood specimens from patients exhibiting symptoms of sepsis, with eightCandida positive, eight bacteria positive and eight negative samples. Results showed 100% sensitivity and100% 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 patientsamples drawn up to four days after antifungal administration, while blood culture failed to identify theinfection 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 toresult of T2Candida running on T2Dx and blood culture-based diagnostics. In this study, contrived blood samples were splitbetween T2Candida using T2Dx and standard blood culture. The study showed improved performance of T2Candida overblood culture in terms of speed and sensitivity. The following findings were published in an article entitled “Comparison ofthe T2Dx Instrument with T2Candida Diagnostic Panel and Automated Blood Culture in the Detection of Candida SpeciesUsing 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 wasnot able to detect C. glabrata in any of the samples, even at a higher concentration of 11 CFU/mL and with thestandard five-day run time. ·T2Candida detected all of the samples for all of the species of Candida at concentration levels of 3.1 to 11CFU/mL. ·The average time to species identification was approximately three hours for T2Candida, as opposed to over60 hours for blood culture. 17 Table of ContentsThe following table summarizes the results of our University of Houston study. The five relevant species of Candida wereanalyzed 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% Hemostasis Another significant unmet clinical need is the diagnosis and management of impaired hemostasis, which is a life-threatening condition in which a patient is unable to promote the formation of blood clots to stabilize excessive bleeding.Within the broader population of patients with symptoms of impaired hemostasis, there are over ten million trauma patientsin the United States annually. These trauma patients typically face life-threatening injuries or invasive surgical procedures.Approximately 25% of trauma patients have impaired hemostasis, which frequently goes undetected during the initialhospitalization. According to a study in the Journal of the American College of Surgeons, for trauma patients with symptomsof impaired hemostasis, mortality was reduced from 45% to 19% with more rapid delivery of therapy. Today, there is nohemostasis diagnostic method that can rapidly provide comprehensive results. We estimate that rapid, targeted treatment fortrauma patients with impaired hemostasis can reduce healthcare costs in the United States by nearly $2 billion each year dueto more efficient utilization of scarce and expensive blood products and more rapid patient stabilization, reducing length ofhospital stays by approximately 20%. Because the hemostasis status of trauma patients changes frequently, patients are on average tested three times perepisode, which we estimate results in approximately 13 million hemostasis tests performed annually on trauma patients in theUnited States alone. We believe this unmet need represents a nearly $1 billion annual market opportunity, which will be theinitial focus for T2Plex and T2HemoStat. Existing hemostasis screening methods have a range of limitations. Such screening can require: ·up to 24 hours to provide a diagnosis; ·large volumes of blood from patients; ·as many as five separate instruments to provide comprehensive results; ·highly skilled technicians; and ·specialty laboratories. T2Plex and T2HemoStat utilize T2MR and are designed to provide hemostasis measurements in less than 45minutes. T2HemoStat is a comprehensive panel of diagnostic tests that can provide data across the hemostasis spectrum,including measurements of , fibrinogen, platelet activity, and clot lysis. We believe that T2HemoStat will be the first panelcapable of rapidly identifying key coagulation, platelet and other hematologic factors directly from whole blood on a single,easy to operate, compact instrument that will provide all of the following benefits: ·comprehensive results in 45 minutes or less; ·results from clinical samples as small as a finger stick of blood; 18 Table of Contents·replacement of up to five instruments with one compact instrument; ·easy-to-use system, not requiring highly skilled technicians to operate; and ·small, tabletop instrument that can be used at the point of care. We expect that existing DRG and Current Procedural Terminology, or CPT codes, will be used to facilitatereimbursement of our hemostasis diagnostic products. While the panel of HemoStat diagnostic tests currently in development is focused on addressing the unmet need fortrauma patients, T2HemoStat can be expanded to add diagnostic tests that can address the needs of the broader population ofpatients with impaired hemostasis. We also believe T2MR will be able to identify novel biomarkers with important clinical utility. For example, in a2014 peer-reviewed article featured on the cover of the journal, Blood, T2MR was used to identify a new clot structure thathas potential as a novel biomarker which could provide additional actionable information to manage patients with impairedhemostasis after trauma. Lyme Disease We believe that T2MR can also address the significant unmet need associated with Lyme disease, a tick-borneillness that can cause prolonged neurological disease and musculoskeletal disease. For patients with Lyme disease, earlydiagnosis and appropriate treatment significantly reduces both the likelihood of developing neurological andmusculoskeletal disorders, as well as the significant costs associated with treating these complications. Multiple diagnosticmethods are used to test for Lyme disease today, which are labor-intensive, can take weeks to process, and subject to highfalse negative rates 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 alsoestimates 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, polymerase chain reaction(PCR) techniques and blood culture, which has low sensitivity and takes approximately two to three weeks to provideresults. Inadequate identification of Lyme disease may lead to antibiotic resistance, significant costs, and transmission of thedisease through healthcare procedures such as blood transfusion. The misdiagnosis of Lyme disease has been reported tohave an annual cost of more than $10,000 per patient in the United States, representing over $3 billion per year. T2Lyme will identify the bacteria that cause Lyme disease directly from the patient’s blood, without the need forblood culture which, for the bacteria associated with Lyme disease, can take several weeks. The test panel is expected to berun on the T2Dx Instrument, the same instrument currently used to run our T2Candida test panel and in the future, ourT2Bacteria Panel. We anticipate the T2Lyme test panel to benefit from similar advantages provided by T2MR as theT2Candida Panel, including high sensitivity, high specificity, ease of use and rapid time to result. T2Lyme may provideaccurate and timely diagnosis of Lyme disease and may prevent the evolution of the disease to its later stages with associatedneurological and musculoskeletal diseases. We expect that existing CPT codes will be used to facilitate reimbursement of our T2Lyme diagnostic panel. Sales, Marketing and Distribution We are working to drive awareness and adoption of our T2MR technology and related products by building a directsales force in the United States, initially targeting high-volume hospitals, and continuing to educate physicians, key decisionmakers and thought leaders through publishing scientific data in peer-reviewed journals, presenting at major industryconferences and conducting and supporting clinical studies. During 2015 we expanded our direct sales force to 15 commissioned representatives, excluding managers. Our salesrepresentatives, employing a clinical data-driven sales approach, focus on the clinical performance of our products,19 Table of Contentsthe improved outcomes for patients and the economic value for hospitals, including customizable budgetary impact analysis.They demonstrate the ease-of-use of our products and the advantages of our products over blood culture-based diagnostics.We plan to continue to invest in our direct sales force as we expand both the array of diagnostic panels and our customerreach. Today, our sales force markets T2Dx and T2Candida directly to hospitals in the United States, initially targeting the450 hospitals treating the largest number of high-risk patients. We estimate that these 450 centers annually treat an averageof over 5,000 symptomatic patients at high risk for a Candida infection, representing over one-third of the expected marketfor T2Candida. If these leading institutions adopt our technology, we expect a positive network effect in the hospitalcommunity, accelerating adoption of T2Candida. We believe key aspects of healthcare reform, including the focus on costcontainment, risk-sharing, and outcomes-based treatment and reimbursement, align with the value proposition of our sepsisproducts, contributing positively to their adoption. We believe the key decision-makers at hospitals will be infectiousdisease and critical care physicians, laboratory directors, the hospital pharmacy and hospital administrators. In response tothe severity and complexity of managing bloodstream infections, a growing number of hospitals have institutedantimicrobial stewardship committees to control hospital practices related to infections, including the use of antibiotic andantifungal therapy. These committees typically include the key decision-makers, and we believe they will provide a centralforum to present the benefits of our products. In addition, we plan to continue to publish scientific data in peer-reviewedjournals, present at major industry conferences and conduct and support clinical trials to provide additional data relative tothe performance of T2Candida to these decision-makers. Outside of the United States, we expect to seek regulatory approvals in European and other international marketsand to launch our platform through distributor partners who will deploy a similar model to our sales approach in the UnitedStates. In July 2014, we received CE marking for T2Candida and T2Dx. Manufacturing We manufacture our proprietary T2Dx at our manufacturing facility in Lexington, Massachusetts and ourT2Candida reagent trays at our manufacturing facility in Wilmington, Massachusetts. We perform all instrument and traymanufacturing and packaging of final components in accordance with applicable guidelines for medical devicemanufacturing. We outsource manufacturing of our T2Candida consumable cartridge to a contract manufacturingorganization. Our particles are supplied by a sole source supplier, GE Healthcare. We believe we can secure arrangementswith 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 InternationalStandards 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 receivedISO 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 toproduce, while outsourcing the manufacture of more commodity-like components. We expect to establish additionaloutsourcing partnerships as we manufacture more products. We believe our facility in Wilmington, Massachusetts isadequate to meet our current manufacturing needs and that additional manufacturing space is readily available for futureexpansion. Intellectual Property We strive to protect and enhance the proprietary technologies that we believe are important to our business, andseek to obtain and maintain patents for any patentable aspects of our product and product candidates, including theirmethods of use and any other inventions that are important to the development of our business. Our success will dependsignificantly on our ability to obtain and maintain patent and other proprietary protection for commercially importantproprietary technology, inventions and know-how related to our business, including our methods, processes and productcandidate designs, and our ability to defend and enforce our patents, maintain our licenses to use intellectual property ownedby third parties, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceablepatents and other proprietary rights of third parties. We also rely on trademarks, copyrights, know-how, continuingtechnological innovation and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in thefields targeted by our products and product candidates. Protecting these rights is a primary focus in our20 Table of Contentsrelationships 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 intellectualproperty rights in our other contracts with such third parties, including material transfer agreements, licenses and researchagreements. We are the owner or licensee of over 40 patents and approximately 55 patent applications and possess substantialknow-how and trade secrets which protect various aspects of our business and products. The patent families comprising ourpatent portfolio are primarily focused on protection of a range of general and specific attributes of our proprietary assayarchitecture and assay instrumentation for our T2Candida product and T2Bacteria and T2Lyme product candidates, as wellas protection of certain aspects of the conduct of the assays and detection of analytes. We also own several patent familiescovering various aspects of our T2HemoStat assay, including the assay architecture and conduct of the analysis. The issuedpatents in our patent families that cover T2Candida and T2Bacteria are expected to expire between 2023 and 2031, whileadditional pending applications in these families would be expected to expire, if issued, between 2030 and 2033. Our patentfamilies covering T2HemoStat, if issued, will be expected to expire, between 2029 and 2036. In all cases, the expiration datesare subject to any extension that may be available under applicable law. Our patent family covering T2Lyme, if issued, willbe expected to expire in approximately 2036. Proprietary Rights and Processes We rely, in some circumstances, on proprietary technology and processes (including trade secrets) to protect ourtechnology. However, these can be difficult to protect. We require all full-time and temporary employees, scientific advisors,contractors and consultants working for us who have access to our confidential information to execute confidentialityagreements in order to safeguard our proprietary technologies, methods, processes, know-how, and trade secrets. We also seekto preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security ofour premises and physical and electronic security of our information technology systems. All of our full-time and temporaryemployees and independent contractors and consultants are also bound by invention assignment obligations, pursuant towhich rights to all inventions and other types of intellectual property conceived by them during the course of theiremployment are assigned to us. While we have confidence in these individuals, organizations and systems, agreements or security measures may bebreached, and we may not have adequate remedies for any breach. To the extent that our employees, consultants, scientificadvisors, contractors, or any future collaborators use intellectual property owned by others in their work for us, disputes mayarise as to the rights in related or resulting know-how and inventions. Further, any of our intellectual property and proprietaryrights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property andproprietary rights may not be sufficient to provide competitive advantages. For more information, please see “Risks Relatedto Intellectual Property.” Trademarks We seek trademark and service mark protection in key markets to safeguard our brand and the brands of our productsand product candidates. We intend to file trademark registration applications in the U.S. and foreign jurisdictions to continueto strengthen our brand. 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 anexclusive, worldwide, sublicensable license under certain patent rights to make, use, import and commercialize products andprocesses for diagnostic, industrial and research and development purposes. In 2008 and 2011, we amended our agreementwith 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 andprocesses covered by the agreement, and to achieve specified organizational, development and commercializationmilestones by specified dates. To date, we have met all of our diligence obligations pursuant to this agreement. 21 Table of ContentsWe paid MGH an upfront fee and issued to MGH shares of our common stock equal to a low single-digit percentageof our then-outstanding common stock, subject to limited adjustments to prevent dilution in certain circumstances. Inaddition, we are responsible for reimbursing MGH’s costs associated with prosecution and maintenance of the patent rightslicensed to us under the agreement. We will also be required to make payments for achievement of specified regulatorymilestones with respect to products and processes covered by the agreement. In addition, we are required to pay an annuallicense maintenance fee, which is creditable against any royalty payments we are obligated to make to MGH under theagreement. We are required to pay royalties to MGH on net sales of products and processes that are covered by patent rightslicensed to us under the agreement at percentages in the low single digits, subject to reductions and offsets in specifiedcircumstances. 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 thespecific patent rights covering the product or process being sold, and the particular category of product or process, as notedabove. With respect to T2Candida and T2Bacteria and other potential particle-based T2MR panels we may develop in thefuture, our obligation to pay royalties to MGH will expire upon the later of ten years after the first commercial sale of the firstproduct or process in the particular category and the expiration of the patent rights licensed to us under the agreement. Wewill also be required to pay to MGH a low double-digit percentage of specified gross revenue that we receive from oursublicensees. In addition, we will be required to pay royalties to MGH of less than one percent on net sales of specifiedproducts and processes that are not covered by the patent rights licensed to us under the agreement. Our obligation to payroyalties to MGH with respect to such products and processes will expire upon the earlier of 12 years after the firstcommercial sale of the first such product or process and the termination by MGH of all of the licenses granted to us under theagreement. We have the right to terminate our agreement with MGH for any reason upon 90 days’ written notice to MGH. MGHmay terminate our agreement in its entirety if we fail to make a payment required under the agreement and do not cure suchfailure within a specified time period, if we fail to maintain adequate insurance coverage or if we become insolvent. MGHmay also terminate our agreement, with respect to a given category of products or processes, on 60 days’ notice for ouruncured breach with respect to such category of products or processes. Absent earlier termination, our agreement with MGHwill remain in force until the later of the expiration or abandonment of the licensed patents and patent applications, and theexpiration 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 toplastic injection molding, including the consumable cartridge used in connection with the T2Candida Panel. The agreementcontains other terms and conditions generally consistent with an agreement for the manufacture and supply of materials orproducts for use in the development and commercialization of biotechnology products such as our products and productcandidates, including with respect to ordering, supply of such product in accordance with specifications, and qualityassurance and quality control activities. The supply agreement may be terminated prior to the end of its term upon the occurrence of certain specified eventsand further provides that upon termination, including upon the expiration of the term, SMC shall continue to manufactureand ship products subject to outstanding purchase orders and the Company shall be responsible for purchasing finishedproducts, inventory, raw materials and work-in-progress held by SMC to the extent SMC, after the use of commerciallyreasonable 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 toidentify pathogens associated with bloodstream infections in a variety of unpurified patient sample types at limits ofdetection as low as 1 CFU/mL, we compete with commercial diagnostics companies for the limited resources of ourcustomers. Our principal competition is from a number of companies that offer platforms and applications in our target sepsisand hemostasis markets, most of which are more established commercial organizations with considerable name recognitionand significant financial resources. Companies that currently provide traditional blood culture-based diagnostics include Becton Dickinson & Co. andbioMerieux, Inc. In addition, companies offering post-culture species identification using both molecular and non-22 Table of Contentsmolecular methods include bioMerieux, Inc. (and its affiliate, BioFire Diagnostics, Inc.), Bruker Corporation, Nanosphere,Inc., Cepheid and Beckman Coulter, a Danaher company. These post-culture competitors rely on a positive result from bloodculture in order to perform their tests, significantly prolonging their results when compared to T2MR. Some of the productsoffered by our competitors require hours of extensive hands-on labor by an operator, while some rely on high concentrationsof pathogens present in a positive blood culture, which can require a final concentration of at least 1,000,000 CFU/mL. Inaddition, there may be a number of new market entrants in the process of developing other post-blood culture diagnostictechnologies that may be perceived as competitive with our technology, including Accelerate Diagnostics, Inc. 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 sampleextraction and purification; ·T2MR’s ability to detect a broad range of targets, providing a wide variety of potential applications both withinand outside of the in vitro diagnostics market; ·T2MR’s ability to provide rapid and highly-sensitive diagnostic results, which can provide timely informationto assist physicians and hospitals to make therapeutic decisions that can improve patient outcomes and reducehealthcare 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 dueto the established payment and reimbursement structure in place; and ·our initial applications may provide substantial economic benefits to hospitals that can accrue the savingsrelated to the rapid treatment of sepsis patients. Government Regulation Our products under development and our operations are subject to significant government regulation. In the UnitedStates, 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 medicaldevices: ·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; ·advertising and promotion; 23 Table of Contents·recalls and field safety corrective actions; ·post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were torecur, 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 broughtto market and marketed. These include the Federal Food, Drug and Cosmetic Act, or FDCA, and the FDA’s implementingregulations, 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, denovo down classification, or pre-market approval from the FDA, unless specifically exempted by the FDA. The FDA classifiesall 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 ofthe 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, ordevices deemed not substantially equivalent to a previously 510(k) cleared device are categorized as Class III. These devicesrequire submission and approval of a premarket approval, or PMA, application. 510(k) Clearance Process To obtain 510(k) clearance, we must submit a pre-market notification to the FDA demonstrating that the proposeddevice is substantially equivalent to a previously-cleared 510(k) device, a device that was in commercial distribution beforeMay 28, 1976 for which the FDA has not yet called for the submission of pre-market approval applications, or is a device thathas been reclassified from Class III to either Class II or I. In rare cases, Class III devices may be cleared through the510(k) process. The FDA’s 510(k) clearance process usually takes from three to 12 months from the date the application issubmitted and filed with the FDA, but may take significantly longer and clearance is never assured. Although many510(k) pre-market notifications are cleared without clinical data, in some cases, the FDA requires significant clinical data tosupport substantial equivalence. In reviewing a pre-market notification submission, the FDA may request additionalinformation, including clinical data, which may significantly prolong the review process. Based on non-bindingcommunications from the FDA, we expect our T2Bacteria Panel to be eligible for a 510(k) submission. After a device receives 510(k) clearance, any subsequent modification of the device that could significantly affectits safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance orcould require pre-market approval. The FDA requires each manufacturer to make this determination initially, but the FDAmay review any such decision and may disagree with a manufacturer’s determination. If the FDA disagrees with amanufacturer’s determination, the FDA may require the manufacturer to cease marketing and/or recall the modified deviceuntil 510(k) clearance or approval of a PMA is obtained. Under these circumstances, the FDA may also subject amanufacturer to significant regulatory fines or other penalties. In addition, the FDA is currently evaluating the 510(k) processand may make substantial changes to industry requirements, including which devices are eligible for 510(k) clearance, theability 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 tocontinue to allow certain pre- amendment Class III devices to use the 510(k) process) or cannot be cleared through the510(k) process. A PMA application must be supported by, among other things, extensive technical, preclinical, and clinicaltrials, as well as manufacturing and labeling data to demonstrate to the FDA’s satisfaction the safety and effectiveness of thedevice.24 Table of Contents 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 FDAmay request additional information or clarification of information already provided. Also during the review period, anadvisory panel of experts from outside the FDA will usually be convened to review and evaluate the application and providerecommendations to the FDA as to the approvability of the device. In addition, the FDA will conduct a pre-approvalinspection of the manufacturing facility to ensure compliance with Quality System Regulation, or QSR, which imposeselaborate design development, testing, control, documentation and other quality assurance procedures in the design andmanufacturing process. The FDA may approve a PMA application with post-approval conditions intended to ensure thesafety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale anddistribution and collection of long-term follow-up data from patients in the clinical study that supported approval. Failure tocomply with the conditions of approval can result in materially adverse enforcement action, including the loss or withdrawalof the approval. New PMA applications or supplements are required for significant modifications to the manufacturingprocess, labeling of the product and design of a device that is approved through the PMA process. PMA supplements oftenrequire submission of the same type of information as an original PMA application, except that the supplement is limited toinformation needed to support any changes from the device covered by the original PMA application, and may not require asextensive 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 intoClass III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of 1997 establisheda new route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absenceof a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classificationprocedure. This procedure allows a manufacturer whose novel device is automatically classified into Class III to requestdown-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 DrugAdministration Safety and Innovation Act, or FDASIA, in July 2012, a medical device could only be eligible for de novoclassification if the manufacturer first submitted a 510(k) premarket notification and received a determination from the FDAthat the device was not substantially equivalent. FDASIA streamlined the de novo classification pathway by permittingmanufacturers to request de novo classification directly without first submitting a 510(k) premarket notification to the FDAand receiving a not substantially equivalent determination. Under FDASIA, FDA is required to classify the device within120 days following receipt of the de novo application. If the manufacturer seeks reclassification into Class II, themanufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of thesafety and effectiveness of the medical device. In addition, the FDA may reject the reclassification petition if it identifies alegally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderaterisk or that general controls would be inadequate to control the risks and special controls cannot be developed. We utilizedthe de novo classification process to obtain marketing authorization for our T2Dx and T2Candida devices, which were givena Class II designation. We received marketing authorization for these devices from the FDA on September 22, 2014. Clinical Trials A clinical trial is typically required to support a PMA application and is sometimes required for a 510(k) pre-marketnotification. 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 IDEapplication 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 maybegin once the IDE application is approved by the FDA as well as the appropriate institutional review boards, or IRBs, at theclinical 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 anunacceptable health risk. Any trials we conduct must be conducted in accordance with FDA regulations as well as otherfederal regulations and state laws concerning human subject protection and privacy. Moreover, the results of a clinical trialmay not be sufficient to obtain clearance or approval of the product.25 Table of Contents 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 notlimited to the following: ·the QSR, which requires manufacturers to follow design, testing, control, documentation and other qualityassurance procedures during the manufacturing process; ·establishment registration, which requires establishments involved in the production and distribution ofmedical 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 distributionwith the FDA; ·labeling regulations, which prohibit “misbranded” devices from entering the market, as well as prohibit thepromotion 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 FDAif their device may have caused or contributed to a death or serious injury, or malfunctioned in a way thatwould 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 applicableregulatory requirements may result in enforcement action by the FDA, which may include one or more of the followingsanctions: ·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 varysubstantially from country to country. In order to market our products in other countries, we must obtain regulatory approvalsand comply with extensive safety and quality regulations in other countries. The time required to obtain approval by aforeign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may differsignificantly. 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 onin vitro diagnostic medical devices (Directive 98/79/EC, as amended). To demonstrate compliance with the essentialrequirements, the manufacturer must undergo a conformity assessment procedure. The conformity assessment variesaccording to the type of medical device and its classification. For low-risk devices, the conformity assessment can be carriedout internally, but for higher risk devices (self-test devices and those included in List A and B of Annex II of Directive98/79/EC) it requires the intervention of an accredited EEA Notified Body. If successful, the conformity26 Table of Contentsassessment concludes with the drawing up by the manufacturer of an EC Declaration of Conformity entitling themanufacturer to affix the CE mark to its products and to sell them throughout the EEA. We concluded an assessment of theconformity of T2Dx and T2Candida with the EU in vitro diagnostic medical devices directive in late 2014, based upon anEC Declaration of Conformity dated July 7, 2014 and updated on September 9, 2015, allowing us to affix the CE mark tothese products. Other Healthcare Laws Our current and future business activities are subject to healthcare regulation and enforcement by the federalgovernment and the states and foreign governments in which we conduct our business. These laws include, withoutlimitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine lawsand 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 eitherthe referral of an individual, for an item or service or the purchasing, leasing, ordering, or arranging for or recommending thepurchase, lease or order of any good, facility, item or service, for which payment may be made, in whole or in part, underfederal healthcare programs such as the Medicare and Medicaid programs. Although there are a number of statutoryexceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harborsare drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasesor recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all ofthe requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per seillegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basisbased on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intentrequirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federalhealthcare 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 andEducation Reconciliation Act, or collectively, the Affordable Care Act, among other things, amends the intent requirement ofthe federal Anti-Kickback Statute and certain criminal statute governing healthcare fraud statutes to a stricter standard. Aperson or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them. In addition, theAffordable Care Act codifies case law that the government may assert that a claim including items or services resulting from aviolation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False ClaimsAct. The majority of states also have anti-kickback laws which establish similar prohibitions and in some cases may apply toitems 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 thepresentation of a false or fraudulent claim for payment to, or approval by, the U.S. government. In addition to actionsinitiated by the government itself, the statute authorizes actions to be brought on behalf of the federal government by aprivate party having knowledge of the alleged fraud. Because the complaint is initially filed under seal, the action may bepending for some time before the defendant is even aware of the action. If the government intervenes and is ultimatelysuccessful in obtaining redress in the matter, or if the plaintiff succeeds in obtaining redresss without the government’sinvolvement, then the plaintiff will receive a percentage of the recovery. The federal government is using the False ClaimsAct, and the accompanying threat of significant liability, in its investigation and prosecution of life sciences companiesthroughout the country, for example, in connection with the promotion of products for unapproved uses and other sales andmarketing practices. The government has obtained multi-million and multi-billion dollar settlements under the False ClaimsAct in addition to individual criminal convictions under applicable criminal statutes. Given the significant size of actual andpotential settlements, it is expected that the government will continue to devote substantial resources to investigatinghealthcare 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 criminalstatutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraudany healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing orcovering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the deliveryof or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the27 Table of ContentsAffordable Care Act amended the intent standard for certain healthcare fraud under HIPAA such that a person or entity nolonger 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, isdetermined to have presented or caused to be presented a claim to a federal health program that the person knows or shouldknow 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 applyregardless of payor. Moreover, Section 6002 of the Affordable Care Act included new requirements for device manufacturers, amongothers, to report certain payments or “transfers of value” provided to physicians and teaching hospitals, and to reportownership and investment interests held by physicians and their immediate family members during the preceding calendaryear. Section 6002 of PPACA includes in its reporting requirements a broad range of transfers of value including, but notlimited to, consulting fees, speaker honoraria, charitable contributions, research payments and grants. We will be required tocollect data starting on March 21, 2015 and will report the data to the Centers for Medicare & Medicaid Services, or CMS, nolater than March 30, 2016. Failure to report could subject companies to significant financial penalties. Tracking andreporting the required payments and transfers of value may result in considerable expense and additional resources. Severalstates currently have similar laws and more states may enact similar legislation, some of which may be broader in scope. Forexample, 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 tohealthcare professionals. We also may be subject to data privacy and security regulation by both the federal government and the states inwhich we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and ClinicalHealth Act, or HITECH, and their respective implementing regulations, including the final omnibus rule published onJanuary 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individuallyidentifiable health information. Among other things, HITECH, through its implementing regulations, makes certain ofHIPAA’s privacy and security standards directly applicable to business associates, defined as a person or organization, otherthan a member of a covered entity’s workforce, that creates, receives, maintains or transmits protected health information foror 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 civilactions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costsassociated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information incertain circumstances, many of which differ from each other in significant ways and may not have the same effect, thuscomplicating compliance efforts. The shifting commercial compliance environment and the need to build and maintain robust and expandablesystems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibilitythat a healthcare company may violate one or more of the requirements. If our future operations are found to be in violationof 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, exclusionfrom participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our abilityto 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 ofadequate coverage and reimbursement from third-party payors, including government programs such as Medicare andMedicaid, private insurance plans and managed care programs. These third-party payors are increasingly limiting coverageand reducing reimbursement for medical products and services. In addition, the U.S. government, state legislatures andforeign governments have continued implementing cost-containment programs, including price controls and restrictions oncoverage and reimbursement. Adoption of price controls and cost-containment measures, and adoption of more restrictivepolicies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases inthird-party reimbursement for our products and/or product candidates or a decision by28 Table of Contentsa third-party payor to not cover our products and/or product candidates could reduce physician utilization of our products, ifapproved, 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/orproduct candidates generally bill various third-party payors to cover all or a portion of the costs and fees associated withdiagnostic tests, including the cost of the purchase of our products and/or product candidates. We currently expect that themajority of our diagnostic tests will be performed in a hospital inpatient setting, where governmental payors, such asMedicare, general reimburse hospitals with a single bundled payment that is based on the patients’ diagnosis under aclassification system known as the Medicare severity diagnosis-related groups, or MS-DRGs, classification for all items andservices provided to the patient during a single hospitalization, regardless of whether our diagnostic tests are performedduring such hospitalization. To the extent that our diagnostic tests will be performed in an outpatient setting, our productsand/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 asdetermined by the payor, or are deemed by the third-party payor to be experimental or medically unnecessary. We are unableto predict at this time whether our products and/or product candidates, if approved, will be covered by third-party payors. Norcan we predict at this time the adequacy of payments, whether made separately in an outpatient setting or with a bundledpayment amount in an inpatient setting. Our customers’ access to adequate coverage and reimbursement for our productsand/or product candidates by government and private insurance plans is central to the acceptance of our products. We maybe unable to sell our products on a profitable basis if third-party payors deny coverage or reduce their current levels ofpayment, 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 oflegislative and regulatory changes to the healthcare system seeking, among other things, to reduce healthcare costs thatcould 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 was signed into law in March 2010, which isexpected to substantially change 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 incomparative 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 encouragehospitals, physicians and other providers to improve the coordination, quality and efficiency of certainhealthcare services through bundled payment models; and ·created an independent payment advisory board that will submit recommendations to reduce Medicarespending 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 theJoint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint SelectCommittee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering thelegislation’s automatic reduction to several government programs. On January 2, 2013, President Obama signed into law theAmerican 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 whichcould limit the amounts that federal and state governments will pay for healthcare products and services, which could resultin reduced demand for our products or additional pricing pressure. 29 Table of ContentsResearch 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 anddevelopment team with the scientific, engineering, software and process talent that we believe is required to successfullygrow our business. We are currently focused on several product candidates and enhancements utilizing our T2MR platform.We incurred research and development expenses of $25.4 million for the year ended December 31, 2015, $19.8 million forthe year ended December 31, 2014 and $14.9 million for the year ended December 31, 2013. Research and developmentexpenses represented 55% of our total costs and expenses for the year ended December 31, 2015, 64% of our total costs andexpenses for the year ended December 31, 2014 and 75% of our total costs and expenses for the year ended December 31,2013. Major components of the research and development expenses were salaries and benefits, research-related facility andoverhead costs, laboratory supplies, equipment and contract services. We continuously seek to improve T2MR, including improvements in its technology and accessibility. As we makeimprovements, 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 vitrodiagnostic area. We are continuing our development of T2Bacteria and have initiated the collection of samples to supportclinical trials for T2Bacteria in 2016. We believe that technical advantage is important to sustainable competitive advantage,and therefore our research and development efforts are focused on the continued enhancement of our T2MR platform. We arededicated to ongoing innovation to T2MR and expanding our pipeline of product candidates. Our goal is for T2MR tobecome a standard of care by providing technology that offers a rapid, sensitive and simple diagnostic alternative to existingmethodologies for identifying both sepsis and impaired hemostasis, with a long-term objective of targeting the broader invitro diagnostics market. Employees As of December 31, 2015, we had 168 full-time employees, of which 54 work in operations (which includesmanufacturing, service and support, clinical and regulatory support, quality control and quality assurance), 63 in researchand development, 21 in general and administrative and 30 in sales and marketing. Facilities Our corporate headquarters is located in Lexington, Massachusetts, where we currently lease approximately 32,400square feet of office space, 22,800 square feet of laboratory space and 4,600 square feet of manufacturing space in variousfacilities. Our base rent, for leases at our corporate headquarters, is $2.0 million annually. We also lease approximately 7,600square feet in Wilmington, Massachusetts for our manufacturing facility, under a lease that expires in 2017 for $61,000 ofbase rent 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 101Hartwell 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 onForm 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such materialwith, or furnish it to, the Securities and Exchange Commission, or the SEC. We also make these documents and certain publicfinancial information available on our website, which is www.t2biosystems.com. Our SEC reports and other financialinformation can be accessed through the investor relations section of our website. Some of the information found on ourwebsite 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 describedbelow, 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 toinvest 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 our30 Table of Contentscommon stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties notpresently known to us or that we currently deem immaterial also may impair our business operations. Risks Related to our Business and Strategy We have incurred significant losses since inception and expect to incur losses in the future. We cannot be certain that wewill achieve or sustain profitability. We have incurred significant losses since inception through December 31, 2015 and expect to incur losses in thefuture. Our accumulated deficit as of December 31, 2015 was $148.9 million and we incurred net losses of $45.3 million forthe year ended December 31, 2015, and $31.4 million and $20.6 million for the years ended December 31, 2014 and 2013,respectively. We expect that our losses will continue for at least the next few years as we will be required to invest significantadditional funds toward the continued development and commercialization of our technology. We also expect that ourselling, general and administrative expenses will continue to increase due to the additional costs associated with growing oursales and marketing infrastructure, obtaining regulatory clearance or approval for our products currently under developmentand the increased administrative and compliance costs associated with being a public company. Our ability to achieve orsustain profitability depends on numerous factors, many of which are beyond our control, including the market acceptance ofour products and future product candidates, future product development, our ability to achieve marketing authorization fromthe FDA and international regulatory clearance for future product candidates, our ability to compete effectively against anincreasing number of competitors and new products, and our market penetration and margins. We may never be able togenerate sufficient revenue to achieve or sustain profitability. We have a limited operating history and may face difficulties encountered by companies early in their commercializationin competitive and rapidly evolving markets. We received marketing authorization from the FDA for the T2Dx Instrument and the T2Candida Panel onSeptember 22, 2014 and began commercializing these products in the fourth quarter of 2014. Accordingly, we have a limitedoperating history upon which to evaluate our business and forecast our future sales and operating results. In assessing ourbusiness prospects, you should consider the various risks and difficulties frequently encountered by companies early in theircommercialization in competitive and rapidly evolving markets, particularly companies that develop and sell medicaldevices. 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 andproduct candidates;·increase awareness of our brand;·manage expanding operations;·expand our manufacturing capabilities, including increasing production of current products efficiently whilemaintaining quality standards and adapting our manufacturing facilities to the production of new productcandidates;·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 ourexisting 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. Due to our limited operating history, we may not have the institutional knowledge or experience to be able toeffectively address these and other risks that may face our business. In addition, we may not be able to develop insights intotrends that could emerge and negatively affect our business and may fail to respond effectively to those trends. As a result ofthese or other risks, we may not be able to execute key components of our business strategy, and our business, financialcondition and operating results may suffer. 31 Table of ContentsUntil we achieve scale in our business model our revenue will be primarily generated from research revenue and the T2DxInstrument and the T2Candida Panel, and any factors that negatively impact sales of these products may adversely affectour business, financial condition and operating results. We began to offer our initial sepsis products for sale in the fourth quarter of 2014 and expect that we will be dependentupon the sales of these products for the majority of our revenue until we receive regulatory clearance or approval for ourother product candidates currently in development. Because we currently rely on a limited number of products to generate asignificant portion of our revenue, any factors that negatively impact sales of these products, or result in sales of theseproducts increasing at a lower rate than expected, could adversely affect our business, financial condition and operatingresults and negatively impact our ability to successfully launch future product candidates currently under development. If T2MR, our T2Dx and T2Candida products or any of our other product candidates fail to achieve and sustain sufficientmarket acceptance, we will not generate expected revenue and our growth prospects, operating results and financialcondition may be harmed. The commercialization of T2MR, our T2Dx and T2Candida products and the future commercialization of our otherproduct candidates in the United States and other jurisdictions in which we intend to pursue marketing authorization are keyelements of our strategy. If we are not successful in conveying to hospitals that our current products and future productcandidates provide equivalent or superior diagnostic information in a shorter period of time compared to existingtechnologies, or that these products and future product candidates improve patient outcomes or decrease healthcare costs, wemay experience reluctance, or refusal, on the part of hospitals to order, and third-party payors to pay for performing a test inwhich our product is utilized. For example, the T2Candida Panel is labeled for the presumptive diagnosis of Candidainfection. The results of the web-based survey we conducted of decision makers involved with laboratory purchasing maynot be indicative of the actual adoption of T2Candida. In addition, our expectations regarding cost savings from using ourproducts may not be accurate. These hurdles may make it difficult to demonstrate to physicians, hospitals and other healthcare providers that ourcurrent diagnostic products and future product candidates are appropriate options for diagnosing sepsis and impairedhemostasis, may be superior to available tests and may be more cost-effective than alternative technologies. Furthermore, wemay encounter significant difficulty in gaining inclusion in sepsis and hemostasis treatment guidelines, gaining broadmarket acceptance by healthcare providers, third-party payors and patients using T2MR and our related products and productcandidates. Furthermore, healthcare providers may have difficulty in maintaining adequate reimbursement for sepsistreatment, 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 thesignificant investments in product development, sales and marketing, regulatory, manufacturing and quality assurance wehave made and further investments we intend to make, and may fail to generate revenue and gain economies of scale fromsuch investments. If T2Lyme does not successfully identify Lyme disease in clinical patients, our future revenue could be negatively impacted. We believe that the T2Lyme test panel will be able to rapidly identify the bacteria that cause Lyme disease directlyfrom patients’ blood with similar limits of detection as our current sepsis test, T2Candida. If T2Lyme does not successfullyidentify Lyme disease in clinical patients, the revenue opportunity for this product candidate could be limited or not realizedat all. We have limited experience in marketing and selling our products, and if we are unable to expand, manage and maintainour direct sales and marketing organizations, or otherwise commercialize our products, our business may be adverselyaffected. Because we received FDA authorization to sell our initial sepsis products in the fourth quarter of 2014, we havelimited experience marketing and selling our products. As of December 31, 2015, our direct sales organization, includingmarketing, consisted of 30 employees, having increased from 14 employees as of December 31, 2014. Our financialcondition and operating results are highly dependent upon the sales and marketing efforts of our sales and marketing32 Table of Contentsemployees. If our sales and marketing efforts fail to adequately promote, market and sell our products, our sales may notincrease 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 scopeof our direct sales force in the United States. Accordingly, our future success will depend largely on our ability to continueto hire, train, retain and motivate skilled sales and marketing 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 areunable to expand our sales and marketing capabilities, we may not be able to effectively commercialize our products and ourbusiness and operating results may be adversely affected. Outside of the United States, we expect to sell our products through distribution partners and there is no guaranteethat we will be successful in attracting or retaining desirable distribution partners for these markets or that we will be able toenter into such arrangements on favorable terms. Distributors may not commit the necessary resources to market and sell ourproducts effectively or may choose to favor marketing the products of our competitors. If distributors do not performadequately, or if we are unable to enter into effective arrangements with distributors in particular geographic areas, we maynot realize international sales and growth. Our sales cycle is lengthy and variable and we have no sales history, which makes it difficult for us to forecast revenue andother operating results. Our sales process involves numerous interactions with multiple individuals within an organization and oftenincludes in-depth analysis by potential customers of our products, performance of proof-of-principle studies, preparation ofextensive documentation and a lengthy review process. As a result of these factors and the budget cycles of our potentialcustomers, the time from initial contact with a potential customer to our receipt of a purchase order from such potentialcustomer, will vary significantly and could be up to 12 months or longer. Given the length and uncertainty of our anticipatedsales cycle, we likely will experience fluctuations in our product sales on a period-to-period basis. Expected revenue streamsare highly dependent on hospitals’ adoption of our consumables-based business model, and we cannot assure you that ourpotential hospital clients will follow a consistent purchasing pattern. Moreover, it is difficult for us to forecast our revenue asit is dependent upon our ability to convince the medical community of the clinical utility and economic benefits of ourproducts and their potential advantages over existing diagnostic tests, the willingness of hospitals to utilize our products andthe cost of our products to hospitals. In addition, we only recently started selling T2Dx and T2Candida products and have alimited sales history to rely on when forecasting revenue and other operating results. We may not be able to gain the ongoing support of leading hospitals and key thought leaders, or to continue thepublication of the results of new clinical trials in peer-reviewed journals, which may make it difficult to establish T2MR asa 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. Ifthese hospitals and key thought leaders determine that T2MR and related products are not clinically effective or thatalternative technologies are more effective, or if we encounter difficulty promoting adoption or establishing T2MR as astandard of care, our revenue growth and our ability to achieve profitability could be significantly limited. We believe that the successful completion of our pivotal T2Dx and T2Candida clinical trial, publication ofscientific and medical results in peer-reviewed journals and presentation of data at leading conferences are critical to thebroad adoption of T2MR. Publication in leading medical journals is subject to a peer-review process, and peer reviewers maynot 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 toan even greater degree as we continue to commercialize our initial sepsis products, continue to build a targeted sales forceand as we seek marketing authorization from the FDA and international regulatory clearance of our future productcandidates. Our growth has placed, and will continue to place, a significant strain on our management, operating andfinancial systems and our sales, marketing and administrative resources. As a result of our growth, operating costs mayescalate even faster than planned, and some of our internal systems and processes, including those relating to manufacturingour products, may need to be enhanced, updated or replaced. Additionally, our anticipated growth will33 Table of Contentsincrease demands placed on our suppliers, resulting in an increased need for us to manage our suppliers and monitor forquality assurance. If we cannot effectively manage our expanding operations, manufacturing capacity and costs, includingscaling to meet increased demand and properly managing suppliers, we may not be able to continue to grow or we may growat 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 requirementsfor at least the next 12 months. 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 authorization from the FDA and international regulatory clearance to market ourfuture 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 forprocedures using our products and product candidates; ·the cost and timing of marketing authorization 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 intolicensing 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 raiseadditional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Debt financing, ifavailable, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additionalequity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional fundsthrough collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to ourtechnologies 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 developmentprograms. If we do not have, or are not able to obtain, sufficient funds, we may be required to delay development orcommercialization of our product candidates or license to third parties the rights to commercialize our product candidates ortechnologies that we would otherwise seek to commercialize ourselves. We also may need to reduce34 Table of Contentsmarketing, customer support or other resources devoted to our products or cease operations. Any of these factors could harmour operating results. Our future success is dependent upon our ability to create and expand a customer base for our products in large hospitals. We only recently began marketing our initial sepsis products to the approximately 450 leading hospitals in theUnited States in which the top one-third of patients highest at risk of suffering from sepsis are concentrated. We may not besuccessful in promoting adoption of our technologies in those targeted hospitals, which may make it difficult for us toachieve broader market acceptance of these products. We utilize third-party, single-source suppliers for some components and materials used in our products and productcandidates, 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 productcandidates. Our ability to supply our products commercially and to develop any future products depends, in part, on ourability to obtain these components in accordance with regulatory requirements and in sufficient quantities forcommercialization and clinical testing. While our suppliers have generally met our demand for their products on a timelybasis in the past, we cannot assure that they will in the future be able to meet our demand for their products, either because wedo not have long-term agreements with those suppliers, our relative importance as a customer to those suppliers, or theirability 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 beaccomplished quickly. Even if we are able to find a replacement supplier, the replacement supplier would need to bequalified and may require additional regulatory authority approval, which could result in further delay. While we seek tomaintain 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 atcommercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at asubstantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the continuedcommercialization of our products, the supply of our products to customers and the development of any future productswould 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 seniormanagement, research and development, science and engineering, manufacturing and sales and marketing personnel. Inparticular, we are highly dependent on the management and business expertise of John McDonough, our President and ChiefExecutive Officer. We do not maintain fixed-term employment contracts or key man life insurance with any of ouremployees. Competition for qualified personnel is intense, particularly in the Boston, Massachusetts area. Our growthdepends, in particular, on attracting, retaining and motivating highly trained sales personnel with the necessary scientificbackground and ability to understand our systems at a technical level. In addition, we may need additional employees at ourmanufacturing facilities to meet demand for our products as we scale up our sales and marketing operations. Because of thecomplex 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 success will depend on the market’s confidence that our technologies can provide reliable, high-qualitydiagnostic results. We believe that our customers are likely to be particularly sensitive to any defects or errors in ourproducts. If our technology fails to detect the presence of Candida or another bacterial pathogen and a patient subsequentlysuffers from sepsis, or if our technology fails to detect impaired hemostasis and a patient faces adverse consequences from themisdiagnosis, then we could face claims against us or our reputation could suffer as a result of such failures. The failure of ourcurrent products or planned diagnostic product candidates to perform reliably or as35 Table of Contentsexpected could significantly impair our reputation and the public image of our products, and we may be subject to legalclaims arising from any defects or errors. The diagnostics market is highly competitive. If we fail to compete effectively, our business and operating results willsuffer. While the technology of our products and product candidates is different than other products currently available, wecompete with commercial diagnostics companies for the limited resources of our customers. In this regard, our principalcompetition is from a number of 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 financialresources. We compete with companies that currently provide traditional blood culture-based diagnostics, including BectonDickinson & Co. and bioMerieux, Inc. In addition, companies offering post-culture species identification using bothmolecular and non-molecular methods include bioMerieux, Inc. (and its affiliate, BioFire Diagnostics, Inc.), BrukerCorporation, Nanosphere, Inc., Cepheid and Beckman Coulter, a Danaher company. In addition, there may be a number ofnew market entrants in the process of developing other post-blood culture diagnostic technologies that may be perceived ascompetitive with our technology, including Accelerate Diagnostics, Inc. Most of our expected competitors are either publicly traded, or are divisions of publicly traded companies, and havea 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; 36 Table of Contents·volume, quality and strength of clinical and analytical validation data; ·availability of adequate reimbursement for testing services and procedures for healthcare providers using ourproducts; 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 increasingcompetition from new products and technologies introduced by our existing competitors or new companies entering ourmarkets. In addition, we cannot assure you that our future competitors do not have or will not develop products ortechnologies that enable them to produce competitive products with greater capabilities or at lower costs than our productsand product candidates. Any failure to compete effectively could materially and adversely affect our business, financialcondition and operating results. Undetected errors or defects in our products or product candidates could harm our reputation, decrease market acceptanceof our products or expose us to product liability claims. Our products or product candidates may contain undetected errors or defects. Disruptions or other performanceproblems with our products or product candidates may damage our customers’ businesses and could harm our reputation. Ifthat occurs, we may incur significant costs, the attention of our key personnel could be diverted or other significant customerrelations problems may arise. We may also be subject to warranty and liability claims for damages related to errors or defectsin our products or product candidates. A material liability claim or other occurrence that harms our reputation or decreasesmarket 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 ourresearch and clinical studies, could lead to the filing of product liability claims if someone were to allege that one of ourproducts contained a design or manufacturing defect. A product liability claim could result in substantial damages and becostly and time consuming to defend, either of which could materially harm our business or financial condition. We cannotassure you that our product liability insurance would adequately protect our assets from the financial impact of defending aproduct liability claim. Any product liability claim brought against us, with or without merit, could increase our productliability 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 ourindustry’s rapidly changing technology and customer requirements, which could have a material adverse impact on ourrevenue, results of operations and business. Our industry is characterized by rapid technological changes, frequent new product introductions and enhancementsand evolving industry standards. Our success depends on our ability to develop new product candidates and applications forour technology in new markets that develop as a result of technological and scientific advances, while improving theperformance and cost-effectiveness of our existing product candidates. New technologies, techniques or products couldemerge 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 andinnovation. 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 meetour prospective customers’ needs on a timely and cost-effective basis. At the same time, however, we must carefully manageour introduction of new products. If potential customers believe that such products will offer enhanced features or be sold fora more attractive price, they may delay purchases until such products are available. We may also have excess or obsoleteinventory of older products as we transition to new products, and we have no experience in managing product transitions. Ifwe do not successfully innovate and introduce new technology into our anticipated product lines or manage the transitionsof 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 asexpected competitors develop new or improved products and as new companies enter the market with new technologies andproducts.37 Table of Contents We are developing additional product candidates that we intend to be used with T2Dx, including T2Bacteria for thedetection of certain strains of sepsis-causing bacteria and T2Lyme for the detection of certain strains of Lyme disease-causingbacteria. We are also developing T2Plex, which we previously referred to as T2Stat, to be used with our developmentalT2HemoStat panel, which is designed to detect impaired hemostasis. We may have problems applying our technologies tothese other areas and our new applications may not be as effective in detection as our initial applications. Any failure ordelay in creating a customer base or launching new applications may compromise our ability to achieve our growthobjectives.. Manufacturing risks may adversely affect our ability to manufacture products and could reduce our gross margins andnegatively affect our operating results. Our business strategy depends on our ability to manufacture and assemble our current and proposed products insufficient 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 ourmanufacturing 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 commerciallyreasonable 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 implementchanges in current products in response to regulatory requirements; and·difficulty identifying and qualifying alternative suppliers for components in a timely manner. These risks are likely to be exacerbated by our limited experience with our current products and manufacturingprocesses. As demand for our products increases, we will need to invest additional resources to purchase components, hireand train employees, and enhance our manufacturing processes and quality systems. If we fail to increase our productioncapacity efficiently while also maintaining quality requirements, our sales may not increase in line with our forecasts and ouroperating margins could fluctuate or decline. In addition, although we expect some of our product candidates to shareproduct features and components with T2Dx and the T2Candida panel, manufacturing of these products may require themodification of our production lines, the hiring of specialized employees, the identification of new suppliers for specificcomponents, or the development of new manufacturing technologies. It may not be possible for us to manufacture theseproducts at a cost or in quantities sufficient to make these products commercially viable. Any future interruptions weexperience in the manufacturing or shipping of our products could delay our ability to recognize revenues in a particularquarter and could also adversely affect our relationships with our customers. We currently develop, manufacture and test our products and product candidates and some of their components in twofacilities. If these or any future facility or our equipment were damaged or destroyed, or if we experience a significantdisruption in our operations for any reason, our ability to continue to operate our business could be materially harmed. We currently develop our diagnostic products and product candidates exclusively in a facility in Lexington,Massachusetts and manufacture and test some components of our products and product candidates in Wilmington,Massachusetts. If these or any future facility were to be damaged, destroyed or otherwise unable to operate, whether due tofire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages, orotherwise, or if our business is disrupted for any other reason, we may not be able to develop or test our products and productcandidates as promptly as our potential customers expect, or possibly not at all. The manufacture of components of our products and product candidates at our Wilmington facility involvescomplex processes, sophisticated equipment and strict adherence to specifications and quality systems procedures. Anyunforeseen manufacturing problems, such as contamination of our facility, equipment malfunction, or failure to strictlyfollow procedures or meet specifications, could result in delays or shortfalls in production of our products. Identifying andresolving the cause of any manufacturing issues could require substantial time and resources. If we are unable to keep up withfuture demand for our products by successfully manufacturing and shipping our products in a timely38 Table of Contentsmanner, our revenue growth could be impaired and market acceptance of our product candidates could be adversely affected. We maintain insurance coverage against damage to our property and equipment, subject to deductibles and otherlimitations that we believe is adequate. If we have underestimated our insurance needs with respect to an interruption, or if aninterruption is not subject to coverage under our insurance policies, we may not be able to cover our losses. We may be adversely affected by fluctuations in demand for, and prices of, rare earth materials. T2MR relies, in part, on rare earth materials and products. For example, T2Dx utilizes magnets which are extractedfrom the earth. Although there are currently multiple suppliers for these rare earth materials, changes in demand for, and themarket price of, these magnets could significantly affect our ability to manufacture our T2MR-based instruments and,consequently, our profitability. Rare earth minerals and product prices may fluctuate and are affected by numerous factorsbeyond our control such as interest rates, exchange rates, inflation or deflation, global and regional supply and demand forrare earth minerals and products, and the political and economic conditions of countries that produce rare earth minerals andproducts. Provisions of our debt instruments may restrict our ability to pursue our business strategies. Our credit facilities require us, and any debt instruments we may enter into in the future may require us, to complywith various covenants that limit our ability to, among other things: ·convey, lease, sell, transfer, assign or otherwise dispose of assets; ·change the nature or location of our business; ·complete mergers or acquisitions; ·incur indebtedness; ·encumber assets; ·pay dividends or make other distributions to holders of our capital stock (other than dividends paid solely incommon stock); ·make specified investments; ·change certain key management personnel; and ·engage in material transactions with our affiliates. These restrictions could inhibit our ability to pursue our business strategies. If we default, which includes a materialadverse change, under our credit facilities, and such event of default was not cured or waived, the lenders could terminatecommitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately, whichin turn could result in cross defaults under other debt instruments. Our assets and cash flow may not be sufficient to fullyrepay borrowings under all of our outstanding debt instruments if some or all of these instruments are accelerated upon adefault. We may incur additional indebtedness in the future. The debt instruments governing such indebtedness couldcontain provisions that are as, or more, restrictive than our existing debt instruments. If we are unable to repay, refinance orrestructure our indebtedness when payment is due, the lenders could proceed against the collateral granted to them to securesuch indebtedness or force us into bankruptcy or liquidation. 39 Table of ContentsAs part of our current business model, we will seek to enter into strategic relationships with third parties to develop andcommercialize diagnostic products. We intend to enter into strategic relationships with third parties for future diagnostic products. However, there is noassurance that we will be successful in doing so. Establishing strategic relationships can be difficult and time-consuming.Discussions may not lead to agreements on favorable terms, if at all. To the extent we agree to work exclusively with a partyin a given area, our opportunities to collaborate with others or develop opportunities independently could be limited.Potential collaborators or licensors may elect not to work with us based upon their assessment of our financial, regulatory orintellectual property position. Even if we establish new strategic relationships, they may never result in the successfuldevelopment or commercialization of future products. Acquisitions or joint ventures could disrupt our business, cause dilution to our stockholders and otherwise harm ourbusiness. We may acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures,technology licenses or investments in complementary businesses. We have not made any acquisitions to date, and our abilityto do so successfully is unproven. Any of these transactions could be material to our financial condition and operating resultsand expose us to many risks, including: ·disruption in our relationships with future customers or with current or future distributors or suppliers as a resultof such a transaction; ·unanticipated liabilities related to acquired companies; ·difficulties integrating acquired personnel, technologies and operations into our existing business; ·diversion of management time and focus from operating our business to acquisition integration challenges; ·increases in our expenses and reductions in our cash available for operations and other uses; ·possible write-offs or impairment charges relating to acquired businesses; and ·inability to develop a sales force for any additional product candidates. Foreign acquisitions involve unique risks in addition to those mentioned above, including those related tointegration of operations across different cultures and languages, currency risks and the particular economic, political andregulatory risks associated with specific countries. Also, the anticipated benefit of any acquisition may not materialize. Future acquisitions or dispositions could resultin potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortizationexpenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing orsize of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results. If treatment guidelines for sepsis change, or the standard of care evolves, we may need to redesign and seek new marketingauthorization from the FDA for our products. If treatment guidelines for sepsis change, or the standard of care evolves, we may need to redesign and seek newmarketing authorization from the FDA for our products. For example, current treatment recommendations for Candidainfections, including those published by the Infectious Diseases Society of America, call for identical treatment for twospecies of Candida, C. albicans and C. tropicalis, and identical treatment for two other species, C. glabrata and C. krusei.Although our T2Candida test is technically capable of distinguishing among these species, we have designed it based oncurrent treatment guidelines and therefore it does not distinguish between two species if they are subject to the samerecommended treatment. Our FDA authorization to market T2Dx and T2Candida in the United States is also based on currenttreatment guidelines. If treatment guidelines change so that different treatments become desirable for the two speciescurrently subject to the same recommended treatment, the clinical utility of our T2Candida test could be40 Table of Contentsdiminished and we could be required to seek marketing authorization from the FDA for a revised test that would distinguishbetween the two species. Our ability to use net operating losses to offset future taxable income may be subject to certain limitations. As of December 31, 2015, we had federal net operating loss carryforwards, or NOLs, to offset future taxable incomeof $126.7 million, which are available to offset future taxable income, if any, through 2035. Under Section 382 of theInternal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilizeits NOLs to offset future taxable income. We may have already experienced one or more ownership changes. Depending onthe timing of any future utilization of our carryforwards, we may be limited as to the amount that can be utilized each year asa result of such previous ownership changes. In addition, future changes in our stock ownership, as well as other changes thatmay be outside of our control, could result in additional ownership changes under Section 382 of the Internal Revenue Code.Our NOLs may also be impaired under similar provisions of state law. We have recorded a full valuation allowance related toour NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. We face risks related to handling hazardous materials and other regulations governing environmental safety. Our operations are subject to complex and stringent environmental, health, safety and other governmental laws andregulations that both public officials and private individuals may seek to enforce. Our activities that are subject to theseregulations include, among other things, our use of hazardous materials and the generation, transportation and storage ofwaste. We may not be in material compliance with these regulations. Existing laws and regulations may also be revised orreinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that mayhave a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk ofaccidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages thatresult, which could adversely affect our business. We expect to generate a portion of our future revenue internationally and are subject to various risks relating to ourinternational activities which could adversely affect our operating results. We believe that a portion of our future revenue will come from international sources as we implement and expandoverseas operations. Engaging in international business involves a number of difficulties and risks, including: ·required compliance with existing and changing foreign healthcare and other regulatory requirements and laws,such as those relating to patient privacy or handling of bio-hazardous waste; ·required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act,data privacy requirements, labor laws and anti-competition regulations; ·export or import restrictions; ·various reimbursement and insurance regimes; ·laws and business practices favoring local companies; ·longer payment cycles and difficulties in enforcing agreements and collecting receivables through certainforeign legal systems; ·political and economic instability; ·potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other tradebarriers; ·foreign exchange controls; ·difficulties and costs of staffing and managing foreign operations; and 41 Table of Contents·difficulties protecting or procuring intellectual property rights. As we expand internationally, our results of operations and cash flows will become increasingly subject tofluctuations due to changes in foreign currency exchange rates. Our expenses are generally denominated in the currencies inwhich our operations are located, which is in the United States. If the value of the U.S. dollar increases relative to foreigncurrencies in the future, in the absence of a corresponding change in local currency prices, our future revenue could beadversely affected as we convert future revenue from local currencies to U.S. dollars. If we dedicate resources to our international operations and are unable to manage these risks effectively, ourbusiness, operating results and prospects will suffer. Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors mayengage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements. We are exposed to the risk of fraud or other misconduct by our employees, independent contractors, principalinvestigators, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, recklessor negligent failures to: comply with the regulations of the FDA and other similar foreign regulatory bodies; provide true,complete and accurate information to the FDA and other similar regulatory bodies; comply with manufacturing standards wehave established; comply with healthcare fraud and abuse laws and regulations in the United States and similar foreignfraudulent misconduct laws; or report financial information or data accurately, or disclose unauthorized activities to us.These laws may impact, among other things, our activities with principal investigators and research subjects, as well as oursales, marketing and education programs. In particular, the promotion, sales, marketing and business arrangements in thehealthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, marketing andpromotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could alsoinvolve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctionsand cause serious harm to our reputation. We currently have a code of conduct applicable to all of our employees, but it isnot always possible to identify and deter employee misconduct, and our code of conduct and the other precautions we take todetect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting usfrom governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws orregulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting ourrights, those actions could have a significant impact on our business, including the imposition of civil, criminal andadministrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion fromparticipation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm,diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability tooperate our business and our results of operations. Any of these actions or investigations could result in substantial costs tous, including legal fees, and divert the attention of management from operating our business. We depend on our information technology systems, and any failure of these systems could harm our business. We depend on information technology systems for significant elements of our operations, including the storage ofdata and retrieval of critical business information. We have installed, and expect to expand, a number of enterprise softwaresystems that affect a broad range of business processes and functional areas, including systems handling human resources,financial controls and reporting, contract management, regulatory compliance and other infrastructure operations. Theseinformation technology systems may support a variety of functions, including laboratory operations, test validation, qualitycontrol, customer service support, billing and reimbursement, research and development activities and general administrativeactivities. Our clinical trial data is currently stored on a third party’s servers. Information technology systems are vulnerable to damage from a variety of sources, including network failures,malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our serversare potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite theprecautionary measures we have taken to prevent unanticipated problems that could affect our information technologysystems, failures or significant downtime of our information technology systems or those used by our third-party serviceproviders could prevent us from conducting our general business operations. Any disruption or loss of informationtechnology systems on which critical aspects of our operations depend could have an adverse effect on our42 Table of Contentsbusiness. Further, we store highly confidential information on our information technology systems, including informationrelated to clinical data, product designs and plans to create new products. If our servers or the servers of the third party onwhich our clinical data is stored are attacked by a physical or electronic break-in, computer virus or other malicious humanaction, our confidential information could be stolen or destroyed. Risks Related to Government Regulation and Diagnostic Product Reimbursement Approval and clearance by the FDA and foreign regulatory authorities for our diagnostic tests takes significant time andrequires significant research, development and clinical study expenditures and ultimately may not succeed. The medical device industry is regulated extensively by governmental authorities, principally the FDA andcorresponding state regulatory agencies. The regulations are very complex and are subject to rapid change and varyinginterpretations. Regulatory restrictions or changes could limit our ability to carry on or expand our operations or result inhigher than anticipated costs or lower than anticipated sales. The FDA and other U.S. governmental agencies regulatenumerous elements of our business, including: ·product design and development;·pre-clinical and clinical testing and trials;·product safety;·establishment registration and product listing;·labeling and storage;·marketing, manufacturing, sales and distribution;·pre-market clearance or approval;·servicing and post-market surveillance;·advertising and promotion; and·recalls and field safety corrective actions. Before we begin to label and market our product candidates for use as clinical diagnostics in the United States, weare required to obtain clearance from the FDA under Section 510(k) of the Federal Food, Drug and Cosmetic Act, approval ofa de novo reclassification petition for our product, or approval of pre-market approval, or PMA, application from the FDA,unless an exemption from pre-market review applies. In the 510(k) clearance process, the FDA must determine that aproposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device, with respectto intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing. Clinical data issometimes required to support substantial equivalence. The PMA pathway requires an applicant to demonstrate the safetyand effectiveness of the device based, in part, on extensive data, including, but not limited to, technical, preclinical, clinicaltrial, manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatestrisk, such as life-sustaining, life-supporting or implantable devices. However, some devices are automatically subject to thePMA pathway regardless of the level of risk they pose because they have not previously been classified into a lower risk classby the FDA. Manufacturers of these devices may request that FDA review such devices in accordance with the de novoclassification procedure, which allows a manufacturer whose novel device would otherwise require the submission andapproval of a PMA prior to marketing to request down-classification of the device on the basis that the device presents low ormoderate risk. If the FDA agrees with the down-classification, the applicant will then receive approval to market the device.This device type can then be used as a predicate device for future 510(k) submissions. The process of obtaining regulatoryclearances or approvals, or completing the de novo classification process, to market a medical device can be costly and timeconsuming, and we may not be able to successfully obtain pre-market reviews on a timely basis, if at all. We received pre-market clearance for our T2Dx Instrument and T2Candida panel under the de novo applicationprocedure in September 2014. From time to time, we may make modifications to these products that may require a new510(k). Based on non-binding communications from the FDA, we expect the T2Bacteria panel to be eligible for a510(k) submission. If the FDA requires us to go through a lengthier, more rigorous examination for our future product candidates thanwe had expected, our product introductions or modifications could be delayed or canceled, which could cause our launch tobe delayed or, in the future, our sales to decline. In addition, the FDA may determine that our product candidates require themore costly, lengthy and uncertain PMA process. 43 Table of ContentsThe FDA can delay, limit or deny clearance or approval of a device for many reasons, including: ·we may not be able to demonstrate to the FDA’s satisfaction that our product candidates are safe and effective,sensitive and specific diagnostic tests, for their intended users; ·the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval,where required; and ·the manufacturing process or facilities we use may not meet applicable requirements. In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existingregulations, or take other actions which may prevent or delay approval or clearance of our products under development orimpact our ability to modify our currently approved or cleared products on a timely basis. For example, in response toindustry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) regulatorypathway, the FDA initiated an evaluation of the program, and in January 2011, announced several proposed actions intendedto reform the review process governing the clearance of medical devices. The FDA intends these reform actions to improvethe efficiency and transparency of the clearance process, as well as bolster patient safety. In addition, as part of the Food andDrug Administration Safety and Innovation Act, or FDASIA, Congress reauthorized the Medical Device User FeeAmendments with various FDA performance goal commitments and enacted several “Medical Device RegulatoryImprovements” and miscellaneous reforms which are further intended to clarify and improve medical device regulation bothpre- and post-approval. Any delay in, or failure to receive or maintain, clearance or approval for our product candidates could prevent usfrom generating revenue from these product candidates and adversely affect our business operations and financial results.Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries,or other increased scrutiny on us, could affect the perceived safety and efficacy of our products and product candidates anddissuade our customers from using our products and product candidates. Obtaining FDA clearance, de novo down classification, or approval for diagnostics can be expensive and uncertain,and generally takes from several months to several years, and generally requires detailed and comprehensive scientific andclinical data. Notwithstanding the expense, these efforts may never result in FDA clearance. Even if we were to obtainregulatory clearance, it may not be for the uses we believe are important or commercially attractive, in which case we wouldnot be permitted to market our product for those uses. Even if granted, a 510(k) clearance, de novo down classification, or PMA approval for any future product wouldlikely place substantial restrictions on how our device is marketed or sold, and the FDA will continue to place considerablerestrictions on our products and operations. For example, the manufacture of medical devices must comply with the FDA’sQuality System Regulation, or QSR. In addition, manufacturers must register their manufacturing facilities, list the productswith the FDA, and comply with requirements relating to labeling, marketing, complaint handling, adverse event and medicaldevice reporting, reporting of corrections and removals, and import and export. The FDA monitors compliance with the QSRand these other requirements through periodic inspections. If our facilities or those of our manufacturers or suppliers arefound to be in violation of applicable laws and regulations, or if we or our manufacturers or suppliers fail to take satisfactorycorrective action in response to an adverse inspection, the regulatory authority could take enforcement action, including anyof the following sanctions: ·untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; ·customer notifications or repair, replacement, refunds, detention or seizure of our products; ·operating restrictions or partial suspension or total shutdown of production; ·refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modifiedproducts; ·withdrawing 510(k) marketing clearances or PMA approvals that have already been granted; ·refusing to provide Certificates for Foreign Government;44 Table of Contents ·refusing to grant export approval for our products; or ·pursuing criminal prosecution. Any of these sanctions could impair our ability to produce our products and product candidates in a cost-effectiveand timely manner in order to meet our customers’ demands, and could have a material adverse effect on our reputation,business, results of operations and financial condition. We may also be required to bear other costs or take other actions thatmay have a negative impact on our future sales and our ability to generate profits. Sales of our diagnostic products and product candidates outside the United States are subject to foreign regulatoryrequirements governing clinical studies, vigilance reporting, marketing approval, manufacturing, product licensing, pricingand reimbursement. These regulatory requirements vary greatly from country to country. As a result, the time required toobtain approvals outside the United States may differ from that required to obtain FDA clearance and we may not be able toobtain foreign regulatory approvals on a timely basis or at all. Clearance by the FDA does not ensure approval by regulatoryauthorities in other countries, and approval by one foreign regulatory authority does not ensure clearance or approval byregulatory authorities in other countries or by the FDA. Foreign regulatory authorities could require additional testing.Failure to comply with these regulatory requirements, or to obtain required clearances or approvals, could impair our abilityto commercialize our diagnostic products and product candidates outside of the United States. Modifications to our products, if cleared or approved, may require new 510(k) clearances or pre-market approvals, or mayrequire us to cease marketing or recall the modified products until clearances are obtained. Any modification to a device authorized for marketing that could significantly affect its safety or effectiveness, orthat would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly,approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA mayreview any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances orapprovals are necessary. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications orPMAs for modifications to previously cleared products for which we conclude that new clearances or approvals areunnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval,and we may be subject to significant regulatory fines or penalties. Furthermore, the FDA’s ongoing review of the 510(k) program may make it more difficult for us to makemodifications to any products for which we obtain clearance, either by imposing more strict requirements on when amanufacturer must submit a new 510(k) for a modification to a previously cleared product, or by applying more onerousreview criteria to such submissions. For example, in accordance with FDASIA, the FDA was obligated to prepare a report forCongress on the FDA’s approach for determining when a new 510(k) will be required for modifications or changes to apreviously cleared device. The FDA recently issued this report and indicated that manufacturers should continue to adhere tothe FDA’s 1997 Guidance on this topic when making a determination as to whether or not a new 510(k) is required for achange or modification to a device. However, the practical impact of the FDA’s continuing scrutiny of the 510(k) programremains unclear. A recall of our products, either voluntarily or at the direction of the FDA, or the discovery of serious safety issues with ourproducts that leads to corrective actions, could have a significant adverse impact on us. The FDA and similar foreign governmental authorities have the authority to require the recall of commercializedproducts in the event of material deficiencies or defects in design or manufacture of a product or in the event that a productposes an unacceptable risk to health. Manufacturers may, under their own initiative, recall a product if any materialdeficiency in a device is found. A government-mandated or voluntary recall by us or one of our distributors could occur as aresult of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or otherdeficiencies and issues. Under the FDA’s medical device reporting regulations, we are required to report to the FDA anyincident in which our product may have caused or contributed to a death or serious injury or in which our productmalfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. Repeatedproduct malfunctions may result in a voluntary or involuntary product recall. Recalls of any of our products would divertmanagerial and financial resources and have an adverse effect on our reputation, results of operations and financialcondition, which could impair our ability to produce our products in a cost-effective and timely45 Table of Contentsmanner in order to meet our customers’ demands. Depending on the corrective action we take to redress a product’sdeficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new approvals or clearances forthe device before we may market or distribute the corrected device. Seeking such approvals or clearances may delay ourability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associatedwith our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure,injunctions, administrative penalties, or civil or criminal fines. We may also be required to bear other costs or take otheractions that may have a negative impact on our sales as well as face significant adverse publicity or regulatory consequences,which could harm our business, including our ability to market our products in the future. Any adverse event involving our products could result in future voluntary corrective actions, such as recalls orcustomer notifications, or agency action, such as inspection, mandatory recall or other enforcement action. Any correctiveaction, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, would require the dedication of ourtime and capital, distract management from operating our business and may harm our reputation and financial results. We may rely on third parties to conduct future studies of our product candidates that may be required by the FDA or otherregulatory authorities, and those third parties may not perform satisfactorily. We may rely on third parties, including medical investigators, to conduct such studies. Our reliance on these thirdparties for clinical development activities will reduce our control over these activities. These third parties may not completeactivities on schedule or conduct studies in accordance with regulatory requirements or our study design. If applicable, ourreliance on third parties that we do not control will not relieve us of any applicable requirement to prepare, and ensurecompliance with, various procedures required under good clinical practices. If these third parties do not successfully carryout their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or ifthe quality or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical protocols orregulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may notbe able to obtain marketing authorization from the FDA or regulatory clearance for our product candidates. Our customers are highly dependent on payment from third-party payors, and inadequate coverage and/or inadequatereimbursement for diagnostic tests using our technology or for procedures using our products and product candidates andthe commercial success of our diagnostic products and product candidates would be compromised. Successful commercialization of our diagnostic products and product candidates depends, in large part, on theextent to which the costs of our products and product candidates purchased by our customers are reimbursed, eitherseparately or through bundled payment, by third-party private and governmental payors, including Medicare, Medicaid,managed care organizations and private insurance plans. There is significant uncertainty surrounding third-party coverageand reimbursement for the use of tests that incorporate new technology, such as T2MR. There may be significant delays inobtaining coverage and reimbursement for newly approved products, and coverage may be more limited than the purposesfor which the product is approved by the FDA or comparable foreign regulatory authorities. Hospitals, clinical laboratories and other healthcare provider customers that may purchase our products and productcandidates, if approved, generally bill various third-party payors to cover all or a portion of the costs and fees associated withdiagnostic tests, including the cost of the purchase of our products and product candidates. We currently expect that themajority of our diagnostic tests will be performed in a hospital inpatient setting, where governmental payors, such asMedicare, generally reimburse hospitals a single bundled payment that is based on the patients’ diagnosis under aclassification system known as the Medicare severity diagnosis-related groups, classification for all items and servicesprovided to the patient during a single hospitalization, regardless of whether our diagnostic tests are performed during suchhospitalization. To the extent that our diagnostic tests will be performed in an outpatient setting, our products and productcandidates may be eligible for separate payment, for example, under the Clinical Laboratory Fee Schedule using existingCurrent Procedural Terminology codes. Third-party payors may deny coverage, however, if they determine that thediagnostic tests using our products are not cost-effective compared to the use of alternative testing methods as determined bythe payor, or is deemed by the third-party payor to be experimental or medically unnecessary. Even if third-party payorsmake coverage and reimbursement available, such reimbursement may not be adequate or these payors’ reimbursementpolicies may have an adverse effect on our business, results of operations, financial condition and cash flows. In the UnitedStates, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverageand reimbursement for products can differ significantly from payor to46 Table of Contentspayor. As a result, the coverage determination process is often a time-consuming and costly process that will require us toprovide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance thatcoverage and adequate reimbursement will be obtained. Government authorities and other third-party payors are developing increasingly sophisticated methods ofcontrolling healthcare costs, such as by limiting coverage and the amount of reimbursement for various products. Ourcustomers’ access to adequate coverage and reimbursement for inpatient procedures using our products and productcandidates by government and private insurance plans is central to the acceptance of our products. We cannot predict at thistime the adequacy of payments, whether made separately in an outpatient setting or with a bundled payment amount in aninpatient setting. We may be unable to sell our products on a profitable basis if third-party payors deny coverage or reducetheir current levels of payment, or if our costs of production increase faster than increases in reimbursement levels. In many countries outside of the United States, various coverage, pricing and reimbursement approvals are required.We expect that it will take several years to establish broad coverage and reimbursement for testing services based on ourproducts with payors in countries outside of the United States, and our efforts may not be successful. We may be subject to federal and state healthcare fraud and abuse laws and other federal and state healthcare lawsapplicable to our business activities. If we are unable to comply, or have not complied, with such laws, we could facesubstantial penalties. Our operations are, and will continue to be, directly or indirectly subject to various federal and state fraud and abuselaws, including, without limitation, the federal and state anti-kickback statutes, physician payment transparency laws andfalse claims laws. These laws impact, among other things, our sales and marketing and education programs and require us toimplement additional internal systems for tracking certain marketing expenditures and reporting them to governmentauthorities. In addition, we may be subject to patient data privacy and security regulation by both the federal governmentand the states in which we conduct our business. The healthcare laws and regulations that may affect our ability to operateinclude: ·the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly orwillfully soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, incash or in kind, in return for or to induce either the referral of an individual for, or the purchase, lease, order orrecommendation of, any good, facility, item or services for which payment may be made, in whole or in part,under a federal healthcare program such as the Medicare and Medicaid programs; ·federal false claims laws, including the federal civil False Claims Act, which prohibit, among other things,individuals or entities from knowingly presenting, or causing to be presented, claims for payment from orapproval by a governmental payor program that are false or fraudulent; ·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which establishedadditional federal crimes for, among other things, knowingly and willfully executing, or attempting to execute,a scheme to defraud any healthcare benefit program or making materially false statements in connection withthe delivery of or payment for healthcare benefits, items or services; ·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, whichgoverns the conduct of certain electronic healthcare transactions and imposes obligations, including mandatorycontractual terms, on certain types of people and entities regarding the security and privacy of protected healthinformation; ·the Physician Payments Sunshine Act under the Patient Protection and Affordable Care Act, as amended by theHealth Care and Education Reconciliation Act, or collectively, ACA, which requires manufacturers of drugs,devices, biologicals, and medical supplies for which payment is available under Medicare, Medicaid, or theChildren’s Health Insurance Program, with specific exceptions, to report annually to the CMS informationrelated to payments and other transfers of value to physicians and teaching hospitals, and ownership andinvestment interests held by physicians and their immediate family members; and 47 Table of Contents·state or foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws,which may apply to items or services reimbursed by any third-party payor, including commercial insurers; statelaws that require device companies to comply with the industry’s voluntary compliance guidelines and theapplicable compliance guidance promulgated by the federal government, or otherwise restrict payments thatmay be made to healthcare providers and other potential referral sources; state laws that require manufacturersto report information related to payments and other transfers of value to physicians, hospitals and otherhealthcare providers or marketing expenditures; and state laws governing the privacy and security of healthinformation in certain circumstances, many of which differ from each other in significant ways, thuscomplicating compliance efforts. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it ispossible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recenthealthcare reforms have strengthened these laws. For example, the ACA, among other things, amends the intent requirementof the federal anti-kickback statute. A person or entity no longer needs to have actual knowledge of the statute or specificintent to violate it in order to commit a violation. The ACA also codified case law by amending the False Claims Act, suchthat violations of the federal Anti-Kickback Statute are now deemed violations of the False Claims Act. If our operations are found to be in violation of any of the laws described above or any other governmentalregulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages,fines, disgorgement, contractual damages, reputational harm, the curtailment or restructuring of our operations, the exclusionfrom participation in federal and state healthcare programs and individual imprisonment, any of which could adversely affectour ability to operate our business and our results of operations. Healthcare policy changes, including legislation reforming the United States healthcare system, may have a materialadverse effect on our financial condition and results of operations. The ACA, enacted in March 2010, makes changes that are expected to significantly impact the pharmaceutical andmedical device industries and clinical laboratories. Since 2013, certain medical device manufacturers have had to pay amedical device excise tax in an amount equal to 2.3% of the price for which such manufacturer sells its medical devices. Theexcise tax applies to our T2Dx Instrument and T2Candida Panel, and we expect that it will apply to some or all of ourproduct candidates. The Consolidated Appropriations Act of 2016, signed into law on December 18, 2015, suspends the2.3% medical device excise tax for a two year period beginning January 1, 2016 through December 31, 2017. The ACA also mandates a reduction in payments for clinical laboratory services paid under the Medicare ClinicalLaboratory Fee Schedule, or CLFS, of 1.75% for the years 2011 through 2015 and a productivity adjustment to the CLFS,further reducing payment rates. Some commercial payors are guided by the CLFS in establishing their reimbursement rates.Clinicians may decide not to order clinical diagnostic tests if third-party payments are inadequate, and we cannot predictwhether third-party payors will offer adequate reimbursement for procedures utilizing our products and product candidates tomake them commercially attractive. To the extent that the diagnostic tests using our products and product candidates areperformed on an outpatient basis, these or any future proposed or mandated reductions in payments under the CLFS mayapply to some or all of the clinical laboratory tests that our diagnostics customers may use our technology to deliver toMedicare beneficiaries and may indirectly reduce demand for our diagnostic products and product candidates. Other significant measures for our industry contained in the ACA include coordination and promotion of researchon comparative clinical effectiveness of different technologies and procedures; initiatives to revise Medicare paymentmethodologies, such as bundling of payments across the continuum of care by providers and physicians; and initiatives topromote quality indicators in payment methodologies. The ACA also includes significant new fraud and abuse measures,including required disclosures of certain financial arrangements with physician customers, lower thresholds for violationsand increasing potential penalties for such violations. In addition, the ACA establishes an Independent Payment AdvisoryBoard, or IPAB, to reduce the per capita rate of growth in Medicare spending. The IPAB has broad discretion to proposepolicies to reduce healthcare expenditures, which may have a negative impact on payment rates for services, including ourtests. The IPAB proposals may impact payments for clinical laboratory services that our diagnostics customers use ourtechnology to deliver beginning in 2016, and for hospital services beginning in 2020, and may indirectly reduce demand forour diagnostic products and product candidates. To the extent that the48 Table of Contentsreimbursement amounts for sepsis decrease, it could adversely affect the market acceptance and hospital adoption of ourtechnologies. In addition, other legislative changes have been proposed and adopted in the United States since the ACA wasenacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductionsby Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of atleast $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’sautomatic reduction to several government programs, including reductions of Medicare payments to providers of up to 2%per fiscal year effective April 1, 2013. Due to subsequent legislative amendments, these reductions will stay in effect through2024 unless additional congressional action is taken. Further, on January 2, 2013, the American Taxpayer Relief Act of 2012was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals,imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recoveroverpayments to providers from three to five years. The full impact on our business of the ACA and the other new laws is uncertain. Nor is it clear whether otherlegislative changes will be adopted or how such changes would affect our industry generally or our ability to successfullycommercialize our products and product candidates. Changes in healthcare policy, such as the creation of broad testutilization limits for diagnostic products in general or requirements that Medicare patients pay for portions of clinicallaboratory tests or services received, could substantially impact the sales of our tests, increase costs and divert management’sattention from our business. Such co-payments by Medicare beneficiaries for laboratory services were discussed as possiblecost savings for the Medicare program as part of the debt ceiling budget discussions in mid-2011 and may be enacted in thefuture. In addition, sales of our tests outside of the United States will subject us to foreign regulatory requirements, whichmay also change over time. We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or incountries outside of the United States in which we may do business, or the effect any future legislation or regulation willhave on us. The taxes imposed by the new federal legislation and the expansion in government’s effect on the United Stateshealthcare industry may result in decreased profits to us, lower reimbursements by payors for our products and productcandidates or reduced medical procedure volumes, any of which may adversely affect our business, financial condition andresults of operations. Risks Related to Intellectual Property If we are unable to protect our intellectual property effectively, our business would be harmed. We rely on patent protection as well as trademark, copyright, trade secret protection and confidentiality agreementsto protect the intellectual property rights related to our proprietary technologies. The strength of patents in our field involvescomplex legal and scientific questions. Uncertainty created by these questions means that our patents may provide onlylimited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Weown or exclusively license over 25 issued U.S. patents and another approximately 25 pending U.S. patent applications,including provisional and non-provisional filings. We also own or license approximately 50 pending or granted counterpartapplications worldwide. If we fail to protect our intellectual property, third parties may be able to compete more effectivelyagainst us and we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property. We cannot assure you that any of our currently pending or future patent applications will result in issued patentswith claims that cover our products and technologies in the United States or in other foreign countries, and we cannot predicthow long it will take for such patents to be issued. Further, issuance of a patent is not conclusive as to its inventorship orscope, and there is no guarantee that our issued patents will include claims that are sufficiently broad to cover ourtechnologies or to provide meaningful protection of our products from our competitors. Further, we cannot be certain that allrelevant prior art relating to our patents and patent applications has been found. Accordingly, there may be prior art that caninvalidate our issued patents or prevent a patent from issuing from a pending patent application, at all or with claims thathave a scope broad enough to provide meaningful protection from our competitors. Even if patents do successfully issue and even if such patents cover our products and technologies, we cannot assureyou that other parties will not challenge the validity, enforceability or scope of such issued patents in the United States andin foreign countries, including by proceedings such as re-examination, inter-partes review, interference,49 Table of Contentsopposition, or other patent office or court proceedings. Moreover, we cannot assure you that if such patents were challengedin court or before a regulatory agency that the patent claims will be held valid, enforceable, or be sufficiently broad to coverour technologies or to provide meaningful protection from our competitors. Nor can we assure you that the applicable courtor agency will uphold our ownership rights in such patents. Accordingly, we cannot guarantee that we will be successful indefending challenges made against our patents and patent applications. Any successful third-party challenge to our patentscould result in the unenforceability or invalidity of such patents, or narrowing of claim scope, such that we could be deprivedof patent protection necessary for the successful commercialization of our products and technologies, which could adverselyaffect our business. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect ourintellectual property, provide exclusivity for our products and technologies or prevent others from designing around ourclaims. Others may independently develop similar or alternative products and technologies or duplicate any of our productsand technologies. These products and technologies may not be covered by claims of issued patents owned by our company.Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impacton our business. In addition, competitors could purchase our products and attempt to replicate some or all of the competitiveadvantages we derive from our development efforts, willfully infringe our intellectual property rights, design around ourprotected technology or develop their own competitive technologies that fall outside of the protections provided by ourintellectual property rights. If our intellectual property, including licensed intellectual property, does not adequately protectour market position against competitors’ products and methods, our competitive position could be adversely affected, ascould our business. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a productor product candidate under patent protection could be reduced. Since patent applications in the United States and most othercountries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we werethe first to make the inventions covered by our pending patent applications, or that we were the first to file any patentapplication related to a product or product candidate. Furthermore, if third parties have filed such patent applications, aninterference proceeding in the United States can be initiated by a third party to determine who was the first to invent any ofthe subject matter covered by the patent claims of our applications. In addition, patents have a limited lifespan. In the UnitedStates, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; howeverthe life of a patent, and the protection it affords, is limited. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manneras the laws of the United States. As a result, we may encounter significant problems in protecting and defending ourintellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the non-patentedintellectual property related to our technologies to third parties, and there is no guarantee that we will have any suchenforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, whichcould materially adversely affect our business, results of operations and financial condition. We depend on certain technologies that are licensed to us. We do not control the intellectual property rights covering thesetechnologies and any loss of our rights to these technologies or the rights licensed to us could prevent us from selling ourproducts. We are a party to a number of license agreements under which we are granted rights to intellectual property that isimportant to our business and we expect that we may need to enter into additional license agreements in the future. We relyon these licenses in order to be able to use various proprietary technologies that are material to our business, including anexclusive license to patents and patent applications from Massachusetts General Hospital, or MGH, and non-exclusivelicenses from other third parties related to materials used currently in our research and development activities, and which weuse in our commercial activities. Our rights to use these technologies and employ the inventions claimed in the licensedpatents are subject to the continuation of and our compliance with the terms of those licenses. Our existing licenseagreements impose, and we expect that future license agreements will impose on us, various diligence obligations, paymentof milestones or royalties and other obligations. If we fail to comply with our obligations under these agreements, or we aresubject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able tomarket products covered by the license. As we have done previously, we may need to obtain licenses from third parties to advance our research or allowcommercialization of our products and technologies, and we cannot provide any assurances that third-party patents do notexist which might be enforced against our current products and technologies or future products in the absence of50 Table of Contentssuch a license. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able toobtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. Inthat event, we may be required to expend significant time and resources to develop or license replacement technology. If weare unable to do so, we may be unable to develop or commercialize the affected products and technologies, which couldmaterially harm our business and the third parties owning such intellectual property rights could seek either an injunctionprohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties or other forms of compensation. In some cases, we do not control the prosecution, maintenance, or filing of the patents that are licensed to us, or theenforcement of these patents against infringement by third parties. Some of our patents and patent applications were not filedby us, but were either acquired by us or are licensed from third parties. Thus, these patents and patent applications were notdrafted by us or our attorneys, and we did not control or have any input into the prosecution of these patents and patentapplications either prior to our acquisition of, or entry into a license with respect to, such patents and patent applications.With respect to the patents we license from MGH, although we have rights under our agreement to provide input intoprosecution and maintenance activities, and are actively involved in such ongoing prosecution, MGH retains ultimatecontrol over such prosecution and maintenance. We therefore cannot be certain that the same attention was given, or willcontinue to be given, to the drafting and prosecution of these patents and patent applications as we may have exercised if wehad control over the drafting and prosecution of such patents and patent applications, or that we will agree with decisionstaken by MGH in relation to ongoing prosecution activities. We also cannot be certain that drafting or prosecution of thepatents and patent applications licensed to us have been or will be conducted in compliance with applicable laws andregulations or will result in valid and enforceable patents. Further, as MGH retains the right to enforce these patents againstthird-party infringement, we cannot be certain that MGH will elect to enforce these patents to the extent that we wouldchoose to do so, or in a way that will ensure that we retain the rights we currently have under our license with MGH. If MGHfails to properly enforce the patents subject to our license in the event of third-party infringement, our ability to retain ourcompetitive advantage with respect to our products and product candidates may be materially affected. In addition, certain of the patents we have licensed relate to technology that was developed with U.S. governmentgrants. Federal regulations impose certain domestic manufacturing requirements and other obligations with respect to someof our products embodying these patents. Licensing of intellectual property is of critical importance to our business and involves complex legal, business andscientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a licenseagreement, including: ·the scope of rights granted under the license agreement and other interpretation-related issues; ·whether and the extent to which our technology and processes infringe on intellectual property of the licensorthat is not subject to the licensing agreement; ·our right to sublicense patent and other rights to third parties under collaborative development relationships; ·our diligence obligations with respect to the use of the licensed technology in relation to our development andcommercialization of our products and technologies, and what activities satisfy those diligence obligations;and ·the ownership of inventions and know-how resulting from the joint creation or use of intellectual property byour licensors and us and our partners. If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our currentlicensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affectedproducts and technologies. 51 Table of ContentsWe may be involved in lawsuits to protect or enforce our patents and proprietary rights, to determine the scope,enforceability and validity of others’ proprietary rights, or to defend against third-party claims of intellectual propertyinfringement, any of which could be time-intensive and costly and may adversely impact our business or stock price. Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of thirdparties. There is a substantial amount of litigation, both within and outside the United States, involving patent and otherintellectual property rights in the medical device and diagnostics industries, including patent infringement lawsuits,interferences, oppositions and inter partes review proceedings before the U.S. Patent and Trademark Office, or U.S. PTO, andcorresponding foreign patent offices. While we have not received notices of claims of infringement or misappropriation ormisuse of other parties’ proprietary rights in the past, we may from time to time receive such notices in the future. Some ofthese claims may lead to litigation. Third parties may assert that we are employing their proprietary technology withoutauthorization. There may be third-party patents or patent applications with claims to materials, methods of manufacture ormethods of use of our products and technologies. Because patent applications can take many years to issue, third parties mayhave currently pending patent applications which may later result in issued patents that our products and technologies mayinfringe, or which such third parties claim are infringed by the use of our technologies. We cannot assure you that we willprevail in such actions, or that other actions alleging misappropriation or misuse by us of third-party trade secrets orinfringement by us of third-party patents, trademarks or other rights, or challenging the validity of our patents, trademarks orother rights, will not be asserted against us. Litigation may be necessary for us to enforce our patent and proprietary rights or to determine the scope,enforceability or validity of the proprietary rights of others. There has been substantial litigation and other proceedingsregarding patent and other intellectual property rights in the medical diagnostics industry. Third parties may assert that weare employing their proprietary technology without authorization. Many of our competitors have significantly larger andmore mature patent portfolios than we currently have. In addition, future litigation may involve patent holding companies orother adverse patent owners who have no relevant product revenue and against whom our own patents may provide little orno deterrence or protection. Parties making claims against us for infringement of their intellectual property rights may obtaininjunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one ormore of our products and technologies. Further, defense of such claims in litigation, regardless of merit, could result insubstantial legal fees and could adversely affect the scope of our patent protection, and would be a substantial diversion ofemployee, management and technical personnel resources from our business. The outcome of any litigation or otherproceeding is inherently uncertain and might not be favorable to us. In the event of a successful claim of infringementagainst us, we could be required to redesign our infringing products or obtain a license from such third party to continuedeveloping and commercializing our products and technology. However, we may not be able to obtain any required licenseon commercially reasonable terms, or at all. Even if we are able to obtain a license, it may be non-exclusive, thereby givingour competitors access to the same technologies licensed to us. We could therefore incur substantial costs for licensesobtained from third parties, if such licenses were available at all, which could negatively affect our gross margins, or preventus from commercializing our products and technologies. Further, we could encounter delays in product introductions, orinterruptions in product sales, as we develop alternative methods or products to avoid infringing third-party rights. Inaddition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the validity,enforceability or scope of the intellectual property or other proprietary rights of others, the proceedings could be burdensomeand expensive, even if we were to prevail. Any litigation that may be necessary in the future could result in substantial costsand the diversion of our resources and could have a material adverse effect on our business, operating results or financialcondition. Further, if the scope of protection provided by our patents or patent applications is threatened or reduced as aresult of litigation, it could discourage third parties from entering into collaborations with us that are important to thecommercialization of our products. We cannot guarantee that we have identified all relevant third-party intellectual property rights that may beinfringed by our technology, nor is there any assurance that patents will not issue in the future from currently pendingapplications that may be infringed by our technology or products or product candidates. We are aware of third parties thathave issued patents and pending patent applications in the United States, Europe, Canada, and other jurisdictions in the fieldof magnetic resonance devices and methods for analyte detection, including the preparation and use of reagents. While wecontinue to evaluate third-party patents in this area on an ongoing basis, we cannot guarantee that patents we currently areaware of will be found invalid or not infringed if we are accused of infringing them, or if our products are found to infringe,that we will be able to modify our products to cause them to be non-infringing on a timely or cost-effective basis, or at all.We currently monitor the intellectual property positions of some companies in this field that are potential competitors or areconducting research and development in areas that relate to our business, and will continue52 Table of Contentsto do so as we progress the development and commercialization of our products or product candidates. While we continue toevaluate third-party patents in this area on an ongoing basis, we cannot assure you that third parties do not currently have orwill not in the future have issued patents or other intellectual property rights that may be infringed by the practice of ourtechnology or the commercialization of our products or product candidates. Furthermore, because of the substantial amount of discovery required in connection with intellectual propertylitigation, there is a risk that some of our confidential information could be compromised by disclosure during this type oflitigation. In addition, during the course of this kind of litigation, there could be public announcements of the results ofhearings, motions or other interim proceedings or developments. If securities analysts or you perceive these results to benegative, it could have a substantial adverse effect on the price of our common stock. In addition, certain of our agreements with suppliers, distributors, customers and other entities with whom we dobusiness require us to defend or indemnify these parties to the extent they become involved in infringement claims relatingto our technologies or products, or rights licensed to them by us. We could also voluntarily agree to defend or indemnifythird parties in instances where we are not obligated to do so if we determine it would be important to our businessrelationships. If we are required or agree to defend or indemnify any of these third parties in connection with anyinfringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results,or financial condition. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. In addition to pursuing patents on our technology, we also rely on trade secret protection and confidentialityagreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patentsare difficult to enforce and any other elements of our products and technologies and discovery and development processesthat involve proprietary know-how, information or technology that is not covered by patents, in order to maintain ourcompetitive position. We take steps to protect our intellectual property, proprietary technologies and trade secrets, in part, byentering into confidentiality agreements with our employees, consultants, corporate partners, advisors and other third parties.We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants thatobligate them to assign to us any inventions developed in the course of their work for us. We also seek to preserve theintegrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical andelectronic security of our information technology systems. While we have confidence in these individuals, organizations andsystems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. Inaddition, our trade secrets may otherwise become known or be independently discovered by competitors. Our agreementsmay not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in theevent of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent suchunauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we havetaken to prevent such disclosure are, or will be, adequate. If we were to enforce a claim that a third party had illegallyobtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would beunpredictable. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive andtime-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing toprotect trade secrets. If any of the technology or information that we protect as trade secrets were to be lawfully obtained orindependently developed by a competitor, we would have no right to prevent them from using that technology orinformation to compete with us. Misappropriation or unauthorized disclosure of our trade secrets could impair ourcompetitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain ourtrade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the tradesecret. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA,as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on aroutine basis, including information that we may consider to be trade secrets or other proprietary information, and it is notclear at the present time how the FDA’s disclosure policies may change in the future, if at all. 53 Table of ContentsWe may be subject to damages resulting from claims that we or our employees, consultants or independent contractorshave wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used ordisclosed alleged trade secrets of their former employers. Many of our employees were previously employed at universities or other medical device companies, including ourcompetitors or potential competitors. Although we seek to protect our ownership of intellectual property rights by ensuringthat our agreements with our employees, collaborators and other third parties with whom we do business include provisionsrequiring such parties to assign rights in inventions to us, we may also be subject to claims that former employees,collaborators or other third parties have an ownership interest in our patents or other intellectual property. Although noclaims against us are currently pending, we may be subject to claims that these employees or we have inadvertently orotherwise used or disclosed trade secrets or other proprietary information of our employees’ former employers, or we may besubject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who areinvolved in developing our products and technologies. Litigation may be necessary to defend against these claims. If we failin defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights orpersonnel, which could hamper our ability to commercialize certain potential products, which could severely harm ourbusiness. Even if we are successful in defending against these claims, litigation could result in substantial costs and be adistraction to management. We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property. We may also be subject to claims that former employees, collaborators or other third parties have an ownershipinterest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, forexample, from conflicting obligations of consultants or others who are involved in developing our products andtechnologies. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. Ifwe fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual propertyrights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a materialadverse effect on our business. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management and other employees. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patentapplications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. TheLeahy-Smith Act includes a number of significant changes to U.S. patent law, including provisions that affect the way patentapplications will be prosecuted and may also affect patent litigation. The U.S. PTO is currently developing regulations andprocedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associatedwith the Leahy-Smith Act, and in particular, the first to file provisions, were enacted March 16, 2013. However, it is not clearwhat, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and itsimplementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and theenforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financialcondition. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission,fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reducedor eliminated for non-compliance with these requirements. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents andapplications will be due to be paid to the U.S. PTO and various governmental patent agencies outside of the United States inseveral stages over the lifetime of the patents and applications. We have systems in place to remind us to pay these fees, andwe employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The U.S. PTOand various foreign governmental patent agencies require compliance with a number of procedural, documentary, feepayment and other provisions during the patent process. We employ reputable law firms and other professionals to help uscomply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance withthe applicable rules, however there are situations in which noncompliance can result in abandonment or lapse of a patent orpatent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event,competitors might be able to enter the market earlier than would otherwise have been the case.54 Table of Contents If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in ourmarkets of interest, and our business may be adversely affected. We have not yet registered certain of our trademarks, including T2HemoStat, T2Bacteria and T2Lyme, in all of ourpotential markets, including in international markets. If we apply to register these trademarks, our applications may not beallowed for registration, and our registered trademarks may not be maintained or enforced. In addition, opposition orcancellation proceedings may be filed against our trademark applications and registrations, and our trademarks may notsurvive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcingthem against third parties than we otherwise would. Our registered or unregistered trademarks or trade names may bechallenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be ableto protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners orcustomers in our markets of interest. Over the long term, if we are unable to establish name recognition based on ourtrademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We may not be able to protect our intellectual property rights throughout the world. The laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of theUnited States, and many companies have encountered significant problems in protecting and defending such rights inforeign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor theenforcement of patents and other intellectual property protection, particularly those relating to technologies relating tobiotechnology, which could make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patentrights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of ourbusiness. Also, because we have not pursued patents in all countries, there exist jurisdictions where we are not protectedagainst third parties using our proprietary technologies. Further, compulsory licensing laws or limited enforceability ofpatents against government agencies or contractors in certain countries may limit our remedies or reduce the value of ourpatents in those countries. We use third-party software that may be difficult to replace or cause errors or failures of our products that could lead tolost customers or harm to our reputation. We use software licensed from third parties in our products. In the future, this software may not be available to us oncommercially reasonable terms, or at all. Any loss of the right to use any of this software could result in delays in theproduction of our products until equivalent technology is either developed by us, or, if available, is identified, obtained andintegrated with our technologies and products, which could harm our business. In addition, any errors or defects in, or failuresof, such third-party software could result in errors or defects in the operation of our products or cause our products to fail,which could harm our business and reputation and be costly to correct. Many of the licensors of the software we use in ourproducts attempt to impose limitations on their liability for such errors, defects or failures. If enforceable, such limitationswould require us to bear the liability for such errors, defects or failures, which could harm our reputation and increase ouroperating costs. Intellectual property rights do not necessarily address all potential threats to our competitive advantage. The degree of future protection afforded by our intellectual property rights is uncertain because intellectual propertyrights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage.The following examples are illustrative: ·others may be able to make diagnostic products and technologies that are similar to our products or productcandidates but that are not covered by the claims of the patents that we own or have exclusively licensed; ·we or our licensors or future collaborators might not have been the first to make the inventions covered by theissued patent or pending patent application that we own or have exclusively licensed; ·we or our licensors or future collaborators might not have been the first to file patent applications coveringcertain of our inventions; 55 Table of Contents·others may independently develop similar or alternative technologies or duplicate any of our technologieswithout infringing our intellectual property rights; ·it is possible that our pending patent applications will not lead to issued patents; ·issued patents that we own or have exclusively licensed may be held invalid or unenforceable, as a result oflegal challenges by our competitors; ·our competitors might conduct research and development activities in countries where we do not have patentrights and then use the information learned from such activities to develop competitive products for sale in ourmajor commercial markets; ·we may not develop additional proprietary technologies that are patentable; and ·the patents of others may have an adverse effect on our business. Should any of these events occur, they could significantly harm our business, results of operations and prospects. Risks Related to Our Common Stock Our executive officers, directors and principal stockholders, if they choose to act together, have the ability to control allmatters submitted to stockholders for approval. Our executive officers, directors and stockholders who own more than 5% of our outstanding common stock andtheir respective affiliates, in the aggregate, hold shares representing a significant amount of our outstanding voting stock. Asa result, if these stockholders were to choose to act together, they would be able significantly influence all matters submittedto our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to acttogether, would significantly influence the election of directors and approval of any merger, consolidation or sale of all orsubstantially all of our assets. This concentration of ownership control may: ·delay, defer or prevent a change in control; ·entrench our management and the board of directors; or ·impede a merger, consolidation, takeover or other business combination involving us that other stockholdersmay desire. An active trading market for our common stock may not continue to develop or be sustained. Since our initial listing on The NASDAQ Global Market in August 2014, the trading market in our common stockhas been extremely limited. The listing of our common stock on The NASDAQ Global Market does not assure that ameaningful, consistent and liquid trading market currently exists. We cannot predict whether a more active market for ourcommon stock will develop or be sustained in the future. Our executive officers, directors and 5% stockholders and their respective affiliates in the aggregate own asignificant percentage of our outstanding shares of common stock, which may adversely affect the liquidity of the tradingmarket for our common stock. If these stockholders continue to hold their shares of common stock, there will be limitedtrading volume in our common stock, which may make it more difficult for investors to sell their shares and may increase thevolatility of our stock price. The absence of an active trading market could adversely affect our stockholders’ ability to sellour common stock at current market prices in short time periods, or possibly at all. Additionally, market visibility for ourcommon stock may be limited and such lack of visibility may have a depressive effect on the market price for our commonstock. 56 Table of ContentsThe price of our common stock has been volatile and is likely to continue to be volatile, which could result in substantiallosses for purchasers of our common stock. Our stock price has been and is likely to continue be volatile. The stock market in general has experienced extremevolatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility,you may not be able to sell your common stock at or above the current market price. The market price for our common stockmay be influenced by many factors, including: ·actual or anticipated fluctuations in our financial condition and operating results; ·actual or anticipated changes in our growth rate relative to our competitors; ·competition from existing products or new products that may emerge; ·development of new technologies that may address our markets and may make our technology less attractive; ·changes in physician, hospital or healthcare provider practices that may make our products or productcandidates less useful; ·announcements by us, our partners or our competitors of significant acquisitions, strategic partnerships, jointventures, collaborations or capital commitments; ·developments or disputes concerning patent applications, issued patents or other proprietary rights; ·the recruitment or departure of key personnel; ·failure to meet or exceed financial estimates and projections of the investment community or that we provide tothe public; ·actual or anticipated changes in estimates as to financial results, development timelines or recommendations bysecurities analysts; ·variations in our financial results or those of companies that are perceived to be similar to us; ·changes to reimbursement levels by commercial third-party payors and government payors, including Medicare,and any announcements relating to reimbursement levels; ·general economic, industry and market conditions; and ·the other factors described in this “Risk Factors” section. We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growthcompanies may make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBSAct, and may remain an emerging growth company for up to five years following the IPO. For so long as we remain anemerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that areapplicable to other public companies that are not emerging growth companies. These exemptions include: ·not being required to comply with the auditor attestation requirements in the assessment of our internal controlover financial reporting; ·not being required to comply with any requirement that may be adopted by the Public Company AccountingOversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providingadditional information about the audit and the financial statements; ·reduced disclosure obligations regarding executive compensation; and57 Table of Contents ·exemptions from the requirements of holding a nonbinding advisory vote on executive compensation andstockholder approval of any golden parachute payments not previously approved. We have taken advantage of reduced reporting burdens in this annual report. In particular, we may not include all ofthe executive compensation related information that would be required if we were not an emerging growth company. Wecannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investorsfind our common stock less attractive as a result, there may be a less active trading market for our common stock and ourstock price may be reduced or more volatile. In addition, the JOBS Act provides that an emerging growth company can takeadvantage of an extended transition period for complying with new or revised accounting standards. This allows an emerginggrowth company to delay the adoption of these accounting standards until they would otherwise apply to private companies.We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new orrevised accounting standards as other public companies that are not emerging growth companies. We will incur increased costs as a result of operating as a public company, and our management will be required to devotesubstantial time to new compliance initiatives and corporate governance practices. As a public company, and particularly after we are no longer an emerging growth company, we will incur significantlegal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and otherapplicable securities rules and regulations impose various requirements on public companies, including establishment andmaintenance of effective disclosure and financial controls and corporate governance practices. Our management and otherpersonnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules andregulations will increase our legal and financial compliance costs and will make some activities more time-consuming andcostly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us toobtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualifiedmembers of our board of directors. We continue to applicable securities rules and regulations. These rules and regulations are often subject to varyinginterpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve overtime as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regardingcompliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report byour management on our internal control over financial reporting. However, while we remain an emerging growth company,we will not be required to include an attestation report on internal control over financial reporting issued by our independentregistered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engagedin a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. Inthis regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed workplan to assess and document the adequacy of internal control over financial reporting, continue steps to improve controlprocesses as appropriate, validate through testing that controls are functioning as documented and implement a continuousreporting and improvement process for internal control over financial reporting. If we identify one or more materialweaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of ourfinancial statements. If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse ormisleading opinion regarding our stock, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that industry or securitiesanalysts publish about us or our business. In the event any of the analysts who cover us issue an adverse or misleadingopinion regarding us, our business model, our intellectual property or our stock performance, or if our regulatory clearancetimelines, clinical trial results or operating results fail to meet the expectations of analysts, our stock price would likelydecline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibilityin the financial markets, which in turn could cause our stock price or trading volume to decline. 58 Table of ContentsProvisions in our restated certificate of incorporation and amended and restated bylaws and under Delaware law couldmake an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attemptsby our stockholders to replace or remove our current management. Provisions in our restated certificate of incorporation and our amended and restated bylaws may discourage, delay orprevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, includingtransactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price thatinvestors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of ourcommon stock. In addition, because our board of directors is responsible for appointing the members of our managementteam, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our currentmanagement by making it more difficult for stockholders to replace members of our board of directors. Among other things,these provisions include those establishing: ·a classified board of directors with three-year staggered terms, which may delay the ability of stockholders tochange the membership of a majority of our board of directors; ·no cumulative voting in the election of directors, which limits the ability of minority stockholders to electdirector candidates; ·the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of theboard of directors or the resignation, death or removal of a director, which prevents stockholders from fillingvacancies on our board of directors; ·the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine theterms of those shares, including preferences and voting rights, without stockholder approval, which could beused to significantly dilute the ownership of a hostile acquirer; ·the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholderapproval; ·the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directorsto adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our restated certificate ofincorporation regarding the election and removal of directors; ·a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annualor special meeting of our stockholders; ·the requirement that a special meeting of stockholders may be called only by the chief executive officer, thepresident or the board of directors, which may delay the ability of our stockholders to force consideration of aproposal or to take action, including the removal of directors; and ·advance notice procedures that stockholders must comply with in order to nominate candidates to our board ofdirectors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter apotential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors orotherwise attempting to obtain control of us. Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of theGeneral Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of our outstandingvoting stock from merging or combining with us for a period of three years after the date of the transaction in which theperson acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in aprescribed manner. Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capitalappreciation, if any, will be your sole source of gain. We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our futureearnings, if any, to finance the growth and development of our business. Our ability to pay cash dividends is prohibited bythe terms of our existing credit facility. Any future debt agreements may also preclude us from paying dividends. As a result,capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. 59 Table of ContentsWe could be subject to securities class action litigation. In the past, securities class action litigation has often been brought against a company following a decline in the market priceof its securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention andresources, which could harm our business. Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTY Our corporate headquarters is located in Lexington, Massachusetts, where we currently lease approximately 32,400square feet of office space, 22,800 square feet of laboratory space and 4,600 square feet of manufacturing space. Our baserent, for leases at our corporate headquarters, is $2.0 million annually. In addition, we lease approximately 7,600 square feetin Wilmington, Massachusetts for our manufacturing facility, under a lease that expires in 2017 for $61,000 of base rentannually. Item 3. LEGAL PROCEEDINGS We are not party to any material legal proceedings. Item 4. MINE SAFETY DISCLOSURES Not applicable.60 Table of ContentsPART II. Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock has been quoted on The NASDAQ Global Market under the symbol “TTOO” and has been tradingsince August 7, 2014. The following table sets forth, for the periods indicated, the quarterly high and low sales prices pershare of our common stock as reported on The NASDAQ Global Market. Year ended December 31, 2015 High Low First Quarter $24.04 $14.71 Second Quarter $19.90 $14.63 Third Quarter $17.27 $8.45 Fourth Quarter $12.30 $8.56 Year ended December 31, 2014 High Low Third Quarter $24.50 $13.40 Fourth Quarter $19.82 $13.50 Dividend Policy We have never declared or paid any cash dividends on our common stock and do not expect to pay any dividends forthe foreseeable future. We currently intend to retain any future earnings to fund the operation, development and expansion ofour business. Any future determination to pay dividends will be at the sole discretion of our Board of Directors and willdepend upon a number of factors, including our results of operations, capital requirements, financial condition, futureprospects, contractual arrangements, restrictions imposed by applicable law, any limitations on payments of dividendspresent in our current and future debt arrangements, and other factors our Board of Directors may deem relevant. Stock Performance Graph The graph below compares the cumulative total stockholder returns on our common stock for the period indicated withthe cumulative total stockholder returns on the NASDAQ Composite Index for the same period. The graph assumes that $100was invested on August 7, 2014 in our common stock in each index and that all dividends were reinvested. No61 Table of Contentscash dividends have been declared on our common stock. Stockholder returns over the indicated period should not beconsidered indicative of future stockholder returns. Stockholders The last reported sale price of common stock on March 4, 2016 as reported on the NASDAQ Global Market was $8.73.As of March 4, 2016, there were 21 holders of record of our common stock. Equity Compensation Plan Information For information regarding securities authorized for issuance under equity compensation plans, see Part III “Item 12 —Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” Issuer Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. SELECTED CONSOLIDATED FINANCIAL DATA The following tables set forth, for the periods and as of the dates indicated, our selected financial data. Theconsolidated statement of operations data for the years ended December 31, 2015, 2014, 2013 and consolidated balancesheet data as of December 31, 2015 and 2014 are derived from our audited financial statements in this Annual Report onForm 10-K. We have derived the consolidated statement of operations data for the year ended December 31, 2012 and62 Table of Contentsthe consolidated balance sheet data as of December 31, 2013 and 2012 from our audited financial statements not included inthis Annual Report on Form 10-K. Our historical results are not necessarily indicative of our future results. Year ended December 31, Consolidated Statement of Operations Data: 2015 2014 2013 2012 Revenue: Product revenue $599 $ — $ — $ — Research revenue 2,214 119 266 19 Total revenue 2,813 119 266 19 Costs and expenses: Cost of product revenue 1,740 — — — Research and development 25,362 19,782 14,936 11,727 Selling, general and administrative 19,094 11,018 5,022 2,945 Total costs and expenses 46,196 30,800 19,958 14,672 Loss from operations (43,383) (30,681) (19,692) (14,653) Interest expense, net (1,967) (721) (403) (154) Other income (expense), net 60 12 (515) 352 Net loss (45,290) (31,390) (20,610) (14,455) Accretion of redeemable convertible preferred stock toredemption value — (4,570) (6,908) (4,412) Net loss applicable to common stockholders $(45,290) $(35,960) $(27,518) $(18,867) Net loss per share applicable to common stockholders — basicand diluted $(2.21) $(4.15) $(19.72) $(13.86) Weighted-average number of common sharesused in computing net loss per share applicable to commonstockholders — basic and diluted (1)(2)(4) 20,501,748 8,674,931 1,395,562 1,361,616 As of December 31, Consolidated Balance Sheet Data: 2015 2014 2013 2012 (in thousands) Cash and cash equivalents (1)(2)(3) $73,662 $73,849 $30,198 $9,709 Total assets 86,948 79,134 31,885 11,431 Notes payable, net of current portion (3) 26,222 20,660 3,299 5,058 Current liabilities 12,275 5,172 4,046 2,129 Warrants to purchase redeemable securities (4) — — 1,225 695 Total liabilities 40,009 26,133 8,615 7,952 Redeemable convertible preferred stock (4) — — 112,813 66,137 Total stockholders’ equity (deficit) (4) 46,939 53,001 (89,543) (62,658) (1)On December 9, 2015 and December 21, 2015, we issued 3,500,000 shares and 191,049 shares of common stock,respectively, in connection with our secondary public offering at $9.75 per share. We raised approximately $33.3million in net proceeds.(2)On August 12, 2014, we issued 5,980,000 shares of common stock in connection with our IPO at $11.00 per share. Weraised approximately $58.1 million in net proceeds.(3)On July 11, 2014, December 30, 2014 and December 28, 2015, we received net proceeds of $9.7 million, $10.0 million and$10.0 million, respectively, from our loan and security agreement with Solar Capital, Ltd. (4) In connection with the closing of our IPO on August 12, 2014, all warrants were net settled into shares of common stockand all shares of redeemable convertible preferred stock were converted into common stock.63 Table of ContentsItem 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS This Annual Report on Form 10-K contains forward-looking statements about us and our industry that involvesubstantial risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisionsfor forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Allstatements other than statements of historical facts contained in this Annual Report on Form 10-K, including statementsregarding our future results of operations and financial position, business strategy, prospective products and productcandidates, their expected performance and impact on healthcare costs, marketing authorization from the U.S. Food andDrug Administration, or the FDA, regulatory clearance, reimbursement for our product candidates, research anddevelopment costs, timing of regulatory filings, timing and likelihood of success, plans and objectives of management forfuture operations and future results of anticipated products, are forward-looking statements. These statements involveknown and unknown risks, uncertainties and other important factors that may cause our actual results, performance orachievements to be materially different from any future results, performance or achievements expressed or implied by theforward-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,” “predict,” “potential”or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this AnnualReport on Form 10-K are only predictions. We have based these forward-looking statements largely on our currentexpectations and projections about future events and financial trends that we believe may affect our business, financialcondition and results of operations. These forward-looking statements speak only as of the date of this Annual Report onForm 10-K and are subject to a number of risks, uncertainties and assumptions described under the sections in thisprospectus entitled “Item 1A.—Risk Factors” and “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and elsewhere in this Annual Report on Form 10-K. These forward looking statements are subject tonumerous risks, including, without limitation, the following: ·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 productcandidates; ·the length of our anticipated sales cycle; ·our ability to gain the support of leading hospitals and key thought leaders and publish the results of ourclinical trials in peer-reviewed journals; ·our ability to successfully manage our growth; ·our future capital needs and our need to raise additional funds; ·the performance of our diagnostics; ·our ability to compete in the highly competitive diagnostics market; ·our ability to obtain marketing authorization from the FDA or regulatory clearance for new productcandidates in the United States or any other jurisdiction; ·federal, state, and foreign regulatory requirements, including FDA regulation of our product candidates. ·our ability to protect and enforce our intellectual property rights, including our trade secret-protectedproprietary rights in T2MR; and 64 Table of Contents These forward-looking statements represent our estimates and assumptions only as of the date of this AnnualReport 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 toactual results. The following discussion should be read in conjunction with the financial statements and notes theretoappearing elsewhere in this Annual Report on Form 10-K. Our actual results may differ materially from those anticipated inthese forward-looking statements as a result of various factors, including those set forth under “Item 1A. Risk Factors” inthis Annual Report on Form 10-K, and elsewhere in this Annual Report on Form 10-K. You should read the following discussion and analysis of our consolidated financial condition and results ofoperations together with our consolidated financial statements and related notes thereto included elsewhere in this AnnualReport on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in thisAnnual Report on Form 10-K, including information with respect to our plans and strategy for our business and relatedfinancing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, includingthose factors set forth in the “Item 1A.—Risk Factors” section of this Annual Report on Form 10-K, our actual results coulddiffer materially from the results described in or implied by the forward-looking statements contained in the followingdiscussion and analysis. Business Overview We are an in vitro diagnostics company that has developed an innovative and proprietary technology platform thatoffers a rapid, sensitive and simple alternative to existing diagnostic methodologies. We are using our T2 MagneticResonance platform, or T2MR, to develop a broad set of applications aimed at lowering mortality rates, improving patientoutcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisions earlier. Ourinitial development efforts utilizing T2MR target sepsis and hemostasis, which are areas of significant unmet medical needwhere existing therapies could be more effective with improved diagnostics. On September 22, 2014, we received marketauthorization from the FDA for our first two products, the T2Dx Instrument, or T2Dx, and the T2Candida Panel orT2Candida, for the direct detection of Candida species in human whole blood specimens and independent of blood culturefrom patients with symptoms of, or medical conditions predisposing the patient to, invasive fungal infections. We havelaunched the commercialization of T2Dx and T2Candida in the United States, and we are building a direct sales force that istargeting the top 450 hospitals in the United States that have the highest concentration of patients at risk forCandida infections. Our next three diagnostic applications are called T2Bacteria, T2HemoStat, and T2Lyme, which arefocused on bacterial sepsis infections, hemostasis, and Lyme disease, respectively. In late 2015, we initiated the collection ofsamples to support clinical trials for T2Bacteria beginning in 2016, and we plan to initiate clinical trials in the middle of2016 for T2HemoStat. We expect that existing reimbursement codes will support our T2Bacteria and T2HemoStat productcandidates, and that the anticipated economic savings associated with T2Bacteria and T2Candida will be realized directly byhospitals. We believe our combined initial annual addressable market opportunity for sepsis, hemostasis and Lyme disease isover $3.7 billion in the United States alone, when the market opportunity for T2Candida, T2Bacteria, T2Lyme and our initialhemostasis diagnostic panel is combined. We believe the benefits of our proprietary technology platform, including theability to rapidly and directly detect a broad range of targets in a wide variety of sample types, will have potential futureapplications within and outside of the in vitro diagnostics market, including the diagnosis of infectious disease, cancer,cardiac and other wellness applications, as well as environmental, food safety, industrial and veterinary applications. We compete with traditional blood culture-based diagnostic companies, including Becton Dickinson & Co. andbioMerieux, Inc., as well as companies offering post-culture species identification using both molecular and non-molecularmethods, including bioMerieux, Inc., Bruker Corporation, Cepheid and Siemens AG, as well as other diagnostic companiessuch as Abbott, Accelerate Diagnostics, BioFire and Nanosphere. We have never been profitable and have incurred net losses in each year since inception. Our accumulated deficit atDecember 31, 2015 was $148.9 million. Substantially all our net losses resulted from costs incurred in connection with ourresearch and development programs and from selling, general and administrative costs associated with ouroperations. Having obtained authorization from the FDA to market T2Dx and T2Candida, we are incurring significantcommercialization expenses related to product sales, marketing, manufacturing and distribution. In addition, we expect thatour expenses will increase substantially as we continue the research and development of our other product candidates andmaintain, expand and protect our intellectual property portfolio. Accordingly, we may seek to fund our operations throughpublic equity or private equity or debt financings, as well as other sources. However, we may be65 Table of Contentsunable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure toraise capital or enter into such other arrangements as and when needed would have a negative impact on our financialcondition and our ability to develop and commercialize T2Dx, T2Candida and our other product candidates. Our Commercial Products and the Unmet Clinical Need Our initial FDA-authorized products, T2Dx and T2Candida utilize T2MR to detect species-specific Candidadirectly from whole blood in three to five hours versus the one to five days required by blood culture-based diagnostics. Thisallows the patient to receive the correct treatment in four to six hours versus at least 48 hours for blood culture. TheT2Candida runs on T2Dx and provides high sensitivity with a limit of detection as low as 1 CFU/mL, even in the presence ofantimicrobial therapy. Our T2Candida Panel Our direcT2 pivotal clinical trial was designed to evaluate the sensitivity and specificity of T2Candida on T2Dx.The direcT2 trial consisted of two patient arms: a prospective arm with 1,501 samples from patients with a possible infectionand a seeded arm with 300 samples, also obtained from patients with a possible infection. T2Candida and T2Dxdemonstrated a sensitivity of 91.1 percent and a specificity of 99.4 percent. In addition, the speed to a species-specificpositive result with T2Candida was 4.4 hours versus 129 hours with blood culture. A negative result from T2Candida wasobtained in just 4.2 hours versus 120 hours with blood culture. The data and other information from the direcT2 pivotalclinical trial was published in January 2015 in Clinical Infectious Diseases. 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 afflictingimmunocompromised, critical care and elderly patients, sepsis is a severe inflammatory response to a bacterial or fungalinfection with a mortality rate of approximately 30%. One out of approximately every two to three hospital deaths in theUnited States is attributable to sepsis. According to data published by the U.S. Department of Health and Human Services for2011, the cost of treating sepsis is over $20 billion in the United States, or approximately 5% of the total aggregate costsassociated with domestic hospital stays. Sepsis is typically caused by one or more of five Candida species or over 25bacterial pathogens, and effective treatment requires the early detection and identification of these specific target pathogensin a patient’s bloodstream. Today, sepsis is typically diagnosed through a series of blood cultures followed by post-bloodculture species identification. This method has substantial diagnostic limitations that lead to a delay of up to several days inadministration of targeted treatment and the incurrence of unnecessary hospital expense. In addition, the Survey ofPhysicians’ Perspectives and Knowledge About Diagnostic Tests for Bloodstream Infectious in 2015 reported that negativeblood 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, which can be ineffective andunnecessary and have contributed to the spread of antimicrobial resistance. According to a study published by Critical CareMedicine in 2006, in sepsis patients with documented hypotension, administration of effective antimicrobial therapy withinthe first hour of detection was associated with a survival rate of 79.9% and, over the ensuing six hours, each hour of delay ininitiation of treatment was associated with an average decrease in survival of 7.6%. We believe our sepsis products will redefine the standard of care in sepsis management while lowering healthcarecosts by improving both the precision and the speed of detection of sepsis-causing pathogens. According to a studypublished in the Journal of Clinical Microbiology in 2010, targeted therapy for patients with bloodstream infections can bedelayed up to 72 hours due to the wait time for blood culture results, leading to the conclusion that more-rapid identificationof the causative organism would be highly desirable to facilitate targeted treatment in the critical phase of septic illness. Inanother study published in Clinical Infectious Diseases in 2012, the delayed administration of appropriate antifungal therapywas associated with higher mortality among patients with septic shock attributed to Candida infection and, on that basis, thestudy stated that more rapid and accurate diagnostic techniques appear to be needed. Our pivotal clinical trial demonstratedthat T2Candida can deliver actionable results as fast as three hours, with an average time to result of 4.2 hours, compared tothe average time to result of one to six or more days typically required for blood-culture-based diagnostics, which we believewill enable physicians to make treatment decisions and administer targeted treatment to patients in four to six hours versus24 to 144 hours for blood culture. We believe that T2Bacteria will also deliver actionable results within these timeframesbecause this diagnostic panel operates similarly to T2Candida and is designed to run on the same instrument as T2Candida. 66 Table of ContentsCandida is the fourth leading hospital-acquired bloodstream infection, afflicting more than 135,000 patients peryear in the United States, and the most lethal form of common bloodstream infections that cause sepsis, with an averagemortality rate of approximately 40%. This high mortality rate is largely due to the elapsed time from Candida infection topositive diagnosis and treatment. 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 ofsymptoms. Additionally, a typical patient with a Candida infection averages 40 days in the hospital, including nine days inintensive care, resulting in an average cost per hospital stay of more than $130,000 per patient. In a study published in theAmerican Journal of Respiratory and Critical Care Medicine , providing targeted antifungal therapy within 24 hours of thepresentation of symptoms decreased the length of hospital stay by approximately ten days and decreased the average cost ofcare by approximately $30,000 per patient. Furthermore, in April 2015, Future Microbiology published the results of aneconomic study regarding the use of T2Candida conducted by IMS Health, a healthcare economics agency. In that economicstudy, IMS demonstrated that an average hospital admitting 5,100 patients at risk for Candida infections could saveapproximately $5.8 million annually due to decreased hospital stays for patients, reduction in use of antifungal drugs, andother associated savings. The economic study further showed T2Candida can potentially reduce the costs of care by $26,887per Candida patient and that rapid detection of Candida reduces patient deaths by 60.6%. Most recently, results from a dataanalysis of T2Candida for the detection and monitoring of Candida infection and sepsis were published comparingaggregated results from the use of T2Candida to blood culture-based diagnostics for the detection of invasive candidiasisand candidemia. The analysis included samples acquired from more than 1,900 patients. Out of 55 prospective patient casesthat were tested with T2Candida and blood culture, T2Candida detected 96.4% of the patients (53 cases) compared todetection of 60% of the patients (33 cases) with blood culture. Based on this data, the Company expanded the T2CandidaIFU label to include this data and to state that T2Candida provides superior sensitivity as compared to blood culture for thedetection of candidemia and invasive candidisasis. Additionally, the speed to result of the T2Candida, run on T2Dx, can help reduce the empiric overuse of ineffective,or even unnecessary, antimicrobial therapy. This inappropriate therapy is a driving force behind the spread of antimicrobial-resistant pathogens, which the United States Centers for Disease Control and Prevention recently called “one of our mostserious health threats.” Our T2Dx Instrument Our FDA-authorized T2Dx is an easy-to-use, fully-automated, benchtop instrument utilizing T2MR for use inhospitals and labs for a broad range of diagnostic tests. To operate the system, a patient’s sample tube is snapped onto adisposable test cartridge, which is pre-loaded with all necessary reagents. The cartridge is then inserted into T2Dx, whichautomatically processes the sample and then delivers a diagnostic test result. Test results are displayed on screen or directlythrough the lab information system. By utilizing our proprietary T2MR for direct detection, T2Dx eliminates the need for sample purification andanalyte extraction, which are necessary for other optical-detection devices. Eliminating these sample processing stepsincreases diagnostic sensitivity and accuracy, enables a broad menu of tests to be run on a single platform, and greatlyreduces the complexity of the consumables. T2Dx incorporates a simple user interface and is designed to efficiently processup to seven specimens simultaneously. Our T2Bacteria Panel We are also developing T2Bacteria, a multiplex diagnostic panel that detects six major bacterial pathogensassociated with sepsis and, in conjunction with T2Candida and standard empiric therapy regimens, will enable the early,appropriate treatment of 95% of sepsis patients. FDA market authorization of T2Bacteria would expand our target marketfrom 450 hospitals to 2,500 hospitals. T2Bacteria, which will also run on T2Dx, is expected to address the sameapproximately 6.75 million symptomatic high-risk patients as T2Candida and also a new population of patients who are atincreased risk for bacterial infections, including an additional two million patients presenting with symptoms of infection inthe emergency room setting. We expect that T2Bacteria will achieve similar performance capabilities and provide similarbenefits as T2Candida, including similar time to results and limits of detection. Our T2MR Platform T2MR is a miniaturized, magnetic resonance-based approach that measures how water molecules react in thepresence of magnetic fields. For molecular and immunodiagnostics targets, T2MR introduces nanoparticles to the67 Table of Contentssample that are coated with target-specific binding agents. If the target is present, the nanoparticles bind to and clusteraround it, disrupting the surrounding water molecules and altering the magnetic resonance signal. Another significant unmet clinical need that we believe can be addressed by T2MR is the timely diagnosis andmanagement of impaired hemostasis, which is a potentially life-threatening condition in which a patient is unable to promotethe formation of blood clots to stabilize excessive bleeding. For critical trauma patients with impaired hemostasis, diagnosticresults are typically required in fewer than 45 minutes to aid clinicians in making the most effective treatment decisions. Theneed for rapid diagnosis is not met by current diagnostic methods, which typically involve multiple instruments and can takehours to process a patient specimen. As a result, physicians often make critical decisions for treatment of impaired hemostasiswith limited or no diagnostic data. Within the hemostasis market, for trauma alone, there are over ten million patients in theUnited States annually who present with symptoms of impaired hemostasis. Approximately 80% of these patients are treatedin a level 1 or 2 trauma center, 85% of which overlap with the 450 hospitals being targeted for T2Candida. We believe T2MR is the first technology with the ability to detect directly from a clinical sample of whole blood,plasma, serum, saliva, sputum or urine, saving time and potentially improving sensitivity by eliminating the need forpurification or the extraction of target pathogens. T2MR has been demonstrated to detect cellular targets at limits ofdetection as low as one colony-forming unit per milliliter (CFU/mL). More than 100 studies published in peer reviewedjournals have featured T2MR in a breadth of applications. Financial Overview Revenue We generate revenue from the sale of our products and from activities performed pursuant to research anddevelopment agreements. Revenue earned from activities performed pursuant to research and development agreements is reported as researchrevenue using the proportional performance method as the work is completed, limited to payments earned, and the relatedcosts are expensed as incurred as research and development expense. Product revenue is derived from the sale of our instruments and related consumable diagnostic tests. We recognizeproduct revenue from the sale of our instruments as soon as all applicable revenue recognition criteria have been met. In themajority of cases, we expect to place our instruments, under reagent rental agreements, in hospitals in exchange for long-termagreements, certain of which may include minimum commitments and/or an incremental charge on the purchase of ourconsumable diagnostic tests. Under this business model, we believe we will recover the cost of placing our instruments inhospitals through the margins realized from our consumable diagnostic tests. Our consumable diagnostic tests can only beused with our instruments, and accordingly, as the installed base of our instruments grows, we expect the following to occur: ·recurring revenue from our consumable diagnostic tests will increase and become subject to less period-to-period fluctuation; ·consumable revenue will become an increasingly predictable and important contributor to our totalrevenue; and ·we will gain economies of scale through the growth in our sales, resulting in improving gross margins andoperating margins. Revenue from consumables is based on the volume of tests sold and the price of each consumable unit. Cost of Product Revenue Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in themanufacture of our consumable diagnostic tests sold to customers and related license and royalty fees. Cost of productrevenue also includes depreciation on the revenue-generating T2Dx Instruments that have been placed with our customersunder reagent rental agreements; costs of materials, direct labor and manufacturing overhead costs on the68 Table of ContentsT2Dx Instruments sold to customers; and other costs such as customer support costs, warranty and repair and maintenanceexpense on the T2Dx Instruments that have been placed with our customers under reagent rental agreements. Wemanufacture the T2Dx Instruments and some of our consumable diagnostic tests in our facilities. We outsource themanufacturing of components of our consumable diagnostic tests to a contract manufacturer. We expect cost of product revenue to increase and to initially exceed or represent a high percentage of our productrevenue as we continue to invest in our manufacturing facilities and customer service organization and grow our installedcustomer base. We plan to continue to expand our capacity to support our growth, which will result in higher cost of revenuein absolute dollars. However, we expect cost of product revenue, as a percentage of revenue, to decline as revenue grows inthe future. Research and development expenses Our research and development expenses consist primarily of costs, including costs, incurred for the development ofour technology and product candidates, technology improvements and enhancements, clinical trials to evaluate the clinicalutility of our product candidates, and laboratory development and expansion, and include salaries and benefits, includingstock-based compensation, research-related facility and overhead costs, laboratory supplies, equipment and contract services.Research and development expenses also include costs of delivering products or services associated with research revenue.We expense all research and development costs as incurred. We expect that our overall research and development expenses will continue to increase in absolute dollars. Wehave committed, and expect to commit, significant resources toward developing additional product candidates, improvingproduct performance and reliability, conducting ongoing and new clinical trials and expanding our laboratory capabilities. Selling, general and administrative expenses Selling, general and administrative expenses consist primarily of costs for our sales and marketing, finance, legal,human resources, business development and general management functions, as well as professional services, such as legal,consulting and accounting services. We expect selling, general and administrative expenses to increase in future periods aswe commercialize products and future product candidates that receive marketing authorization or regulatory clearance and asour needs for sales, marketing and administrative personnel grow. Other selling, general and administrative expenses includefacility-related costs, fees and expenses associated with obtaining and maintaining patents, clinical and economic studiesand publications, marketing expenses, and travel expenses. We also anticipate increased expenses related to audit, legal,regulatory and tax-related services associated with being a public company. We expense all selling, general andadministrative expenses as incurred. Interest expense, net Interest expense, net, consists primarily of interest expense on our notes payable and the amortization of deferredfinancing costs, partially offset by interest earned on our cash and cash equivalents. Other income (expense), net Other income (expense), net, consists of government grant income and the gain or loss associated with the change inthe fair value of our liability for warrants to purchase redeemable securities. 69 Table of ContentsResults of Operations for the Years Ended December 31, 2015 and 2014 Year ended December 31, 2015 2014 Change (in thousands) Revenue: Product revenue $599 $ — $599 Research revenue 2,214 119 2,095 Total revenue 2,813 119 2,694 Costs and expenses: Cost of product revenue 1,740 — 1,740 Research and development 25,362 19,782 5,580 Selling, general and administrative 19,094 11,018 8,076 Total costs and expenses 46,196 30,800 15,396 Loss from operations (43,383) (30,681) (12,702) Interest expense, net (1,967) (721) (1,246) Other income (expense), net 60 12 48 Net loss $(45,290) $(31,390) $(13,900) Product revenue During the year ended December 31, 2015, product revenue totaled $599,000, which was primarily comprised ofrevenue from the sales of our T2Candida Panels and T2Dx Instruments to customers. We did not record any product revenuein the year ended December 31, 2014. Research revenue We recorded research revenue totaling $2.2 million for the year ended December 31, 2015, compared to $119,000for the year ended December 31, 2014, an increase of $2.0 million. The increase was driven by new research anddevelopment agreements entered into with third parties, most notably Canon US Life Sciences, utilizing T2MR for potentialapplications. Cost of product revenue During the year ended December 31, 2015, we recorded cost of product revenue associated with the sale ofT2Candida Panels and T2Dx Instruments to customers. Cost of product revenue for the year ended December 31, 2015 alsoincluded $789,000 of cost to provide technical support services to customers and $105,000 of depreciation related to T2DxInstruments placed at customer locations pursuant to reagent rental agreements. We did not record cost of product revenue inthe year ended December 31, 2014. Research and development expenses Research and development expenses were $25.4 million for the year ended December 31, 2015, compared to $19.8million for the year ended December 31, 2014, an increase of approximately $5.6 million. The increase was primarily due toincreased payroll and payroll-related expenses of approximately $3.7 million, including $711,000 of incremental stockcompensation expense, as we increased full-time and temporary headcount, increased facilities costs of approximately $1.9million related to expanded laboratory and office space, increased lab expenses of $464,000 and increased other research anddevelopment expenses of $436,000. Partially offsetting these increases was a decrease in clinical expenditures ofapproximately $536,000 as we were incurring expenses related to the T2Candida direcT2 pivotal clinical trial, which wascompleted during the year ended December 31, 2014, and a decrease in license fees of $320,000 related to a milestonepayment made to MGH during the year ended December 31, 2014. 70 Table of ContentsSelling, general and administrative expenses Selling, general and administrative expenses were $19.1 million for the year ended December 31, 2015, compared to$11.0 million for the year ended December 31, 2014. The increase of approximately $8.1 million was due primarily toincreased payroll and payroll-related expenses of approximately $5.5 million, including $1.7 million of increased stockcompensation expense, as we hired additional executive, sales, marketing and administrative employees, increased publiccompany expenditures of $917,000, increased facilities costs of $482,000 related to expanded office space, an increase inmarketing expenditures of $476,000 related to increased marketing programs to support commercialization efforts, increasedtravel expenses of $394,000 related to the expansion of the sales force in support of commercialization efforts and increasedother selling, general and administrative costs of $264,000. Interest expense, net Interest expense, net, was $2.0 million for the year ended December 31, 2015, compared to $721,000 for the yearended December 31, 2014. Interest expense, net, increased by $1.2 million due to higher borrowing levels on our notespayable. Other income (expense), net Other income (expense), net, was $60,000 of net income for the year ended December 31, 2015, compared to$12,000 of net income for the year ended December 31, 2014. Other income increased $48,000 due primarily from increasedrecognition of government grant income. Results of Operations for the Years Ended December 31, 2014 and 2013 Year ended December 31, 2014 2013 Change (in thousands) Revenue: Product revenue $ — $ — $ — Research revenue 119 266 (147) Total revenue 119 266 (147) Costs and expenses: Cost of product revenue — — — Research and development 19,782 14,936 4,846 Selling, general and administrative 11,018 5,022 5,996 Total costs and expenses 30,800 19,958 10,842 Loss from operations (30,681) (19,692) (10,989) Interest expense, net (721) (403) (318) Other income (expense), net 12 (515) 527 Net loss $(31,390) $(20,610) $(10,780) Research revenue We recorded $119,000 of research and grant revenue for the year ended December 31, 2014 compared to $266,000of research and grant revenue for the year ended December 31, 2013. In the year ended December 31, 2014, we entered intoone research and development arrangement in the fourth quarter, compared with three such arrangements in the year endedDecember 31, 2013. 71 Table of ContentsResearch and development expenses Research and development expenses were $19.8 million for the year ended December 31, 2014, compared to$14.9 million for the year ended December 31, 2013, an increase of $4.9 million. The increase was primarily due to increasedpayroll and payroll related expenses of $2.7 million, including $332,000 of incremental stock compensation expense, as wehired new employees and expanded our use of contractors and temporary help, $803,000 of increased lab expenses due toincreased headcount, $617,000 of increased facilities-related expenses due to increased headcount and expansion offacilities, increased licensing fees of $323,000 resulting primarily from milestone payments that became due pursuant to ourlicense arrangement with MGH as a result of our achievement of FDA marketing authorization and European CE Mark forT2Dx and T2Candida during the third quarter, increased travel and site expenses of $248,000 related to the completion ofthe pivotal clinical trial for T2Dx and T2Candida, and $212,000 of increased consulting expense incurred to support productdevelopment. Selling, general and administrative expenses Selling, general and administrative expenses were $11.0 million for year ended December 31, 2014, compared to$5.0 million for year ended December 31, 2013. The increase of $6.0 million was due primarily to increased payroll andrelated expenses of $3.7 million, including $743,000 of incremental stock compensation expense, as we hired new executive,administrative, direct sales and marketing employees, increased marketing program expenses of $536,000 (related to exhibitsat tradeshows, clinical studies and collateral), $520,000 of increased other public company expenditures (related to insuranceand board of directors fees), $483,000 of increased consulting related expenses, $270,000 of increased facilities expenses,increased legal expenses of $265,000 related to corporate and intellectual property matters, and increased travel expenses of$248,000 resulting from the expansion of the sales force and increased tradeshow activity. Interest expense, net Interest expense, net, was $721,000 for the year ended December 31, 2014, compared to $403,000 for the year endedDecember 31, 2013, an increase of $318,000. The increase was primarily due to higher borrowing levels on our notespayable, primary from borrowing from Solar Capital, Ltd., and the write-off of deferred financing costs in connection with therepayment of outstanding borrowings from Silicon Valley Bank. Other income (expense), net Other income (expense), net, for the year ended December 31, 2014 increased to $12,000 of income, net, comparedwith $515,000 of expense, net, for the year ended December 31, 2013, due to the expense recorded related to the change inthe fair value of the liability for warrants to purchase redeemable securities for the year ended December 31, 2013. Theunderlying warrants were converted into common stock upon completion of our IPO on August 12, 2014. Liquidity and Capital Resources We have incurred losses and cumulative negative cash flows from operations since our inception, and as ofDecember 31, 2015, we had an accumulated deficit of $148.9 million. We anticipate that we will continue to incur losses forat least the next few years. We expect that our research and development and selling, general and administrative expenseswill continue to increase and, as a result, we may need additional capital to fund our operations, which we may raise througha combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements andother collaborations, strategic alliances and licensing arrangements. Since our inception through December 31, 2015, we have raised an aggregate of $225.3 million to fund ouroperations, of which $93.4 million was from the sale of preferred stock, $91.8 million was from the issuance of of commonstock from public offerings, and $38.0 million and $2.1 million were from the issuance of debt and common stock from stockincentive plans, respectively. As of December 31, 2015, we had cash and cash equivalents of $73.7 million. Currently, ourfunds are primarily held in money market funds invested in U.S. government agency securities. 72 Table of ContentsIndebtedness On May 9, 2011, we entered into a promissory note with Massachusetts Development Finance Company to borrowup to $1.7 million for the purchase of laboratory equipment and office equipment. The amounts borrowed are collateralizedby the associated equipment and bear interest at a fixed annual rate of 6.5%. Pursuant to the note, we are required to meet aliquidity covenant whereby we must maintain a cash balance of $0.3 million in cash and marketable securities. We paidinterest only on the borrowings through December 2013 and will continue to make equal monthly payments of principal andinterest through the maturity date of May 2018. In addition, the promissory note with Massachusetts Development Finance Company contains a subjectiveacceleration clause whereby an event of default and immediate acceleration of the amount borrowed under the security andloan agreement occurs if we experience a material adverse change in the business, operations or condition (financial orotherwise) or a material impairment of the prospect of repayment of any portion of the obligations. The lender has notexercised its right under this clause, as there have been no such events. We believe the likelihood of the lender exercisingthis right is remote. On July 11, 2014, we entered into a loan and security agreement with Solar Capital, Ltd., as collateral agent andlender, and Comerica Bank, as lender, for a $30.0 million senior secured term loan facility. The borrowed funds are availablein two tranches; $20.0 million for tranche A and $10.0 million for tranche B. We drew $20.0 million under tranche A for theyear ended December 31, 2014 and $10.0 million under tranche B for the year ended December 31, 2015. Interest on outstanding balances accrues at an annual rate equal to the one-month London Interbank Offered Rate, orLIBOR, plus 7.05%, which was 7.28% as of December 31, 2015. We are required to make interest-only payments throughJuly 31, 2016. After the interest-only repayment period, we will repay the amounts borrowed in equal monthly installmentsuntil the maturity date of July 1, 2019. In connection with the term loan facility, we paid a closing fee of $125,000 and othertransactional and legal costs. Upon the maturity, acceleration or prepayment of any or all of the loans made under the termloan facility, we will be required to pay a final fee equal to 4.75% of the aggregate amount of such loans. We are permitted toprepay borrowed amounts, subject to the payment of a repayment premium of 1.0% for amounts prepaid prior to July 2016,and further decreases to 0.5% for amounts prepaid after July 2016 but before the maturity date. Amounts borrowed under the loan facility are secured by substantially all of our existing assets, and assets we mayacquire in the future, in each case other than capital stock, leased real property, licenses that are not assignable without thelicensor’s consent, leased equipment and intellectual property, except for proceeds from intellectual property. In addition, the loan and security agreement with Solar Capital, Ltd. contains a subjective acceleration clausewhereby upon an event of default, which includes a material adverse change in the business, operations, or conditions(financial or otherwise) of the Company or a material impairment of the prospect of repayment of any portion of theobligations, there can be an immediate acceleration of the borrowings under the loan and security agreement. The lender hasnot exercised its right under this clause, as there have been no such events. We believe the likelihood of the lenderexercising this right is remote. On October 31, 2015, we signed a $10.0 million Equipment Lease Facility (the “Facility”) to fund capitalequipment needs with Essex Capital Corporation (“Essex”). Under this Facility, Essex will fund capital equipment purchasespresented. We will repay the amounts borrowed in 36 equal monthly installments from the date of the amount funded. At theend of the 36-month lease term, we have the option to (a) repurchase the leased equipment at the lesser of fair market value or10% of the original equipment value, (b) extend the applicable lease for a specified period of time, which will not be lessthan one year, or (c) return the leased equipment to Essex. We did not receive any proceeds under this facility in 2015. As of December 31, 2015, we had $30.8 million of principal outstanding under these debt instruments and were incompliance with all covenants.73 Table of Contents Plan of operations and future funding requirements Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, costs relatedto our products, clinical trials, laboratory and related supplies, supplies and materials used in manufacturing, legal and otherregulatory expenses and general overhead costs. We believe that our existing cash and cash equivalents at December 31, 2015, together with the additionalremaining liquidity of up to $10.0 million available under the Facility with Essex, will be sufficient to allow the Company tofund its current operating plan through at least the next 12 months. We have based this estimate on assumptions that mayprove to be wrong, and we could use our capital resources sooner than we currently expect. Until such time as we can generate substantial product revenue, we expect to finance our cash needs beyond what iscurrently available or on hand, through a combination of equity offerings, debt financings and revenue from potentialresearch and development and other collaboration agreements. If we raise additional funds in the future, we may needrelinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable tous. Cash flows The following is a summary of cash flows for each of the periods set forth below: Year ended December 31, 2015 2014 2013 (in thousands) Net cash (used in) provided by: Operating activities $(37,465) $(28,184) $(18,053) Investing activities (7,894) (2,084) (433) Financing activities 45,172 73,919 38,975 Net (decrease) increase in cash and cash equivalents $(187) $43,651 $20,489 Net cash used in operating activities Net cash used in operating activities was $37.5 million for the year ended December 31, 2015, and consistedprimarily of a net loss of $45.3 million adjusted for non-cash items including depreciation and amortization expense of $1.5million, stock-based compensation expense of $4.2 million and non-cash interest expense of $354,000, partially offset by anet change in operating assets and liabilities of $2.0 million and deferred rent of $119,000. The net change in operatingassets a liabilities was primarily driven by a $2.1 increase in deferred revenue resulting from payment from our Co-Development Agreement with Canon US Life Sciences, an increase of $437,000 in accounts payable and accrued expensesrelated to growth in the business, partially offset by purchases of inventory of $568,000 and increased accounts receivable of$168,000 related to research and product revenue. Net cash used in operating activities was $28.2 million for the year ended December 31, 2014, and consistedprimarily of a net loss of $31.4 million adjusted for non-cash items including depreciation and amortization expense of$691,000 and stock-based compensation expense of $1.7 million, partially offset by a net change in operating assets andliabilities of $744,000, primarily driven by increases in accrued expenses of $2.4 million related headcount growth andcommercialization investments, partially offset by increases in prepaid expenses and other assets driven by increased directorand officer insurance premiums. Net cash used in operating activities was $18.1 million for the year ended December 31, 2013, and consistedprimarily of a net loss of $20.6 million adjusted for non-cash items including depreciation and amortization expense of$584,000, stock-based compensation expense of $578,000, an increase in the fair value of warrants of $530,000 and a netchange in operating assets and liabilities of $820,000 primarily driven by increases in accounts payable and accruedexpenses from the growth of the business. 74 Table of ContentsNet cash used in investing activities Net cash used in investing activities was $7.9 million for the year end December 31, 2015, and consisted of $8.0million of purchases of property and equipment, including $4.4 million of costs to purchase materials and manufacture T2instruments and components, $2.6 million of leasehold improvements and $1.0 million of purchases of lab equipment,manufacturing equipment and other property and equipment. Partially offsetting these outflows was $80,000 of proceedsfrom restricted cash accounts related to an operating lease agreement. Net cash used in investing activities was $2.1 million for the year ended December 31, 2014, and consisted of$2.1 million of purchases of leasehold improvements and furniture for new facilities, instrument components, laboratoryequipment and computer software. Net cash used in investing activities was $433,000 for the year ended December 31, 2013, and consisted primarily ofcapital expenditures of $513,000, for purchases of laboratory equipment and leasehold improvements, partially offset by$80,000 of proceeds from restricted cash accounts related to an operating lease agreement. Net cash provided by financing activities Net cash provided by financing activities was $45.2 million for the year ended December 31, 2015, and consisted of$33.7 million of proceeds from the sale of common stock in a public offering, $10.0 million of proceeds from borrowing fromour loan agreement with Solar Capital, Ltd., $1.8 million of proceeds from the issuance of common stock from our stockincentive plans, partially offset by repayments of notes payable of $309,000. Net cash provided by financing activities was $73.9 million for the year ended December 31, 2014, and consisted of$58.1 million of net proceeds from our IPO that closed on August 12, 2014, $19.7 million of proceeds from borrowings fromour loan agreement with Solar Capital, Ltd., net of deferred financing costs paid and $153,000 of proceeds from the exerciseof stock options, partially offset by repayments of notes payable of $4.0 million. Net cash provided by financing activities during the year ended December 31, 2013 was primarily related to the saleof 6.9 million shares of our redeemable convertible preferred stock for net proceeds of $39.8 million, partially offset byrepayments of notes payable of $848,000. 75 Table of ContentsContractual Obligations and Contingent Liabilities The following summarizes our significant contractual obligations as of December 31, 2015: Less than More than Total 1 Year 1 to 3 Years 3 to 5 Years 5 Years (in thousands) Operating leases(1) $5,367 $1,986 $2,434 $840 $107 Notes payable(2) 36,889 6,622 22,867 7,400 — Total obligations $42,256 $8,608 $25,301 $8,240 $107 (1)Represents the leases of approximately 67,500 square feet for office, laboratory and manufacturing space in Lexington,and Wilmington, Massachusetts under noncancelable operating leases.(2)Represents our promissory note with Massachusetts Development Finance Company and our loan and securityagreement with Solar Capital, Ltd. that currently bear interest at annual rates of 6.5% and 7.28%, respectively, and haveprincipal repayment dates through July 2019. The balance for these debt instruments includes estimated interestpayment obligations. Our loan and security agreement with Solar Capital, Ltd. includes a final fee payment of 4.75% ofthe principal borrowed, which totaled $1.4 million at December 31, 2015, and becomes due in the period the principalpaid in full or partially pre-paid. The final fee payment is assumed to be paid at the end of the loan and securityagreement term in the above table. Net operating loss carryforwards We have net deferred tax assets of $61.8 million as of December 31, 2015, which have been fully offset by avaluation allowance due to uncertainties surrounding our ability to realize these tax benefits. The deferred tax assets areprimarily composed of federal net operating loss, or NOL, tax carryforwards and research and development tax creditcarryforwards. As of December 31, 2015, we had federal NOL carryforwards of $126.7 million available to reduce futuretaxable income, if any. These federal NOL carryforwards are available to offset future taxable income, if any, through 2035.In general, if we experience, or have experienced, a greater than 50% aggregate change in ownership of certain significantstockholders over a three-year period, or a Section 382 ownership change, utilization of our pre-change NOL carryforwardsare subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended. Such limitationsmay result in expiration of a portion of the NOL carryforwards before utilization and may be substantial. If we experience aSection 382 ownership change in connection as a result of future changes in our stock ownership, some of which changes areoutside of our control, the tax benefits related to the NOL carryforwards may be limited or lost. We have not conducted anassessment to determine whether there may have been a Section 382 or 383 ownership change. Critical Accounting Policies and Use of Estimates This management’s discussion and analysis of financial condition and results of operations is based on our financialstatements, which have been prepared in accordance with accounting principles generally accepted in the United States, orGAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements,as well as the reported revenue and expenses during the reporting periods. These items are monitored and analyzed by us forchanges in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimateson historical experience and on various other factors that we believe are reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparentfrom other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actualresults may differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in the notes to our financial statements includedelsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to the process ofmaking significant judgments and estimates in the preparation of our financial statements and understanding and evaluatingour reported financial results. Revenue Recognition We generate revenue from product sales, which includes the sale of T2Dx, consumable diagnostic tests and relatedservices, and research and development agreements with third parties. Revenue is recognized when persuasive76 Table of Contentsevidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinableand collection is reasonably assured. If any of the revenue recognition criteria described have not been met, we defer revenueuntil such time each of the revenue recognition criteria have been satisfied. Product revenue is generated by the sale of T2Dx and consumable diagnostic tests. We either directly sell T2Dx tocustomers or retain title and places T2Dx at the customer site pursuant to a reagent rental agreement. When a T2Dx isdirectly purchased by a customer, we recognize revenue when all applicable revenue recognition criteria are met. When aT2Dx is placed under a reagent rental agreement, our customers generally agree to longer-term agreements, minimumpurchase commitments and/or pay an incremental charge on each consumable diagnostic test purchased, which varies basedon the monthly volume of test cartridges purchased. Revenue from the sale of consumable diagnostic tests, which includesthe incremental charge, is generally recognized upon shipment as a component of product revenue in our consolidatedstatements of operations and comprehensive loss. Direct sales of T2Dx include warranty, maintenance and technical support services for one year following theinstallation of a purchased T2Dx (“Maintenance Services”). After the completion of the initial Maintenance Services period,customers have the option to renew the Maintenance Services for additional one year periods in exchange for additionalconsideration. In addition, we may provide training to customers. We defer revenue from the initial sale of T2Dx equal tothe relative fair value of the Maintenance Services and training and recognize the amounts ratably over the service deliveryperiod. We warrant that consumable diagnostic tests will be free from defects, when handled according productspecifications, for the stated life of the product. To fulfill valid warranty claims, we provide a credit to our customers onfuture orders. Accordingly, we defer revenue associated with the estimated defect rates of the consumable diagnostic tests. We do not offer rights of return for T2Dx or consumable diagnostic tests. For multiple-element arrangements,we identify the deliverables included within each agreement and evaluate whichdeliverables represent separate units of accounting. The determination that multiple elements in an arrangement meet thecriteria for separate units of accounting requires us to exercise our judgment. We account for those components as separateelements when the following criteria are met: (1) the delivered items have value to the customer on a stand-alone basis; and,(2) if there is a general right of return relative to the delivered items, delivery or performance of the undelivered items isconsidered probable and within its control. The consideration received is allocated among the separate units of accounting based on a selling pricehierarchy. The selling price hierarchy is based on: (1) vendor specific objective evidence (“VSOE”), if available; (2) thirdparty evidence of selling price if VSOE is not available; or (3) best estimated selling price (“BESP”) if neither VSOE nor thirdparty evidence is available. We generally expect that we will not be able to establish selling price using third-party evidencedue to the nature of our products and the markets in which we compete, and, as such, we typically will determine selling priceusing VSOE or BESP. When we establish selling price using BESP, consideration is given to both market and Company-specific factors,including the cost to produce the deliverable and the anticipated margin on that deliverable, as well as the characteristics ofmarkets in which the deliverable is sold. Revenue earned from activities performed pursuant to research and development agreements is reported as researchrevenue in the consolidated statements of operations and comprehensive loss, and is recognized using the proportionalperformance method as the work is completed, limited to payments earned, and the related costs are expensed as incurred asresearch and development expense. The timing of receipt of cash from the our research and development agreementsgenerally differs from when revenue is recognized. Stock-based compensation We issue stock-based awards to employees and non-employees, generally in the form of stock options and restrictedstock. We account for our stock-based awards in accordance with FASB ASC Topic 718, Compensation — StockCompensation, or ASC 718. ASC 718 requires all stock-based payments to employees, including grants of employee stockoptions and modifications to existing stock options, to be recognized in the consolidated statements of operations andcomprehensive loss based on their grant date fair values. We account for stock-based awards to non-77 Table of Contentsemployees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees, which requires the fairvalue of the award to be remeasured at fair value as the award vests. We recognize the compensation cost of stock-basedawards to employees and non-employees on a straight-line basis over the vesting period. See below for a detailed descriptionof how we estimate fair value for purposes of option grants and the methodology used in measuring stock-basedcompensation expense. We estimate the fair value of our stock-based awards to employees and non-employees using the Black-Scholes-Merton option pricing model, which requires the input of highly subjective assumptions, including (a) the expectedvolatility of our stock, (b) the expected term of the award, (c) the risk-free interest rate and (d) expected dividends. Due to thelack of company specific historical and implied volatility data resulting from our limited public market trading history, wehave based our estimate of expected volatility primarily on the historical volatility of a group of similar companies that arepublicly traded. For these analyses, we have selected companies with comparable characteristics to ours, including enterprisevalue, risk profiles and position within the industry, and with historical share price information sufficient to meet theexpected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for theselected companies’ shares during the equivalent period of the calculated expected term of our stock-based awards. We willcontinue to apply this process until a sufficient amount of historical information regarding the volatility of our own stockprice becomes available. We have estimated the expected life of our employee stock options using the “simplified” method,whereby the expected life equals the average of the vesting term and the original contractual term of the option. The risk-freeinterest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during theperiod in which the options were granted. We are also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods ifactual forfeitures differ from our estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ fromour estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. Stock-basedcompensation expense recognized in the financial statements is based on awards that are ultimately expected to vest. If ouractual forfeiture rate is materially different from the estimate, our stock-based compensation expense could be different fromwhat we have recorded in the current period. These assumptions used to determine stock compensation expense represent our best estimates, but the estimatesinvolve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantlydifferent assumptions or estimates, our stock-based compensation expense could be materially different. Inventories Inventories are stated at the lower of cost or market. We determine the cost of inventories, which includes amountsrelated to materials, direct labor, and manufacturing overhead, on a first-in, first-out basis. We perform an assessment ofrecoverability of capitalized inventory during each reporting period, and writes down any excess and obsolete inventories torealizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventorypurchases are capitalized and recorded upon sale in cost of product revenues in the statements of operations. We capitalize inventories in preparation for sales of products when the related product candidates are considered tohave a high likelihood of regulatory clearance, which for the T2Dx Instrument and the T2Candida Panel was when weachieved regulatory clearance, and the related costs are expected to be recoverable through sales of the inventories. Inaddition, we capitalize inventories related to the manufacture of instruments that have a high likelihood of regulatoryclearance, which for the T2Dx Instrument was when we achieved regulatory clearance, and will be retained as our assets,upon determination that the instrument has alternative future uses. In determining whether or not to capitalize suchinventories, we evaluate, among other factors, information regarding the product candidate’s status of regulatory submissionsand communications with regulatory authorities, the outlook for commercial sales and alternative future uses of the productcandidate. Costs associated with development products prior to satisfying the inventory capitalization criteria are charged toresearch and development expense as incurred. We classify inventories related to instruments that are Company-owned, as a component of property and equipment.Raw material and work-in-process inventories that are expected to be used to produce Company-owned instruments, basedon our business model and forecast, are also classified as property and equipment. Company-owned instruments areinstruments that are manufactured and placed with customers in connections with rental agreements, or are used for internalpurposes. 78 Table of ContentsEmerging Growth Company Status In April 2012, the Jumpstart Our Business Startups Act, or the JOBS Act, was enacted in the United States.Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transitionperiod provided in Section 7(a)(2)(B) of the Securities Act, as amended, for complying with new or revised accountingstandards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standardswould otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transitionperiod and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of suchstandards is required for non-emerging growth companies. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as definedunder SEC rules. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates. As of December 31, 2015, we had cash and cashequivalents of $73.7 million held primarily in money market funds consisting of U.S. government agency securities. Ourprimary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interestrates, particularly because our investments are in short-term securities. Due to the short-term duration of our investmentportfolio and the low risk profile of our investments, an immediate one percent change in interest rates would not have amaterial effect on the fair market value of our portfolio. We are also subject to interest rate risk from the loans under our creditfacility with Solar Capital, Ltd., which has an outstanding principal balance of $30.0 million as of December 31, 2015 andbears interest at an annual rate equal to the one-month LIBOR plus 7.05%. A 10% increase in the one-month LIBOR annualrate would result in an immaterial increase in our annual interest expense under our credit facility with Solar Capital, Ltd., asa result of the current low interest rate environment.79 Table of ContentsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders ofT2 Biosystems, Inc. We have audited the accompanying consolidated balance sheets of T2 Biosystems, Inc. (the Company) as ofDecember 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, redeemableconvertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period endedDecember 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audit included consideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidatedfinancial position of T2 Biosystems, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations andits cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally acceptedaccounting principles. /s/ Ernst & Young LLP Boston, Massachusetts March 9, 2016 80 Table of ContentsT2 Biosystems, Inc.Consolidated Balance Sheets(In thousands, except share and per share data) December 31, December 31, 2015 2014 Assets Current assets: Cash and cash equivalents $73,662 $73,849 Accounts receivable 369 201 Prepaid expenses and other current assets 860 1,076 Inventories 683 115 Current portion of restricted cash — 80 Total current assets 75,574 75,321 Property and equipment, net 10,655 2,760 Restricted cash, net of current portion 260 260 Deferred tax assets — 313 Other assets 459 480 Total assets $86,948 $79,134 Liabilities and stockholders’ equity Current liabilities: Accounts payable $1,228 $735 Accrued expenses and other current liabilities 4,162 3,662 Current portion of notes payable 4,471 295 Deferred revenue 2,146 80 Deferred tax liabilities — 313 Current portion of lease incentives 268 87 Total current liabilities 12,275 5,172 Notes payable, net of current portion 26,222 20,660 Lease incentives, net of current portion 1,076 106 Other liabilities 436 195 Commitments and contingencies (Note 13) Stockholders’ equity: Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued andoutstanding at December 31, 2015 and 2014 — — Common stock, $0.001 par value; 200,000,000 shares authorized at December 31, 2015and 2014; 24,175,381 and 20,041,645 shares issued and outstanding atDecember 31, 2015 and 2014 respectively 24 20 Additional paid-in capital 195,800 156,576 Accumulated deficit (148,885) (103,595) Total stockholders’ equity 46,939 53,001 Total liabilities and stockholders’ equity $86,948 $79,134 See accompanying notes to financial statements. 81 Table of ContentsT2 Biosystems, Inc.Consolidated Statements of Operations and Comprehensive Loss(In thousands, except share and per share data) Year ended December 31, 2015 2014 2013 Revenue: Product revenue $599 $ — $ — Research revenue 2,214 119 266 Total revenue 2,813 119 266 Costs and expenses: Cost of product revenue 1,740 — — Research and development 25,362 19,782 14,936 Selling, general and administrative 19,094 11,018 5,022 Total costs and expenses 46,196 30,800 19,958 Loss from operations (43,383) (30,681) (19,692) Interest expense, net (1,967) (721) (403) Other income (expense), net 60 12 (515) Net loss and comprehensive loss (45,290) (31,390) (20,610) Accretion of redeemable convertible preferred stock to redemption value — (4,570) (6,908) Net loss applicable to common stockholders $(45,290) $(35,960) $(27,518) Net loss per share applicable to common stockholders — basic and diluted $(2.21) $(4.15) $(19.72) Weighted-average number of common shares used in computing net loss pershare applicable to common stockholders — basic and diluted 20,501,748 8,674,931 1,395,562 See accompanying notes to financial statements. 82 Table of ContentsT2 Biosystems, Inc.Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)(In thousands, except share and per share data) Series A-1 Series A-2 Series B Series C Series D Series E Redeemable Redeemable Redeemable Redeemable Redeemable Redeemable Convertible Convertible Convertible Convertible Convertible Convertible Total Preferred Preferred Preferred Preferred Preferred Preferred Common Additional Accumulated Stockholders’ Stock Stock Stock Stock Stock Stock Stock Paid-In Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit (Deficit) Balance atDecember 31, 2012 282,849 $830 1,703,959 $7,322 3,249,877 $14,594 4,055,125 $17,895 5,054,945 $25,496 — $ — 1,362,043 $1 $ — $(62,659) $(62,658) Issuance ofSeries Eredeemableconvertiblepreferred stock, netof issuance costs of$232 — — — — — — — — — — 6,930,967 39,768 — — — — — Accretion ofSeries A-1, A-2, B,C, D, and Eredeemableconvertiblepreferred stock toredemption value — 44 — 402 — 870 — 1,205 — 1,861 — 2,526 — — (633) (6,275) (6,908) Exercise of stockoptions — — — — — — — — — — — — 49,943 — 55 — 55 Stock-basedcompensationexpense — — — — — — — — — — — — — — 578 — 578 Net loss — — — — — — — — — — — — — — — (20,610) (20,610) Balance atDecember 31, 2013 282,849 874 1,703,959 7,724 3,249,877 15,464 4,055,125 19,100 5,054,945 27,357 6,930,967 42,294 1,411,986 1 — (89,544) (89,543) Accretion ofSeries A-1, A-2, B,C, D,and E redeemableconvertiblepreferred stock toredemption value — 26 — 240 — 520 — 722 — 1,115 — 1,947 — — (880) (3,690) (4,570) Stock-basedcompensationexpense — — — — — — — — — — — — — — 1,653 — 1,653 Conversion ofredeemableconvertiblepreferred stock intocommon stock (282,849) (900) (1,703,959) (7,964) (3,249,877) (15,984) (4,055,125) (19,822) (5,054,945) (28,472) (6,930,967) (44,241) 12,516,298 13 96,341 21,029 117,383 Issuance ofcommon stock uponnet settlement ofwarrants topurchaseredeemableconvertiblepreferred stock — — — — — — — — — — — — 68,700 — 1,226 — 1,226 Issuance ofcommon stock frominitial publicoffering, net ofoffering costs of$7,700 — — — — — — — — — — — — 5,980,000 6 58,083 — 58,089 Exercise of stockoptions — — — — — — — — — — — — 64,661 — 153 — 153 Net loss — — — — — — — — — — — — — — — (31,390) (31,390) Balance atDecember 31, 2014 — — — — — — — — — — — — 20,041,645 20 156,576 (103,595) 53,001 Stock-basedcompensationexpense — — — — — — — — — — — — — — 4,168 — 4,168 Issuance ofcommon stock fromsecondary publicoffering, net ofoffering costs of$2,732 — — — — — — — — — — — — 3,691,049 4 33,252 — 33,256 Issuance ofcommon stock fromexercise of stockoptions andemployee stockpurchase plan — — — — — — — — — — — — 442,687 — 1,804 — 1,804 Net loss — — — — — — — — — — — — — — — (45,290) (45,290) Balance atDecember 31, 2015 — $ — — $ — — $ — — $ — — $ — — $ — 24,175,381 $24 $195,800 $(148,885) $46,939 See accompanying notes to financial statements. 83 Table of ContentsT2 Biosystems, Inc.Consolidated Statements of Cash Flows(In thousands) Year ended December 31, 2015 2014 2013 Operating activities Net loss $(45,290) $(31,390) $(20,610) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,465 691 584 Stock-based compensation expense 4,168 1,653 578 Noncash interest expense 354 112 44 Change in fair value of warrants — 1 530 Loss on disposal of asset — — 6 Deferred rent (119) 5 (5) Changes in operating assets and liabilities: Accounts receivable (168) (201) — Prepaid expenses and other assets 190 (1,217) (138) Inventory (568) (115) — Accounts payable 177 (208) 372 Accrued expenses and other liabilities 260 2,405 586 Deferred revenue 2,066 80 — Net cash used in operating activities (37,465) (28,184) (18,053) Investing activities Purchases and manufacture of property and equipment (7,974) (2,084) (513) Decrease in restricted cash 80 — 80 Net cash used in investing activities (7,894) (2,084) (433) Financing activities Proceeds from issuance of common stock in public offering, net of offering costs 33,677 58,089 — Proceeds from issuance of redeemable convertible preferred stock, net — — 39,768 Proceeds from issuance of common stock and stock options exercises, net 1,804 153 55 Proceeds from issuance of note payable, net 10,000 19,714 — Repayments of note payable (309) (4,037) (848) Net cash provided by financing activities 45,172 73,919 38,975 Net (decrease) increase in cash and cash equivalents (187) 43,651 20,489 Cash and cash equivalents at beginning of period 73,849 30,198 9,709 Cash and cash equivalents at end of period $73,662 $73,849 $30,198 See accompanying notes to financial statements.84 Table of ContentsT2 Biosystems, Inc.Consolidated Statements of Cash Flows (Continued)(In thousands) Year ended December 31, 2015 2014 2013 Supplemental disclosures of cash flow information Cash paid for interest $1,506 $515 $345 Supplemental disclosures of noncash investing and financing activities Accrued property and equipment $247 $128 $ — Leasehold improvements paid by landlord $1,268 $121 — Public offering costs unpaid at year end $420 — — Accretion of Series A-1, A-2, B, C, D and E redeemable convertible preferredstock to redemption value $ — $4,570 $6,908 Conversion of redeemable and convertible preferred stock to common stock $ — $117,383 $— Conversion of preferred warrants to common stock $ — $1,226 $— See accompanying notes to financial statements. 85 Table of ContentsT2 Biosystems, Inc.Notes to Consolidated Financial Statements Years Ended December 31, 2015 and 2014 1. Nature of Business T2 Biosystems, Inc. (the “Company”) was incorporated on April 27, 2006 as a Delaware corporation with operationsbased in Lexington, Massachusetts. The Company is an in vitro diagnostic company that has developed an innovative andproprietary platform that enables rapid, sensitive and simple direct detection of pathogens, biomarkers and otherabnormalities across a variety of unpurified patient sample types. The Company is using its T2 Magnetic Resonance platform(“T2MR”) to develop a broad set of applications aimed at reducing mortality rates, improving patient outcomes and reducingthe cost of healthcare by helping medical professionals make targeted treatment decisions earlier. The Company’s initialdevelopment efforts target sepsis, hemostasis and Lyme disease, areas of significant unmet medical need in which existingtherapies could be more effective with improved diagnostics. On September 22, 2014, the Company received marketauthorization from the U.S. Food and Drug Administration (“FDA”) for its first two products, the T2Dx Instrument (“T2Dx”)and T2Candida Panel (“T2Candida”). The Company has devoted substantially all of its efforts to research and development, business planning, recruitingmanagement and technical staff, acquiring operating assets, raising capital, and, most recently, the commercialization of itsproducts. Liquidity At December 31, 2015, the Company had cash and cash equivalents of $73.7 million and an accumulated deficit of$148.9 million. The future success of the Company is dependent on its ability to successfully commercialize its FDAapproved products, obtain regulatory clearance for and successfully launch its future product candidates and ultimatelyattain profitable operations, and obtain additional capital. Historically, the Company has funded its operations primarilythrough its August 2014 initial public offering, its December 2015 secondary public offering, private placements ofredeemable convertible preferred stock and through debt financing arrangements. Management believes that its existing cashand cash equivalents at December 31, 2015, together with the additional remaining liquidity of up to $10.0 million availableunder an Equipment Lease Facility (the “Facility”) entered into in October 2015 to help the Company meet its capitalequipment needs, will be sufficient to allow the Company to fund its current operating plan through at least the next 12months. The Company is subject to a number of risks similar to other newly commercial life science companies, including,but not limited to commercially launching the Company’s products, development and market acceptance of the Company’sproduct candidates, development by its competitors of new technological innovations, protection of proprietary technology,and raising additional capital. 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The Company’s financial statements have been prepared in conformity with generally accepted accountingprinciples in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer tothe authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification(“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). TheCompany’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, T2Biosystems Securities Corporation. All intercompany balances and transactions have been eliminated. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the amounts reported in the consolidated financial statements andaccompanying notes. The Company utilizes certain estimates in the determination of the fair value of its stock86 Table of Contentsoptions, deferred tax valuation allowances, revenue recognition, to record expenses relating to research and developmentcontracts and to classify the value of instrument raw material and work-in-process inventory between inventory and propertyand equipment. The Company bases its estimates on historical experience and other market‑specific or other relevantassumptions that it believes to be reasonable under the circumstances. Actual results could differ from such estimates. Segment Information Operating segments are defined as components of an enterprise about which separate discrete information isavailable for evaluation by the chief operating decision maker, or decision‑making group, in deciding how to allocateresources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. TheCompany views its operations and manages its business in one operating segment, which is the business of developing and,upon regulatory clearance, launching commercially its diagnostic products aimed at reducing mortality rates, improvingpatient outcomes and reducing the cost of healthcare by helping medical professionals make targeted treatment decisionsearlier. Off‑Balance Sheet Risk and Concentrations of Credit Risk The Company has no significant off-balance sheet risks, such as foreign exchange contracts, option contracts, orother foreign hedging arrangements. Cash and cash equivalents are financial instruments that potentially subject theCompany to concentrations of credit risk. At December 31, 2015 and 2014, substantially all of the Company’s cash wasdeposited in accounts at one financial institution, with a significant amount invested in money market funds that areinvested in short-term U.S. government agency securities. The Company maintains its cash deposits, which at times mayexceed the federally insured limits, with a large financial institution and, accordingly, the Company believes such funds aresubject to minimal credit risk. For the year end December 31, 2015, the Company derived approximately 50% of its total revenue from onecustomer and 25% of its total revenue from a second customer. For the year ended December 31, 2014, the Company derivedall of its revenue from a single customer. Cash Equivalents Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase. Cashequivalents consist of money market funds invested in short-term U.S. government agency securities as of December 31,2015 and 2014. Accounts Receivable The Company’s accounts receivable consists of amounts due from commercial customers and from research anddevelopment arrangements with partners. At each reporting period, management reviews all outstanding balances todetermine if the facts and circumstances of each customer relationship indicate the need for a reserve. The Company does notrequire collateral and did not have an allowance for accounts at December 31, 2015 or 2014. Inventories Inventories are stated at the lower of cost or market. The Company determines the cost of its inventories, whichincludes amounts related to materials, direct labor, and manufacturing overhead, on a first-in, first-out basis. The Companyperforms an assessment of the recoverability of capitalized inventory during each reporting period, and writes down anyexcess and obsolete inventories to their realizable value in the period in which the impairment is first identified. Shippingand handling costs incurred for inventory purchases are capitalized and recorded upon sale in cost of product revenues in theconsolidated statements of operations and comprehensive loss or are included in the value of T2-owned instruments andcomponents, a component of property and equipment, net, and depreciated. The Company capitalizes inventories in preparation for sales of products when the related product candidates areconsidered to have a high likelihood of regulatory clearance, which for the T2Dx Instrument and T2Candida Panel was uponthe achievement of regulatory clearance, and the related costs are expected to be recoverable through sales of the inventories.In addition, the Company capitalizes inventories related to the manufacture of instruments that have a87 Table of Contentshigh likelihood of regulatory clearance, which for the T2Dx Instrument was upon the achievement of regulatory clearance,and will be retained as the Company’s assets, upon determination that the instrument has alternative future uses. Indetermining whether or not to capitalize such inventories, the Company evaluates, among other factors, informationregarding the product candidate’s status of regulatory submissions and communications with regulatory authorities, theoutlook for commercial sales and alternative future uses of the product candidate. Costs associated with developmentproducts prior to satisfying the inventory capitalization criteria are charged to research and development expense as incurred. The Company classifies inventories related to instruments that are Company-owned, as a component of property andequipment. Raw material and work-in-process inventories that are expected to be used to produce Company-ownedinstruments, based on our business model and forecast, are also classified as property and equipment. Company-ownedinstruments are instruments that are manufactured and placed with customers in connection with reagent rental agreements,or are used for internal purposes. The components of inventory consist of the following (in thousands): December 31, December 31, 2015 2014 Raw materials $203 $71 Work-in-process 287 44 Finished goods 193 — Total inventories $683 $115 Fair Value Measurements The Company is required to disclose information on all assets and liabilities reported at fair value that enables anassessment of the inputs used in determining the reported fair values. ASC 820, Fair Value Measurements and Disclosures(“ASC 820”), establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs andminimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market dataobtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptionsabout the inputs that market participants would use in pricing the asset or liability, and are developed based on the bestinformation available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determiningthe reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines threelevels of valuation inputs: Level 1 — Quoted unadjusted prices for identical instruments in active markets. Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similarinstruments in markets that are not active, and model‑derived valuations in which all observable inputs andsignificant value drivers are observable in active markets. Level 3 — Model derived valuations in which one or more significant inputs or significant value driversare unobservable, including assumptions developed by the Company. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. Assets andliabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fairvalue measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in itsentirety requires management to make judgments and consider factors specific to the asset or liability (See Note 3). Financial instruments measured at fair value on a recurring basis include cash, money market funds and restrictedcash (See Note 3). 88 Table of ContentsFor certain financial instruments, including accounts payable and accrued expenses, the carrying amountsapproximate their fair values as of December 31, 2015 and 2014 because of their short-term nature. At December 31, 2015and 2014, the carrying value of the Company’s debt approximated fair value, which was determined using Level 3 inputs,including a quoted interest rate (Note 6). Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight‑linemethod. Property and equipment includes raw materials, work-in-process and finished instruments that are Company-ownedor expected to remain Company-owned when placed in service. Company-owned instruments are instruments that aremanufactured and placed with customers in connection with reagent rental agreements, or are used for internal purposes.Repairs and maintenance costs are expensed as incurred, whereas major improvements are capitalized as additions toproperty and equipment. Revenue Recognition The Company generates revenue from product sales, which includes the sale of T2Dx, consumable diagnostic testsand related services, and research and development agreements with third parties. The Company recognizes revenue inaccordance with FASB ASC Topic 605, Revenue Recognition (“ASC 605”). Accordingly, the Company recognizes revenuewhen all of the following criteria have been met: i.Persuasive evidence of an arrangement existsii.Delivery has occurred or services have been renderediii.The seller’s price to the buyer is fixed or determinableiv.Collectability is reasonably assured If any of the above criteria have not been met, the Company defers revenue until such time each of the criteria havebeen satisfied. Product revenue is generated by the sale of T2Dx and consumable diagnostic tests. The Company either sells T2Dxto customers, or retains title and places a T2Dx at the customer site pursuant to a reagent rental agreement. When a T2Dx isdirectly purchased by a customer, the Company recognizes revenue when all applicable revenue recognition criteria aremet. When a T2Dx is placed under a reagent rental agreement, the Company’s customers generally agree to long-termagreements, certain of which may include minimum purchase commitments and/or incremental charges on each consumablediagnostic test purchased, which varies based on the monthly volume of test cartridges purchased. Revenue from the sale ofconsumable diagnostic tests, which includes the incremental charge, is recognized upon delivery as a component of productrevenue in the Company’s consolidated statements of operations and comprehensive loss. Direct sales of T2Dx include warranty, maintenance and technical support services for one year following theinstallation of the purchased T2Dx (“Maintenance Services”). After the completion of the initial Maintenance Servicesperiod, customers have the option to renew the Maintenance Services for additional one year periods in exchange foradditional consideration. In addition, the Company may provide training to customers. The Company defers revenue fromthe initial sale of T2Dx equal to the relative fair value of the one year of Maintenance Services and training and recognizesthe amounts ratably over the service delivery period. The Company warrants that consumable diagnostic tests will be free from defects, when handled according toproduct specifications, for the stated life of the product. To fulfill valid warranty claims, the Company provides a89 Table of Contentscredit to its customers on future orders. Accordingly, the Company defers revenue associated with the estimated defect ratesof the consumable diagnostic tests. The Company does not offer rights of return for T2Dx or consumable diagnostic tests. Shipping and handling costs incurred associated with products sold to customers are recorded as a cost of productrevenue in the consolidated statement of operations and comprehensive loss. Shipping and handling costs billed tocustomers in connection with a product sale are recorded as a component of product revenue in the consolidated statementsof operations and comprehensive loss. For multiple-element arrangements, the Company identifies the deliverables included within each agreement andevaluates which deliverables represent separate units of accounting. The determination that multiple elements in anarrangement meet the criteria for separate units of accounting requires the Company’s management to exercisejudgment. The Company accounts for those components as separate elements when the following criteria are met: (1) thedelivered items have value to the customer on a stand-alone basis; and, (2) if there is a general right of return relative to thedelivered items, delivery or performance of the undelivered items is considered probable and within its control. The consideration received is allocated among the separate units of accounting based on a selling pricehierarchy. The selling price hierarchy is based on: (1) vendor specific objective evidence (“VSOE”), if available; (2) thirdparty evidence of selling price if VSOE is not available; or (3) best estimated selling price (“BESP”) if neither VSOE nor thirdparty evidence is available. The Company generally expects that it will not be able to establish selling price using third-party evidence due to the nature of our products and the markets in which the Company competes, and, as such, theCompany typically will determine selling price using VSOE or BESP. When the Company establishes selling price using BESP, consideration is given to both market and Company-specific factors, including the cost to produce the deliverable and the anticipated margin on that deliverable, as well as thecharacteristics of markets in which the deliverable is sold. Revenue earned from activities performed pursuant to research and development agreements is reported as researchrevenue in the consolidated statements of operations and comprehensive loss, using the proportional performance method asthe work is completed, limited to payments earned, and the related costs are expensed as incurred as research anddevelopment expense. The timing of receipt of cash from the Company’s research and development agreements generallydiffers from when revenue is recognized. Cost of Product Revenue Cost of product revenue includes the cost of materials, direct labor and manufacturing overhead costs used in themanufacture of consumable diagnostic tests sold to customers and related license and royalty fees. Cost of product revenuealso includes depreciation on revenue generating T2Dx that have been placed with customers under reagent rentalagreements; costs of materials, direct labor and manufacturing overhead costs on T2Dx sold to customers; and other costssuch as customer support costs, royalties and license fees, warranty and repair and maintenance expense on T2Dx that havebeen placed with customers under reagent rental agreements. Research and Development Costs Costs incurred in the research and development of the Company’s product candidates are expensed as incurred.Research and development expenses consist of costs incurred in performing research and development activities, includingactivities associated with performing services under research revenue arrangements, and include salaries and benefits, stockcompensation, research‑related facility and overhead costs, laboratory supplies, equipment and contract services. Impairment of Long Lived Assets The Company reviews long‑lived assets, including capitalized T2 owned equipment and components, forimpairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not berecoverable. During this review, the Company reevaluates the significant assumptions used in determining the original costand estimated lives of long‑lived assets. Although the assumptions may vary from asset to asset, they generally90 Table of Contentsinclude operating results, changes in the use of the asset, cash flows and other indicators of value. Management thendetermines whether the remaining useful life continues to be appropriate or whether there has been an impairment oflong‑lived assets based primarily upon whether expected future undiscounted cash flows are sufficient to support the assets’recovery. If impairment exists, the Company would adjust the carrying value of the asset to fair value, generally determinedby a discounted cash flow analysis. No impairment charges have been recorded in any of the periods presented. Comprehensive Loss Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions andother events and circumstances from non‑owner sources. Comprehensive loss consists of net loss and other comprehensiveloss, which includes certain changes in equity that are excluded from net loss. The Company’s comprehensive loss equalsreported net loss for all periods presented. Stock Based Compensation The Company has a stock‑based compensation plan which is more fully described in Note 9. The Company recordsstock‑based compensation for options granted to employees and to members of the board of directors for their services on theboard of directors, based on the grant date fair value of awards issued, and the expense is recorded on a straight‑line basisover the applicable service period, which is generally four years. The Company accounts for non‑employee stock‑basedcompensation arrangements based upon the fair value of the consideration received or the equity instruments issued,whichever is more reliably measurable. The measurement date for non‑employee awards is generally the date that theperformance of services required for the non‑employee award is complete. Stock‑based compensation costs for non‑employeeawards is recognized as services are provided, which is generally the vesting period, on a straight‑line basis. The Company expenses restricted stock awards based on the fair value of the award on the date of issuance, on astraight‑line basis over the associated service period of the award. The Company uses the Black‑Scholes‑Merton option pricing model to determine the fair value of stock options. Theuse of the Black‑Scholes‑Merton option‑pricing model requires management to make assumptions with respect to theexpected term of the option, the expected volatility of the common stock consistent with the expected life of the option,risk‑free interest rates and expected dividend yields of the common stock. The expected term was determined according tothe simplified method, which is the average of the vesting tranche dates and the contractual term. Due to the lack of a publicmarket for the trading of the Company’s common stock and a limited amount of company‑specific historical and impliedvolatility data, the Company bases its estimate of expected volatility primarily on the historical volatility of a group ofsimilar companies that are publicly traded. For these analyses, companies with comparable characteristics are selected,including enterprise value and position within the industry, and with historical share price information sufficient to meet theexpected life of the stock‑based awards. The Company computes the historical volatility data using the daily closing pricesfor the selected companies’ shares during the equivalent period of the calculated expected term of its stock‑based awards.The risk‑free interest rate is determined by reference to U.S. Treasury zero‑coupon issues with remaining maturities similar tothe expected term of the options. The Company has not paid, and does not anticipate paying, cash dividends on shares ofcommon stock; therefore, the expected dividend yield is assumed to be zero. The Company is required to estimate forfeituresat the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Income Taxes The Company provides for income taxes using the liability method. The Company provides deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the Company’s financial statementcarrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years inwhich the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax assets to theamount that will more likely than not be realized. The Company applies ASC 740 Income Taxes (“ASC 740”) in accounting for uncertainty in income taxes. TheCompany does not have any material uncertain tax positions for which reserves would be required. The Company willrecognize interest and penalties related to uncertain tax positions, if any, in income tax expense.91 Table of Contents Guarantees As permitted under Delaware law, the Company indemnifies its officers and directors for certain events oroccurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of theindemnification is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Companycould be required to make is unlimited; however, the Company has directors’ and officers’ insurance coverage that limits itsexposure and enables it to recover a portion of any future amounts paid. The Company leases office, laboratory and manufacturing space under noncancelable operating leases. TheCompany has standard indemnification arrangements under the leases that require it to indemnify the landlord against allcosts, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from any breach, violation ornonperformance of any covenant or condition of the Company’s leases. As of December 31, 2015 and 2014, the Company had not experienced any material losses related to theseindemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expectsignificant claims related to these indemnification obligations and, consequently, concluded that the fair value of theseobligations is negligible, and no related reserves were established. Net Loss Per Share Basic net loss per share is calculated by dividing net loss applicable to common stockholders by theweighted‑average number of shares outstanding during the period, without consideration for common stock equivalents.Diluted net loss per share is calculated by adjusting the weighted‑average number of shares outstanding for the dilutive effectof common stock equivalents outstanding for the period, determined using the treasury‑stock method. For purposes of thediluted net loss per share calculation, redeemable convertible preferred stock, and warrants to purchase redeemableconvertible preferred stock, which were outstanding prior to the Company’s IPO, and stock options and unvested restrictedstock are considered to be common stock equivalents, but have been excluded from the calculation of diluted net loss pershare, as their effect, including the related impact to the numerator of the fair value adjustment of the warrants and the impactto the denominator of the warrant shares, would be anti‑dilutive for all periods presented. Therefore, basic and diluted netloss per share applicable to common stockholders were the same for all periods presented. Recently Issued Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies andadopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impactof recently issued standards that are not yet effective will not have a material impact on its financial position or results ofoperations upon adoption. In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which applies to all leases and willrequire lessees to put most leases on the balance sheet, but recognize expense in a manner similar to the currentstandard. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within thoseyears, which is the year ended December 31, 2019 for the Company. Entities are required to use a modified retrospectiveapproach of adoption for leases that exist or are entered into after the beginning of the earliest comparative period in thefinancial statements. Full restrospective application is prohibited. The Company is evaluating the new guidance and theexpected effect on the Company’s consolidated financial statements. In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU2015-17”). The standard requires all companies to report deferred tax assets and liabilities as noncurrent, which modifies thecurrent standard, which requires deferred tax assets and liabilities to be classified as current or noncurrent based on how therelated assets or liabilities are classified. ASU 2015-17 is effective for fiscal years beginning after December 15, 2015, andfor interim periods within those annual periods. Early adoption is permitted and may be applied prospectively orretrospectively. The Company has adopted ASU 2015-17 as of December 31, 2015 on a prospective basis, which resulted thenetting of deferred tax assets and liabilities on the consolidated balance sheet. 92 Table of ContentsIn July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory(“ASU 2015-11”). The standard simplifies the subsequent measurement of inventory by requiring inventory to be measuredat the lower of cost and net realizable value for entities using the first-in-first out method of valuing inventory. ASU 2015-11eliminates other measures required by current guidance to determine net realizable value. ASU 2015-11 is effective for fiscalyears beginning after December 15, 2016 and interim periods within those fiscal years and early adoption is permitted. TheCompany has not adopted ASU 2015-11 and does not expect the new guidance to have a material effect on its consolidatedfinancial statements. In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud ComputingArrangement (“ASU 2015-05”). The standard clarifies that customers in cloud computing arrangements should determinewhether the arrangement includes a license of software by applying the same guidance as cloud service providers andeliminates the existing requirement for customers to account for software licenses acquired by analogizing to the guidanceon leases. It is effective for annual periods beginning on or after December 15, 2015, including interim periods within thoseannual periods, and early adoption is permitted. Adoption of ASU 2015-05 can either be applied (1) prospectively to allarrangements entered into or materially modified after the effective date or (2) retrospectively. The Company has notadopted the guidance prescribed by ASU 2015-05 and does not expect the new guidance to have a material effect on itsconsolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as adeduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annualreporting periods beginning after December 15, 2015, but early adoption is permitted. Adoption of ASU 2015-03 is appliedretrospectively. The Company has not adopted the guidance prescribed by ASU 2015-03. However, had the Companyadopted this guidance as of December 31, 2015, the Company would reclassify a total of $151,000 of deferred financingcosts from other current assets and other assets on the consolidated balance sheet and reduce the total notes payable balanceaccordingly. In June 2014, the FASB issued amended guidance, ASU No. 2014-09, Revenue from Contracts with Customers(“ASU 2014-09”), which is applicable to revenue recognition that will now be effective for the Company for the year endingDecember 31, 2018, as a result of the deferral of the effective date adopted by the FASB in July 2015. The new guidancemust be adopted using either a full retrospective approach for all periods presented or a modified retrospectiveapproach. Early adoption prior to the original adoption date of ASU 2014-09 is not permitted. The new guidance applies amore principles-based approach to revenue recognition. The Company is evaluating the new guidance and the expectedeffect on the Company’s consolidated financial statements. In 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (“ASU 2014-15”),which is effective for annual periods ending after December 15, 2016. Early adoption is permitted. ASU 2014-15 providesnew guidance on (1) management’s responsibility in evaluating whether or not there is substantial doubt about a company’sability to continue as a going concern within one year from the date the financial statements are issued each reporting periodand (2) related financial statement disclosures. The Company has not adopted the guidance prescribed by ASU 2014-15. However, had the Company applied the guidance prescribed by ASU 2014-15 as of December 31, 2015, the Companywould determine that there is not substantial doubt about its ability to continue as a going concern for at least one year fromdate the financial statements are issued. 3. Fair Value Measurements The Company measures the following financial assets at fair value on a recurring basis. There wereno transfers between levels of the fair value hierarchy during any of the periods presented. The following tables set forth the93 Table of ContentsCompany’s financial assets and liabilities carried at fair value categorized using the lowest level of input applicable to eachfinancial instrument as of December 31, 2015 and 2014 (in thousands): Quoted Prices in Active Significant Markets for Other Significant Balance at Identical Observable Unobservable December 31, Assets Inputs Inputs 2015 (Level 1) (Level 2) (Level 3) Assets: Cash $1,520 $1,520 $ — $ — Money market funds 72,142 72,142 — — Restricted cash 260 260 — — $73,922 $73,922 $ — $ — Quoted Prices in Active Significant Markets for Other Significant Balance at Identical Observable Unobservable December 31, Assets Inputs Inputs 2014 (Level 1) (Level 2) (Level 3) Assets: Cash $10,348 $10,348 $ — $ — Money market funds 63,501 63,501 — — Restricted cash 340 340 — — $74,189 $74,189 $ — $ — 4. Restricted Cash The Company is required to maintain a security deposit for its operating lease agreement for the duration of thelease agreement and for its credit cards as long as they are in place. At both December 31, 2015 and 2014, the Company hadcertificates of deposit for $260,000 and $340,000, respectively, which represented collateral as security deposits for itsoperating lease agreement for its facility and its credit card. In accordance with the operating lease agreement, the Companyreduced its security deposit by $80,000 to $240,000 in June 2015. 94 Table of Contents5. Supplemental Balance Sheet Information Property and Equipment Property and equipment consists of the following (in thousands) Estimated Useful December 31, Life (Years) 2015 2014 Office and computer equipment 3 $395 $383 Software 3 632 480 Laboratory equipment 5 4,112 3,312 Furniture 5-7 187 187 Manufacturing equipment 5 577 — Manufacturing tooling and molds 0.5 71 26 T2 instruments and components 5 4,960 563 Leasehold improvements Lesser of usefullife or lease term 3,332 764 Construction in progress n/a 1,196 387 15,462 6,102 Less accumulated depreciation and amortization (4,807) (3,342) Property and equipment, net $10,655 $2,760 Construction in progress is primarily comprised of equipment and leasehold improvement construction projects thathave not been placed in service. T2 instruments and components is comprised of raw materials and work-in-processinventory that are expected to be used or used to produce Company-owned instruments, based on our business model andforecast, and completed instruments that will be used for internal research and development or reagent rental agreements withcustomers. Completed T2 instruments are placed in service once installation procedures are completed and are depreciatedover five years. The Company has approximately $1.9 million of Company-owned T2 instruments installed anddepreciating as of December 31, 2015. Depreciation expense for Company-owned T2 instruments placed at customer sitespursuant to reagent rental agreements is recorded as a component of cost of product revenue and totaled approximately$105,000 for the year ended December 31, 2015. Depreciation expense for T2 instruments used for internal research anddevelopment is recorded as a component of research and development expense. Depreciation and amortization expense of $1.5 million, $691,000 and $584,000 was charged to operations for theyears ended December 31, 2015, 2014 and 2013, respectively. Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, 2015 2014 Accrued payroll and compensation $2,418 $1,846 Accrued research and development expenses 458 733 Accrued professional services 542 374 Other accrued expenses 744 709 Total accrued expenses $4,162 $3,662 6. Debt On July 11, 2014, the Company entered into a loan and security agreement (“Note Agreement 1”) with two lendersto borrow up to $30.0 million for operations. Note Agreement 1 allows the Company to borrow amounts in two tranches, upto $20.0 million (drawn in amounts not less than $10.0 million upon closing and the remainder drawn in amounts not lessthan $5.0 million draws) for tranche A and up to $10.0 million for tranche B. The Company borrowed the full $20.0 millionavailable under tranche A by December 31, 2014. In May 2015, the Company entered into the First Amendment to NoteAgreement 1 whereby the availability to draw up to $10.0 million for tranche B was extended95 Table of Contentsfrom June 30, 2015 to December 31, 2015. Commencing July 1, 2015, the Company incurred a fee equal to 1.0% per annumof any undrawn amounts under tranche B. This fee is payable on the date tranche B is drawn or upon the expiration of thedraw period. The Company paid the $50,000 fee upon drawing the remaining $10.0 million under tranche B on December28, 2015. All other terms of Note Agreement 1 remain in effect. In October 2015, the Company entered into the Second Amendment to Note Agreement 1 to enable the Company toenter into the Equipment Lease Facility (Note 13). Through December 31, 2015, the Company received proceeds of $29.7 million under tranches A and B, net ofissuance costs. The amounts borrowed under Note Agreement 1 are collateralized by substantially all of the assets of the Companyand bear interest at the one-month LIBOR plus 7.05%, which was 7.28% on December 31, 2015. The Company will payinterest only payments on the amounts borrowed under Note Agreement 1 through July 31, 2016. After the interest onlyperiod, the Company will repay the amounts borrowed in equal monthly installments until the maturity date of July 1, 2019.Note Agreement 1 requires payment of a final fee of 4.75% of the aggregate original principal of amounts borrowed, whichthe Company is accruing over the term of Note Agreement 1. In addition, amounts borrowed may be prepaid at the option ofthe Company in denominations of not less than $1.0 million, and any amounts prepaid are subject to a prepayment premiumof 1.0% if prepaid prior to the second anniversary of the borrowing date and 0.5% if prepaid prior to the maturity date andafter the second anniversary of the borrowing date. The effective interest rate for Note Agreement 1, including final feeinterest and non-cash interest, is 9.7%. Note Agreement 1 does not include any financial covenants, but does contain a subjective acceleration clausewhereby upon an event of default, which includes a material adverse change in the business, operations, or conditions(financial or otherwise) of the Company or a material impairment of the prospect of repayment of any portion of theobligations, the lender may accelerate the Company’s repayment obligations under Note Agreement 1. In the event ofdefault, the lender has first priority to substantially all of the Company’s assets. The lender has not exercised its right underthis clause, as there have been no such events. The Company believes the likelihood of the lender exercising this right isremote. The Company assessed all terms and features of Note Agreement 1 in order to identify any potential embeddedfeatures that would require bifurcation or any beneficial conversion features. As part of this analysis, the Company assessedthe economic characteristics and risks of Note Agreement 1, including put and call features. The Company determined thatall features of Note Agreement 1 are clearly and closely associated with a debt host and do not require bifurcation as aderivative liability, or the fair value of the feature is immaterial. The Company will continue to reassess the features todetermine if they require separate accounting on a quarterly basis. On June 25, 2012, the Company entered into a loan and security agreement (“Note Agreement 2”) with a lender toborrow up to $4.5 million for operations through December 31, 2012. The amounts borrowed are collateralized by the assetsof the Company and bear interest at 6.25%. The Company paid interest only on the borrowings through June 30, 2013 andthen makes 36 equal month payments of principal plus monthly payments of accrued interest. During 2012, the Companyborrowed $4.5 million under the agreement. The debt can be prepaid at the option of the Company, and is subject to aprepayment premium of 2% if it is repaid prior the first anniversary of the borrowing date, and 1% if the debt is prepaid priorto the second anniversary of the borrowing date. In connection with the closing of Note Agreement 1, the Company repaid all amounts outstanding under NoteAgreement 2, totaling approximately $2.9 million, as of July 11, 2014. On May 9, 2011, the Company entered into a promissory agreement (“Note Agreement 3”) with a separate lender toborrow up to $1.7 million for the purchase of laboratory equipment and office equipment through December 2013. Theamounts borrowed are collateralized by the associated equipment and bear interest at 6.5%. The Company paid interest onlyon the borrowings through December 2013 and will make equal monthly payments of principal and interest through thematurity date of May 2018. The Company borrowed a total of $1.4 million under Note Agreement 3. Note Agreement 3 includes financial covenants that require the Company to maintain a minimum cash balance of$300,000. 96 Table of ContentsIn addition, Note Agreement 3 contains a subjective acceleration clause whereby an event of default and immediateacceleration of the borrowing under the security and loan agreement occurs if there is a material adverse change in thebusiness, operations, or condition (financial or otherwise) of the Company or a material impairment of the prospect ofrepayment of any portion of the obligations. In the event of default, the lender has first priority on the laboratory equipmentand office equipment purchased with the proceeds from Note Agreement 3. The lender has not exercised its right under thisclause, as there have been no such events. The Company believes that the likelihood of the lender exercising this right isremote. Interest expense for the years ended December 31, 2015, 2014 and 2013 was $2.0 million, $741,000, and $410,000,respectively. Interest expense for the years ended December 31, 2015, 2014, and 2013 included non-cash interest of$354,000, $112,000, and $44,000, respectively, related to the amortization of debt discounts and deferred financing costsunder each of the Note Agreements. Future principal payments on the notes payable as of December 31, 2015 are as follows (in thousands): Year ended December 31, 2016 $4,495 2017 10,351 2018 10,126 2019 5,833 Total debt payments 30,805 Less current portion (principal) (4,495) Less debt discount (88) Notes payable, net of current portion $26,222 7. Redeemable Convertible Preferred Stock Upon closing of the IPO on August 12, 2014, all of the outstanding shares of the Company’s redeemable convertiblepreferred stock were converted into 12,516,298 shares of its common stock. As the preferred stock was redeemable, theCompany accreted the shares to the redemption values over the period from issuance to the redemption date. The accretionamounts are recorded as an increase to the carrying value of the preferred stock with a corresponding charge to additionalpaid in capital or accumulated deficit. On the conversion date, the redeemable convertible preferred stock had a balance of $117.4 million, which wasrecorded in temporary equity. Upon conversion into common stock, this balance was reclassified as stockholders’ equity(deficit), reducing accumulated deficit by $21.0 million, with the residual amount of $96.3 million recorded as commonstock (par value) and additional paid-in capital. The amount recorded as a reduction in accumulated deficit reflects the valueof redeemable convertible preferred stock dividends and issuance costs accreted through the conversion date. As of August12, 2014, the Company does not have any redeemable convertible preferred stock issued or outstanding. Prior to the IPO, the holders of the Company’s redeemable convertible preferred stock had certain voting, dividend,and redemption rights, as well as liquidation preferences and conversion privileges. All rights, preferences, and privilegesassociated with the redeemable convertible preferred stock were terminated at the time of the Company’s IPO in conjunctionwith the conversion of all outstanding shares of redeemable convertible preferred stock into shares of common stock. 8. Stockholders’ Equity (Deficit) Common Stock Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividendswhenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of allclasses of stock outstanding. As of December 31, 2015, a total of 3,484,298 shares and 552,024 shares of common stock werereserved for issuance upon (i) the exercise of outstanding stock options and (ii) the issuance of stock awards under theCompany’s 2014 Incentive Award Plan and 2014 Employee Stock Purchase Plan, respectively. 97 Table of Contents9. Stock Based Compensation Stock Incentive Plans 2006 Stock Incentive Plan The Company’s 2006 Stock Option Plan (“the 2006 Plan”) was established for granting stock incentive awards todirectors, officers, employees and consultants to the Company. Upon closing of the Company’s IPO in August 2014, theCompany ceased granting stock incentive awards under the 2006 Plan. The 2006 Plan provided for the grant of incentive andnon-qualified stock options and restricted stock grants as determined by the Board of Directors. Under the 2006 Plan, stockoptions were generally granted with exercise prices equal to or greater than the fair value of the common stock as determinedby the board of directors, expired no later than 10 years from the date of grant, and vest over various periods not exceeding4 years. 2014 Stock Incentive Plan The Company’s 2014 Plan provides for the issuance of shares of common stock in the form of stock options, awardsof restricted stock, awards of restricted stock unit awards, performance awards, dividend equivalent awards, stock paymentawards and stock appreciation rights to directors, officers, employees and consultants of the Company. Since theestablishment of the 2014 Plan, the Company has only granted stock options. Generally, stock options are granted withexercise prices equal to or greater than the fair value of the common stock on the date of grant, expire no later than 10 yearsfrom the date of grant, and vest over various periods not exceeding 4 years. The number of shares reserved for future issuance under the 2014 Plan is the sum of (1) 823,529, (2) any shares thatwere granted under the 2006 Plan which are forfeited, lapse unexercised or are settled in cash subsequent to the effective dateof the 2014 Plan and (3) an annual increase on the first day of each calendar year beginning January 1, 2015 and ending onJanuary 1, 2024, equal to the lesser of (A) 823,529 shares, (B) 4% of the shares outstanding on the final day of theimmediately preceding calendar year and (C) such smaller number of shares determined by the Board of Directors. As ofDecember 31, 2015 there were 395,133 shares available for future grant under the Plan. Stock Options During the years ended December 31, 2015, 2014, and 2013, the Company granted options with an aggregate fairvalue of $10.1 million and $6.0 million, and $2.0 million, respectively, which are being amortized into compensationexpense over the vesting period of the options as the services are being provided. The following is a summary of option activity under the Plan (in thousands, except share and per share amounts): Weighted-Average Weighted-Average Remaining Number of Exercise Price Per Contractual Term Aggregate Intrinsic Shares Share (In years) Value Outstanding at December 31, 2014 2,911,146 $5.30 7.87 $40,586 Granted 1,194,483 15.86 Exercised (378,991) 2.95 4,513 Cancelled (242,340) 10.87 Outstanding at December 31, 2015 3,484,298 8.79 7.64 14,620 Exercisable at December 31, 2015 1,730,186 5.17 6.34 11,648 Vested or expected to vest at December 31, 2015 3,323,663 8.58 7.57 14,450 98 Table of ContentsThe weighted‑average fair values of options granted in the years ended December 31, 2015, 2014, and 2013 were$8.42, $7.59, and $1.85 per share, respectively, and were calculated using the following estimated assumptions: Year ended December 31, 2015 2014 2013 Weighted-average risk-free interest rate 1.69% 1.91% 1.68% Expected dividend yield 0.00% 0.00% 0.00% Expected volatility 56% 61% 63% Expected terms 6.0years 5.9years 6.0years The total fair values of stock options that vested during the years ended December 31, 2015, 2014, and 2013 were$4.0 million, $1.2 million, and $476,000, respectively. Employee Stock Purchase Plan The 2014 ESPP plan period is semi-annual and allows participants to purchase the Company’s common stock at85% of the lower of (i) the market value per share of common stock on the first day of the offering period or (ii) the marketvalue per share of the common stock on the purchase date. Each participant can purchase up to a maximum of $25,000 percalendar year in fair market value. The first plan period began on August 7, 2014. Stock-based compensation expense fromthe 2014 ESPP for the years ended December 31, 2015 and 2014 was $233,000 and $103,000, respectively. The 2014 ESPP provides initially for the granting of up to 220,588 shares of the Company’s common stock toeligible employees. In addition, on the first day of each calendar year beginning January 1, 2015 and ending on January 1,2024, the number of common shares available under the Plan shall be increased by the number of shares equal to the lesser of(1) 220,588 shares, (2) 1% of the common shares outstanding on the final day of the immediately preceding calendar yearand (3) such smaller number of common shares as determined by the Board of Directors. At December 31, 2015, there were156,891 shares available under the 2014 ESPP. Stock‑Based Compensation Expense The following table summarizes the stock-based compensation expense for stock options granted to employees andnon-employees, as well as stock-compensation expense for the 2014 ESPP that was recorded in the Company’s results ofoperations for the years presented (in thousands): Year ended December 31, 2015 2014 2013 Research and development $1,213 $501 $169 Selling, general and administrative 2,840 1,152 409 Total stock-based compensation expense $4,053 $1,653 $578 For the year ended December 31, 2015, $48,000 of stock-based compensation expense was included in cost ofproduct revenue and $67,000 was capitalized as part of inventory or T2 instruments and components. As of December 31, 2015, there was $11.3 million of total unrecognized compensation cost related to non‑vested stockoptions granted under the Stock Incentive Plans. Total unrecognized compensation cost will be adjusted for future changesin the estimated forfeiture rate. The Company expects to recognize that cost over a remaining weighted‑average period of2.91 years. 99 Table of Contents10. Warrants Prior to the completion of the IPO, the Company had outstanding warrants to purchase 250,727 shares of variousclasses of redeemable convertible preferred stock. The warrants were recorded as a liability and changes in the fair value ofthe warrants were recorded as a component of other income (expense), net. In connection with the closing of the Company’sIPO, all of the Company’s outstanding warrants to purchase convertible preferred stock automatically converted into 68,700shares of common stock, resulting in the net settlement of the liability to purchase redeemable securities to common stock(par value) and additional paid-in capital as of August 12, 2014. 11. Net Loss Per Share The following table presents the calculation of basic and diluted net loss per share applicable to commonstockholders (in thousands, except share and per share data): Year ended December 31, 2015 2014 2013 Numerator: Net loss $(45,290) $(31,390) $(20,610) Accretion of redeemable convertible preferredstock to redemption value — (4,570) (6,908) Net loss applicable to common stockholders $(45,290) $(35,960) $(27,518) Denominator: Weighted-average number of common sharesoutstanding — basic and diluted 20,501,748 8,674,931 1,395,562 Net loss per share applicable to commonstockholders — basic and diluted $(2.21) $(4.15) $(19.72) The following shares were excluded from the calculation of diluted net loss per share applicable to commonstockholders, prior to the application of the treasury stock method, because their effect would have been anti‑dilutive for theperiods presented: Year ended December 31, 2015 2014 2013 Redeemable convertible preferred stock — — 12,516,298 Options to purchase common shares 3,484,298 2,911,146 2,265,973 Warrants to purchase redeemable convertible preferredstock — — 147,484 Total 3,484,298 2,911,146 14,929,755 12. Income Taxes The reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is as follows: Year Ended December 31, 2015 2014 2013 Tax at statutory rates 35.0% 35.0% 35.0%State income taxes 6.6 5.1 5.2 Permanent differences (1.3) (0.8) (0.7) Research and development credits 1.5 1.9 2.3 Change in valuation allowance (41.8) (41.2) (41.8) Effective tax rate 0.0% 0.0% 0.0% 100 Table of ContentsThe significant components of the Company’s deferred tax asset consist of the following at December 31, 2015 and2014 (in thousands): December 31, 2015 2014 Deferred tax assets: Net operating loss carryforwards $49,417 $33,690 Tax credits 4,107 2,795 Other temporary differences 1,623 1,159 Start-up expenditures 5,288 4,948 Stock option expenses 1,649 588 Total deferred tax assets 62,084 43,180 Deferred tax asset valuation allowance (61,813) (42,867) Net deferred tax assets 271 313 Deferred tax liabilities: Prepaid expenses (271) (313) Net deferred taxes $ — $ — In 2015 and 2014, the Company did not record a benefit for income taxes related to its operating losses incurred.ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of availableevidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based upon thelevel of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at thistime, management believes it is more likely than not that the Company will not realize the benefits of these deductibledifferences, and as a result the Company continues to maintain a valuation allowance for the full amount of the 2015 deferredtax assets. The valuation allowance increased $18.9 million, $12.7 million and $9.1 million for the years ended December31, 2015, 2014 and 2013, respectively, primarily related to each year’s taxable loss. As of December 31, 2015, the Company had federal and state net operating losses of $126.7 million and $115.8million, respectively, which are available to offset future taxable income, if any, through 2035. Included in the federal andstate net operating losses are deductions attributable to excess tax benefits from the exercise of stock options of $2.4 millionand $2.2 million, respectively. The tax benefits attributable to these deductions are credited directly to additional paid-incapital when realized. The Company also had federal and state research and development tax credits of $2.8 million and$1.5 million, respectively, which expire at various dates through 2035. Under the provisions of the Internal Revenue Code,the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal RevenueService and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitationin the event of certain cumulative changes in the ownership interest of significant stockholders over a three year period inexcess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar stateprovisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or taxliabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to theownership change. Subsequent ownership changes may further affect the limitation in future years. The Company hascompleted several financings since its inception which may have resulted in a change in control as defined by Sections 382and 383 of the Internal Revenue Code, or could result in a change in control in the future. The Company has not conductedan assessment to determine whether there may have been a Section 382 or 383 ownership change. The Company has no unrecognized tax benefits. Interest and penalty charges, if any, related to uncertain taxpositions would be classified as income tax expenses in the accompanying consolidated statements of operations. AtDecember 31, 2015 and 2014, the Company had no accrued interest or penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal tax jurisdiction and various state jurisdictions. Since theCompany is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state andlocal income tax authorities for all tax years in which a loss carryforward is available. The Company does not have anyinternational operations as of December 31, 2015. There are currently no federal or state audits in process. 101 Table of Contents13. Commitments and Contingencies Operating Leases In August 2010, the Company entered into a five-year, non-cancelable operating lease for office and laboratoryspace at its headquarters in Lexington, MA. The lease commenced on January 1, 2011, with the Company providing asecurity deposit of $400,000. In accordance with the operating lease agreement, the Company reduced its security deposit by$80,000 to $240,000 in May 2015. In July 2014, the Company amendment the lease to expand the office and laboratoryspace leased. In May 2015, the Company entered into an amendment to this lease to extend the term from December 31,2015 to December 31, 2017. In May, 2013, the Company entered into a two-year operating lease for additional office, laboratory andmanufacturing space. The Company entered into an amendment in September 2015 to extend this lease term throughDecember 31, 2017. In November, 2014 the Company entered into an agreement to rent additional office space in Lexington, MA. Theterm of the agreement is two years, commencing December 2014. In April 2015, the Company entered into an amendment toextend the term of this agreement. The amendment extends the agreement term from December 31, 2016 to December 31,2017. In connection with this agreement, the Company paid a security deposit totaling $50,000,which is recorded as acomponent of other assets in the consolidated balance sheets. In November, 2014, the Company entered into a lease for additional laboratory space in Lexington, MA. The leaseterm commenced April 1, 2015 and extends for six years. The rent expense, inclusive of the escalating rent payments, isrecognized on a straight- line basis over the lease term. As an incentive to enter into the lease, the landlord paidapproximately $1.4 million of the $2.2 million space build-out costs. The incentive is recorded as a component of leaseincentives on the consolidated balance sheets and is amortized as a reduction in rent expense on a straight-line basis over theterm of the lease. In connection with this lease agreement, the Company paid a security deposit of $281,000, which isrecorded as a component of other assets in the consolidated balance sheets. In May 2015, the Company entered into an amendment to a lease to expand existing manufacturing facilities. Thelease amendment term is June 1, 2015 to December 31, 2017. Future minimum non-cancelable lease payments under the Company’s operating leases are as follows (inthousands): Year ending December 31, 2016 $1,986 2017 2,031 2018 404 2019 414 2020 425 Thereafter 107 $5,367 Rent expense for the years ended December 31, 2015, 2014, and 2013 was $1.6 million, $950,000, and $628,000,respectively. Equipment Lease Facility In October 2015, the Company signed a $10.0 million equipment lease facility to fund capital equipmentneeds. Under this facility, the lessor will fund capital equipment purchases presented. The Company will repay the amountsborrowed in 36 equal monthly installments from the date of the amount funded. At the end of the 36 month lease term, theCompany has the option to (a) repurchase the leased equipment at the lesser of fair market value or 10% of the originalequipment value, (b) extend the applicable lease for a specified period of time, which will not be less than one year, or (c)return the leased equipment to the lessor. As of December 31, 2015, the Company has not drawn any amounts under thisfacility. 102 Table of Contents License Agreement In 2006, the Company entered into a license agreement with a third party, pursuant to which the third party grantedthe Company an exclusive, worldwide, sub-licenseable license under certain patent rights to make, use, import andcommercialize products and processes for diagnostic, industrial and research and development purposes. The Companyagreed to pay an annual license fee ranging from $5,000 to $25,000 for the royalty‑bearing license to certain patents. For theyears ended December 31, 2015 and 2014, the Company incurred $34,000 and $345,000, respectively, for regulatorymilestones, license fees and reimbursed patent costs under the agreement. The Company also issued a total of 84,678 sharesof common stock pursuant to the agreement in 2006 and 2007, which were recorded at fair value at the date of issuance.Regulatory milestones totaling $300,000 became due during the year ended December 31, 2014, as the Company receivedFDA marketing authorization and European CE Mark for T2Dx and T2Candida. The Company is required to pay royalties onnet sales of products and processes that are covered by patent rights licensed under the agreement at a percentage ranging inthe low single digits, subject to reductions and offsets in certain circumstances, as well as a royalty on net sales of productsthat the Company sublicenses at a low double‑digit percentage of specified gross revenue. Royalties that became due underthis agreement for the year ended December 31, 2015 were immaterial. 14. 401(k) Savings Plan In March, 2008, the Company established a retirement savings plan under Section 401(k) of the Internal RevenueCode (the “401(k) Plan”). The 401(k) Plan covers substantially all employees of the Company who meet minimum age andservice requirements, and allows participants to defer a portion of their annual compensation on a pretax basis. Companycontributions to the 401(k) Plan may be made at the discretion of the board of directors. No contributions were made in theyears ended December 31, 2015 and 2014.103 Table of Contents 15. Co-Development Agreement with Canon US Life Sciences On February 3, 2015, the Company entered into a Co-Development Partnership Agreement (the “Co-DevelopmentAgreement”) with Canon U.S. Life Sciences, Inc. (“Canon US Life Sciences”) to develop a diagnostic test panel to rapidlydetect Lyme disease. Under the terms of the Co-Development Agreement, the Company received an upfront payment of $2.0million from Canon US Life Sciences and the agreement includes an additional $6.5 million of consideration upon achievingcertain development and regulatory milestones for total aggregate payments of up to $8.5 million. In October 2015, theCompany achieved a specified technical requirement and received $1.5 million related to the achievement of themilestone. The Company is eligible to receive an additional $5.0 million under the arrangement, in two milestone paymentsof $2.0 million and $3.0 million, related to the achievement of additional development and regulatory milestones. Allpayments under the Co-Development Agreement are non-refundable once received. The Company will retain exclusiveworldwide commercialization rights of any products developed under the Co-Development Agreement, including sales,marketing and distribution and Canon US Life Sciences will not receive any commercial right and will be entitled to onlyreceive royalty payments on the sales of all products developed under the Co-Development Agreement. Either party may terminate the Co-Development Agreement upon the occurrence of a material breach by the otherparty (subject to a cure period). The Company evaluated the deliverables under the Co-Development Agreement and determined that the Co-Development Agreement included one unit of accounting, the research and development services, as the joint research anddevelopment committee deliverable was deemed to be de minimus. The Company is recognizing revenue for research anddevelopment services as a component of research revenue in the consolidated financial statements as the services aredelivered using the proportional performance method of accounting, limited to payments earned. Costs incurred to deliverthe services under the Co-Development Agreement are recorded as research and development expense in the consolidatedfinancial statements. The Company recorded revenue of $1.4 million for the year ended December 31, 2015 under the Co-DevelopmentAgreement, and expects to record revenue over the next two years, provided development and regulatory milestones areachieved. 104 Table of Contents 16. Quarterly Financial Data (unaudited) Year ended December 31, 2015 (In thousands, except per share data) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenue: Product revenue $11 $— $245 $343 Research revenue 178 564 804 668 Total revenue $189 $564 $1,049 $1,011 Costs and expenses: Cost of product revenue 1 — 829 910 Research and development 5,869 6,651 6,204 6,638 Selling, general and administrative 4,468 4,437 5,181 5,008 Total costs and expenses 10,338 11,088 12,214 12,556 Loss from operations $(10,149) $(10,524) $(11,165) $(11,545) Net loss $(10,619) $(10,995) $(11,644) $(12,032) Net loss applicable to common shareholders $(10,619) $(10,995) $(11,644) $(12,032) Per share data: Net loss per common share—basic and diluted $(0.53) $(0.54) $(0.57) $(0.56) Year ended December 31, 2014 (In thousands, except per share data) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenue: Product revenue $— $— $— $— Research revenue — — — 119 Total revenue $— $— $— $119 Costs and expenses: Cost of product revenue — — — — Research and development 5,066 4,703 4,803 5,210 Selling, general and administrative 1,841 2,446 2,984 3,747 Total costs and expenses 6,907 7,149 7,787 8,957 Loss from operations $(6,907) $(7,149) $(7,787) $(8,838) Net loss $(6,920) $(7,303) $(8,091) $(9,076) Net loss applicable to common shareholders $(8,826) $(9,209) $(8,849) $(9,076) Per share data: Net loss per common share—basic and diluted $(6.25) $(6.35) $(0.71) $(0.45) 105 Table of ContentsItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required tobe disclosed in reports we file under the Exchange Act is recorded, processed, summarized and reported within the specifiedtime periods and accumulated and communicated to management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding required disclosure. The design of any system of controls is basedin part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions; over time, controls may become inadequatebecause of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of theinherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under thesupervision and with the participation of our management, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act. Based on this evaluation, our management, with the participation of our Chief Executive Officer and ChiefFinancial Officer, concluded that, as of December 31, 2015, our disclosure controls and procedures were effective. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting.Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act asa process designed by, or under the supervision of, our principal executive and principal financial officers and effected byour board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples and includes those policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the Company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of theCompany are being made only in accordance with authorizations of management and directors of the Company; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financialstatement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions or that the degree of compliance with the policies orprocedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. Inmaking this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission, or COSO, in Internal Control—Integrated Framework (2013) . Based on its assessment,106 Table of Contentsmanagement believes that, as of December 31, 2015, our internal control over financial reporting is effective based on thosecriteria. Changes in Internal Control Over Financial Reporting No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)under the Exchange Act) occurred during the three months ended December 31, 2015 that has materially affected, or isreasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. OTHER INFORMATION None. PART III. Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this Item is incorporated in this Annual Report by reference from the information underthe captions “Board of Directors Information,” “Executive Officers” and “Section 16(a) Beneficial Ownership ReportingCompliance” contained in the Proxy Statement to be filed in connection with our 2016 Annual Meeting of Stockholders, orthe Proxy Statement. Code of Business Conduct and Ethics We have adopted a code of business conduct and ethics for our directors, officers and employees, which is availableon our website at www.t2biosystems.com in the Investor Relations section under “Corporate Governance.” If we make anysubstantive amendments to the code of business conduct and ethics or grant any waiver from a provision of the code ofbusiness conduct and ethics to any executive officer or director, we will promptly disclose the nature of the amendment orwaiver on our website. The information on, or that can be accessed from, our website is not incorporated by reference into thisAnnual Report. Item 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated in this Annual Report by reference from the information underthe captions “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Report of theCompensation Committee” contained in the Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS The information required by this Item is incorporated in this Annual Report by reference from the information underthe captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation PlanInformation” contained in the Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item is incorporated in this Annual Report by reference from the information underthe captions “Certain Relationships and Related Transactions,” and “Board of Directors Information” contained in the ProxyStatement. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item is incorporated in this Annual Report by reference from the information underthe captions “Principal Accountant Fees and Services” and “Report of the Audit Committee” contained in the ProxyStatement.107 Table of Contents Item 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES a.Documents filed as part of this Annual Report. 1.The following financial statements of T2 Biosystems, Inc. and Report of Independent Registered Public AccountingFirm, are included in this report: Report of Ernst & Young LLP, Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2015 and 2014 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2015, 2014and 2013 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for theyears ended December 31, 2015, 2014 and 2013 Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 Notes to Consolidated Financial Statements 2.List of financial statement schedules. All schedules are omitted because they are not applicable or the requiredinformation is shown in the financial statements or notes thereto. 3.List of Exhibits required by Item 601 of Regulation S-K. See Item 15(b) below. b.Exhibits. The exhibits listed in the accompanying “Exhibit Index” are filed, furnished or incorporated by reference as part of thisAnnual Report, as indicated. SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, theRegistrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 9,2016 . T2 BIOSYSTEMS, INC. By:/S/ JOHN MCDONOUGH Name:John McDonough Title:President, Chief Executive Officer and Director (principal executive officer) March 9, 2016 By:/S/ MAURICE L. CASTONGUAY Name:Maurice L. Castonguay Title:Chief Financial Officer (principal financial officer and principal accounting officer) March 9, 2016108 Table of Contents POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes andappoints John McDonough and Maurice L. Castonguay, jointly and severally, his attorneys-in-fact, each with the power ofsubstitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file thesame, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission,hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to bedone by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signedbelow by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date / S / JOHN MCDONOUGH Chief Executive Officer and Director (principal executiveofficer) March 9, 2016John McDonough / S / MAURICE L .CASTONGUAY Chief Financial Officer (principal financial officer andprincipal accounting officer) March 9, 2016Maurice L. Castonguay / S / STANLEY N. LAPIDUS Director March 9, 2016Stanley N. Lapidus / S / JOSHUA H. BILENKER, M.D. Director March 9, 2016Joshua H. Bilenker, M.D. / S / THOMAS J. CARELLA Director March 9, 2016Thomas J. Carella / S / MICHAEL J. CIMA, PH.D. Director March 9, 2016Michael J. Cima, Ph.D. / S / JOHN W. CUMMING Director March 9, 2016John W. Cumming / S / DAVID B. ELSBREE Director March 9, 2016David B. Elsbree / S / HARRY W. WILCOX Director March 9, 2016Harry W. Wilcox 109 Table of Contents INDEX TO EXHIBITS Exhibit Number Description of Exhibit 3.1*Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit3.1 of the Company’s Form 8-K (File No. 001-36571) filed on August 12, 2014) 3.2*Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of theCompany’s Form 8-K (File No. 001-36571) filed on August 12, 2014) 4.1*Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to theCompany’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 28, 2014) 10.1#*Amended and Restated 2006 Employee, Director and Consultant Stock Plan, as amended, and form ofoption agreements thereunder (incorporated by reference to Exhibit 10.1 to the Company’s RegistrationStatement on Form S-1 (File No. 333-197193 filed on July 2, 2014) 10.2#*2014 Incentive Award Plan and form of option agreements thereunder (incorporated by reference toExhibit 10.2 to the Company’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July28, 2014) 10.3#*Non-Employee Director Compensation Program, as amended (incorporated by reference to Exhibit 10.1 tothe Company’s Form 10-Q (File No. 001-36571) filed on August 5, 2015) 10.4#*Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.4to the Company’s Registration Statement on Form S-1/A (File No. 333-197193 filed on July 28, 2014) 10.5#*Employment Letter Agreement, dated as of March 14, 2008, by and between the Company and JohnMcDonough, as amended (incorporated by reference to Exhibit 10.5 to the Company’s RegistrationStatement on Form S-1/A (File No. 333-197193) filed on July 28, 2014) 10.6#Employment Letter Agreement, dated as of August 6, 2015, by and between the Company and Maurice L.Castonguay 10.7#*Employment Letter Agreement, dated as of July 22, 2014, by and between the Company and Sarah Kalil(incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1/A (FileNo. 333-197193) filed on July 28, 2014) 10.8#*Employment Letter Agreement, dated as of July 22, 2014, by and between the Company and MichaelPfaller (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 28, 2014) 10.9#*Employment Letter Agreement, dated as of July 22, 2014, by and between the Company and TomLowery, Jr. (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on FormS-1/A (File No. 333-197193) filed on July 28, 2014) 10.10#*Consulting Agreement, dated as of July 20, 2006, by and between the Company and Michael Cima, asamended on March 19, 2013 (incorporated by reference to Exhibit 10.10 to the Company’s RegistrationStatement on Form S-1 (File No. 333-197193) filed on July 2, 2014) 10.11#*Consulting Agreement, dated as of July 20, 2006 by and between the Company and Robert S. Langer, asamended on March 20, 2013 and July 24, 2014 (incorporated by reference to Exhibit 10.11 to theCompany’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 28, 2014) 110 Table of Contents10.12*†Sales Agreement, dated as of February 11, 2011, by and between GE Healthcare Bio-Sciences Corp. andthe Company (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement onForm S-1 (File No. 333-197193) filed on July 2, 2014) 10.13*†Exclusive License Agreement, dated as of November 7, 2006, as amended on December 2, 2008 andFebruary 21, 2011, by and between The General Hospital Corporation d/b/a Massachusetts GeneralHospital and the Company (incorporated by reference to Exhibit 10.13 to the Company’s RegistrationStatement on Form S-1 (File No. 333-197193) filed on July 2, 2014) 10.14*Security Agreement, dated as of May 9, 2011, by and between the Company and MassachusettsDevelopment Finance Agency (incorporated by reference to Exhibit 10.14 to the Company’s RegistrationStatement on Form S-1 (File No. 333-197193) filed on July 2, 2014) 10.15*Loan and Security Agreement, dated as of August 30, 2007, as amended by the First Loan ModificationAgreement on June 26, 2009 and the Second Loan Modification Agreement on June 25, 2013, by andbetween the Company and Silicon Valley Bank (incorporated by reference to Exhibit 10.15 to theCompany’s Registration Statement on Form S-1 (File No. 333-197193) filed on July 2, 2014) 10.16*Commercial Lease, dated as of May 6, 2013, as amended on September 24, 2013, by and between theCompany and Columbus Day Realty, Inc. (incorporated by reference to Exhibit 10.16 to the Company’sRegistration Statement on Form S-1 (File No. 333-197193) filed on July 2, 2014) 10.17*Lease, dated as of August 6, 2010, by and between the Company and King 101 Hartwell LLC, as amendedby the First Amendment to Lease on November 30, 2011 and the Second Amendment to Lease on July 11,2014 (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 16, 2014) 10.18*Promissory Note, dated May 9, 2011, issued by the Company to Massachusetts Development FinanceAgency (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-1 (File No. 333-197193) filed on July 2, 2014) 10.19*Loan and Security Agreement, dated as of July 11, 2014, by and among the Company, Solar Capital Ltd.,as collateral agent, and the lenders listed on Schedule 1.1 thereof (incorporated by reference to Exhibit10.19 to the Company’s Registration Statement on Form S-1/A (File No. 333-197193) filed on July 16,2014) 10.20#*2014 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.20 to the Company’sRegistration Statement on Form S-1/A (File No. 333-197193) filed on July 28, 2014) 10.21*†Supply Agreement by and between the Company and SMC Ltd., effective as of October 10, 2014(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K/A (File No. 001-36571) filed onJanuary 21, 2015) 10.22*†Co-Development Partnership Agreement by and between the Company and Canon U.S. Life Sciences,Inc., dated as of February 3, 2015 (incorporated by reference to Exhibit 10.22 of the Company’s Form 10-K (File No. 001-36571) filed on March 4, 2015 10.23*First Amendment to Loan and Security Agreement, dated May 27, 2015, by and among the Company,Solar Capital Ltd., as collateral agent and lender, and Comerica Bank, as lender (incorporated by referenceto Exhibit 10.1 of the Company’s Form 8-K (File No. 001-36571) filed on May 29, 2015) 10.24*Third Amendment to Lease with King 101 Hartwell LLC on May 27, 2015 (incorporated by referenced toExhibit 10.1 of the Company’s Form 8-K (File No. 001-36571) filed on May 29, 2015) 10.25#Employment Letter Agreement, dated as of October 14, 2015, by and between the Company and DavidHarding111 Table of Contents 10.26 Second Amendment to Loan and Security Agreement, dated October 30, 2015, by and among theCompany, Solar Capital Ltd., as collateral agent and lender, and Comerica Bank, as lender 10.27†Master Lease Agreement and between the Company and Essex Capital Corporation, dated as of October31, 2015 21.1 Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm 24.1 Power of Attorney (included on the signature page hereto). 31.1 Certification of principal executive officer pursuant to Rule 13a-14(a) and 15d-14(a) of the SecuritiesExchange Act of 1934, as amended. 31.2 Certification of principal financial officer pursuant to Rule 13a-14(a) and 15d-14(a) of the SecuritiesExchange Act of 1934, as amended. 32.1 Certification of the principal executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Actof 1934, as amended, and 18 U.S.C. section 1350. 32.2 Certification of the principal financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Actof 1934, as amended, and 18 U.S.C. section 1350. 101 Interactive Data Files regarding (a) our Consolidated Balance Sheets as of December 31, 2015 and 2014(b) our Consolidated Statements of Operations and Comprehensive Loss for the Years EndedDecember 31, 2015, 2014 and 2013, (c) our Consolidated Statements of Redeemable ConvertiblePreferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2015, 2014 and2013, (d) our Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and2013 and (e) the Notes to such Consolidated Financial Statements.*Previously filed. #Indicates management contract or compensatory plan. †Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatmentpursuant to Rule 406 under the Securities Act of 1933, or the Securities Act. ** As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and12 of the Securities Act and Section 18 of the Securities Exchange Act of 1934. 112 October 14, 2015 David Harding Dear David: On behalf of T2 Biosystems, Inc., (the “Company”) I am delighted to make this offer of employment toyou to join us in the role of Chief Commercial Officer for the Company beginning November 2, 2015. At T2 Biosystems, our mission is to lower mortality rates, improve patient outcomes and reduce thecost of healthcare by empowering medical professionals to make targeted therapeutic treatment decisionsearlier. As we proceed with the commercial launch of our first products, you are joining us at a very excitingtime! In September 2014, we received FDA clearance to sell our first two products, the T2Dx Instrument andT2Candida Panel, which provide sensitive detection of specific sepsis-causing pathogens directly from a wholeblood specimen in 3-5 hours versus 2-5 days for competitive detection methods. Published data hasdemonstrated that this improvement in time to detection may reduce the current mortality rate of 40% for thoseinfections to 11%. We are truly excited to bring this product to market. This speed and detection capability is made possible by our proprietary magnetic resonance-baseddiagnostic technology platform, called T2MR, which has been in development since our inception in2006. Our next clinical applications for our T2MR technology will target bacterial sepsis, lyme disease andhemostasis, areas of significant unmet medical need where existing therapies could be more effective withimproved diagnostics. David, we are excited to extend this offer of employment to you. We think you can help us fulfill ourmission and we believe you will be a great fit with our team. To kick things off, you will find all of thepertinent information related to our offer of employment in the attached pages. Please read the offer carefullyand, if it is acceptable, sign and return one copy to my attention (PDF copy is fine). If you have any questions, please do not hesitate to contact me at (781) 457-1220 or email atjmcdonough@t2biosystems.com. We are looking forward to having you on our team! Sincerely, John McDonoughCEO & President OFFER OF EMPLOYMENT Date of employment: Should you accept the terms of this offer, your employment with the Company willcommence on November 2, 2015. Background check: Your employment is contingent upon your successful completion of a background check,which is required for all employees of the Company. The Company will forward you the appropriatedocuments, and such documents shall be required to be submitted to the Company by no later than one weekprior to your start date. Position: You have been offered the position of Chief Commercial Officer. In this capacity, you will report toJohn McDonough, Chief Executive Officer. Your duties and responsibilities will include all those customarilyattendant to such a position, and any other such duties or responsibilities that John McDonough or theCompany may, from time to time, assign to you. You agree that you shall not enter into any employmentendeavors which may conflict with your ability to devote the necessary time and energies to the Company’sbusiness interest while engaged by the Company. You further agree to comply with all applicable laws andwith all Company rules and policies established by the Company from time to time. Compensation and Tax Matters: Your base salary shall be $14,583.34, payable semi-monthly (the equivalentof $350,000 when annualized) (your “Base Salary”) and subject to pro-ration for any partial initial or terminalweek during which you are employed, in accordance with the normal payroll practices and schedule of theCompany. You will be eligible to receive an annual bonus (the "Annual Bonus") based upon the achievement of specificcompany and individual milestones as determined by the Board of Directors. The target amount of yourAnnual Bonus will be 40% of your Base Salary, subject to adjustment by the Board of Directors. Payment ofthe Annual Bonus will in all events be subject to your continued employment with the Company through thedate of payment. Your bonus eligibility for calendar year 2015 shall be pro-rated based on the actual numberof days you are employed by the Company in 2015. All compensation amounts stated are before any deductions for FICA taxes, state and federal withholding taxesand other payroll deductions required to be made by the Company under applicable law. Stock Options: Subject to the approval of the Board of Directors and your execution of the Company’s StockOption Agreement, you will be offered options to purchase 146,600 shares of T2 Biosystems common stock,which represents .62% of the fully diluted shares outstanding, under the Company’s 2014 Incentive AwardPlan (the “2014 Plan”). The exercise price of the options will be equal to their fair market value on the date ofgrant (determined in accordance with the 2014 Plan). The stock options will have a 4-year vesting schedulewith 25% of the options vesting one year from the vesting commencement date (your start date) and theremaining options vesting in equal monthly installments over the following 36 months. The terms andconditions of such stock option grant are more fully described in the 2014 Plan. Change of Control Severance Agreement: Subject to the approval of the Board of Directors and yourexecution of the attached Change of Control Severance Agreement (the “Change in Control Agreement”), youwill be offered certain benefits in the event of a change in control of the Company, as set forth in more detailand defined in the Change in Control Agreement, including severance compensation and theActive: 2015 acceleration of certain stock options, each such benefit to be subject to the terms of the Change in ControlAgreement. Fringe Benefits: You will have the opportunity to participate in the Company’s fringe benefitsprogram. Currently, these fringe benefits are as follows: ·The Company currently provides contributions toward a medical and dental plan for yourself andimmediate family members ·Three (3) weeks paid vacation, Company designated holidays, personal holidays and sick days (seeBenefits Summary for more information). ·The Company provides 100% contribution towards Term Life Insurance, Accidental Death andDismemberment Insurance, and Short and Long-Term Disability Insurance; ·The opportunity to enroll in the Company’s 401(k) Investment and Section 125 Plans based on planeligibility requirements; and ·The Company shall pay or reimburse you in accordance with the Company’s reimbursement policiesfrom time to time in connection with the performance of your duties for the Company subject to yoursubmission of satisfactory documentation with respect thereto. The Company reserves the right to amend, delete or change any of its employment policies and/or benefits atany time in its sole discretion. Non Competition/Non-Disclosure/Invention Assignment Agreement: No later than on the first day of youremployment with the Company you will be required to sign the enclosed Non-Competition/Non-Disclosure/Inventions Assignment Agreement (“Obligations Agreement”) which includes nondisclosure,inventions ownership, and other provisions that are necessary to protect the Company’s confidentialinformation, intellectual; property, trade secrets, and customer relationships. As you may be given access tosuch protectable interests, your employment is contingent upon your signing the Obligations Agreement. Theterms of the Obligations Agreement will survive termination, for whatever reason, of the employmentrelationship. Prior Agreements: You acknowledge and confirm that you have provided/disclosed to the Company allrestrictive covenants and agreements, including nondisclosure and confidentiality agreements, to which you area party. You agree that you shall not disclose to the Company or use while an employee of the Company anyconfidential or trade secret information obtained by you from other persons or employers and shall not bringany property upon the Company premises which has been misappropriated by others. You also acknowledgethat the Company expects you to honor any prior obligations to former employers to which you remain bound.Employment At Will: Although you are being hired as an employee commencing on or about November 2,2015, your employment with the Company shall be at will. This means that your employment is notguaranteed for any definite period of time, and you or the Company may terminate your employmentrelationship with or without notice at any time and for any or no reason or cause. Other than as required byapplicable laws, the Company is not bound to follow any policy, procedure, or process in connection withemployee discipline, employment termination or otherwise. Active: 2015 Entire Agreement: This letter (together with the attached Obligations Agreement and Change in ControlAgreement) sets forth the entire understanding between the Company and yourself with respect to youremployment by the Company. All prior discussions, negotiations, correspondence and other understandingsbetween you and the Company are superseded, and there are no representations, warranties or undertakings bythe Company or you with respect to your employment by the Company, which are not set forth in this letter. If you agree with the terms of this offer, please acknowledge your understanding and acceptance of this offerby signing where indicated below and return to me by October 16, 2015. We look forward to working withyou. Sincerely, T2 Biosystems, Inc. By: ___________________________________________John McDonough DateCEO & President I have read agree with and accept the items contained in this letter. By: ___________________________________________David Harding Date The Immigration Control and Reform Act of 1986 requires that all new employees complete the I-9 form and submit proof of employment eligibilityto work in the United States within the first three days of their start date. If accepting employment the Company will provide you the I-9 form andrequests that you present appropriate documents when you report to the Company and a representative of the Company will complete the I-9 formwith you. Accordingly, you will have three days from your start date to submit proof of your eligibility to work in the United States.Active: 2015Execution Copy SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”),dated as of October 30, 2015, is made among T2 Biosystems, Inc., a Delaware corporation (the “Borrower”), SolarCapital Ltd., a Maryland corporation, in its capacity as collateral agent (in such capacity, “Collateral Agent”) and as alender, and Comerica Bank (each a “Lender” and, collectively, the “Lenders”). The Borrower, the Lenders and the Collateral Agent are parties to a Loan and Security Agreement dated as ofJuly 11, 2014, as amended by the First Amendment to Loan and Security Agreement dated May 27, 2015 (the “Loan andSecurity Agreement”). The Borrower has requested that the Lenders agree to certain amendments to the Loan andSecurity Agreement. The Lenders have agreed to such request, subject to the terms and conditions hereof. Accordingly, the parties hereto agree as follows: SECTION 1 Definitions; Interpretation. (a) Terms Defined in Loan and Security Agreement. All capitalized terms used in this Amendment(including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Loanand Security Agreement. (b) Interpretation. The rules of interpretation set forth in Section 1.1 of the Loan and SecurityAgreement shall be applicable to this Amendment and are incorporated herein by this reference. SECTION 2 Amendments to the Loan and Security Agreement. The Loan and Security Agreement shall be amended asfollows, effective as of the date of satisfaction of the conditions set forth in Section 4 (such date being the “AmendmentEffective Date”): (a) Definition of “Permitted Indebtedness”. (i) The definition of “Permitted Indebtedness” in Section 1.3 of the Loan and SecurityAgreement is hereby amended as follows: (1) In clause (e), “Five Hundred Thousand Dollars ($500,000.00)” is deletedand replaced with “Two Million Dollars ($2,000,000.00)”; (2) In clause (f), “Ten Million Dollars ($10,000,000.00)” is deleted andreplaced with “Eight Million, Five Hundred Thousand Dollars ($8,500,000.00)”; and (3)the following sentence is inserted at the end of the definition: (ii) “The aggregate amounts permitted under subclauses (e) and (f) above shall be reduced,without duplication, by the aggregate purchase price received in connection with any sale leaseback transactions notprohibited by Section 7.13 then in existence. The Borrower shall elect how such reductions will be allocated between thelimits on subclause (e) and subclause (f).” (b) Dispositions. Section 7.1 of the Loan and Security Agreement shall be amended by deleting the word“or” prior to clause (d) and adding a new clause (e) at the end thereof as follows: “; or (e) sales of equipment and other personal property in connection with sale leaseback transactions to theextent not prohibited by Section 7.13.” (c)Sale Leaseback Transactions. The following new negative covenant is added as Section 7.13: 1sf-1210056 “Sale Leaseback Transactions. Enter into sale leaseback transactions in an aggregate amount greater than TenMillion Thousand Dollars ($10,000,000.00), provided that this aggregate amount shall be reduced, withoutduplication, by (i) any capitalized lease obligations and purchase money Indebtedness under subclause (e) ofthe “Permitted Indebtedness” definition, and (ii) any Indebtedness secured by a Lien on specific equipmentunder subclause (f) of the “Permitted Indebtedness” definition.” (d) References Within Loan and Security Agreement. Each reference in the Loan and SecurityAgreement to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and bea reference to the Loan and Security Agreement as amended by this Amendment. SECTION 3 Lender Directions to Collateral Agent. The Lenders hereby (a) direct the Collateral Agent to enter intothe Agreement Regarding Equipment and Leases among the Collateral Agent, the Borrower and Essex CapitalCorporation, a California corporation (“Essex”), in substantially the form attached as Exhibit A hereto, and(b)agree that the certain Master Lease Agreement dated on or about the date hereof between Essex and the Borrowerand the documents related thereto are permitted under the Loan and Security Agreement; provided that the consentin this Section 3(b) is not an exclusion from the limitation in or meant to be an addition to the provisions of Section7.13 of the Loan and Security Agreement. SECTION 4 Conditions of Effectiveness. The effectiveness of Section 2 of this Amendment shall be subject to thesatisfaction of each of the following conditions precedent: (a) Fees and Expenses. The Borrower shall have paid (i) all invoiced costs and expenses then due inaccordance with Section 6(d), and (ii) all other fees, costs and expenses due and payable as of the Amendment EffectiveDate under or in connection with this Amendment and the Loan and Security Agreement. (b) This Amendment. The Collateral Agent shall have received this Amendment, executed by theLenders and the Borrower. (c) Representations and Warranties; No Default. On the Amendment Effective Date, after giving effectto the amendment of the Loan and Security Agreement contemplated hereby: (i) The representations and warranties contained in Section 5 shall be true and correct on andas of the Amendment Effective Date as though made on and as of such date; and (ii) There exists no Events of Default or events that with the passage of time would result in anEvent of Default. SECTION 5 Representations and Warranties. To induce the Lenders to enter into this Amendment, the Borrowerhereby confirms, as of the date hereof, that the representations and warranties made by it in Section 5 of the Loan andSecurity Agreement and in the other Loan Documents are true and correct in all material respects; provided, however,that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified ormodified by materiality in the text thereof. For the purposes of this Section 5, (i) each reference in Section 5 of the Loanand Security Agreement to “this Agreement,” and the words “hereof,” “herein,” “hereunder,” or words of like import insuch Section, shall mean and be a reference to the Loan and Security Agreement as amended by this Amendment, and (ii)any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as ofthe date hereof (provided that such representations and warranties shall be true, correct and complete as of suchearlier date). SECTION 6 Miscellaneous. (a) Loan Documents Otherwise Not Affected. Except as expressly amended pursuant hereto, the Loanand Security Agreement and the other Loan Documents shall remain unchanged and in full force and effect and is herebyratified and confirmed in all respects. The Lenders’ and the Collateral Agent’s execution and deliveryof, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any 2sf-1210056 express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. (b) Conditions. For purposes of determining compliance with the conditions specified in Section 4, eachLender that has signed this Amendment shall be deemed to have consented to, approved or accepted or to be satisfiedwith, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory toa Lender unless the Collateral Agent shall have received notice from such Lender prior to the Amendment Effective Datespecifying its objection thereto. (c) No Reliance. The Borrower hereby acknowledges and confirms to the Collateral Agent and theLenders that the Borrower is executing this Amendment on the basis of its own investigation and for its own reasonswithout reliance upon any agreement, representation, understanding or communication by or on behalf of any otherPerson. (d) Costs and Expenses. The Borrower agrees to pay to the Collateral Agent on demand the reasonableout-of-pocket costs and expenses of the Collateral Agent and the Lenders party hereto, and the reasonable fees anddisbursements of counsel to the Collateral Agent and the Lenders party hereto (including allocated costs of internalcounsel), in connection with the negotiation, preparation, execution and delivery of this Amendment and any otherdocuments to be delivered in connection herewith. (e) Binding Effect. This Amendment binds and is for the benefit of the successors and permitted assignsof each party. (f) Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THEPARTIES HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY ANDCONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUTREGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OFCONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OFTHE COLLATERAL. (g) Complete Agreement; Amendments. This Amendment and the Loan Documents represent the entireagreement about this subject matter and supersede prior negotiations or agreements with respect to such subject matter.All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subjectmatter of this Amendment and the Loan Documents merge into this Agreement and the Loan Documents. (h) Severability of Provisions. Each provision of this Amendment is severable from every otherprovision in determining the enforceability of any provision. (i) Counterparts. This Amendment may be executed in any number of counterparts and by differentparties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together,constitute one Agreement. (j) Loan Documents. This Amendment and the other documents related hereto shall constitute LoanDocuments. [Balance of Page Intentionally Left Blank; Signature Pages Follow] 3sf-1210056  IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first abovewritten.BORROWER: T2 BIOSYSTEMS, INC.as Borrower By: /s/ Maurice Castonguay___________________________________________________________________________________________________Title: Chief Financial Officer COLLATERAL AGENT AND LENDERS: SOLAR CAPITAL LTD.,as Collateral Agent and a Lender By: /s/ Anthony Storino_______________________________________________________________________________________________________Name: Anthony Storino _______________________________________________________________________________________________________Title: Authorized Signatory COMERICA BANK,as a Lender By /s/ Garth Gorrall___________________________________________________________________________________________________________Name: Garth Gorrall_________________________________________________________________________________________________________Title: SVP Second Amendment to Loan and Security Agreement  Exhibit A – Agreement regarding Equipment and Leases Exhibit A  Confidential MASTER LEASE AGREEMENT THIS MASTER LEASE AGREEMENT (this “Master Lease”) dated as of October 30, 2015 is by andbetween ESSEX CAPITAL CORPORATION, a California corporation, having its principal officeat 1486 East Valley Road, Santa Barbara, California, 93108 or its assigns, (“Lessor”), and T2BIOSYSTEMS, INC., a Delaware corporation, having its principal office at 101 Hartwell Avenue,Lexington, Massachusetts 02421 (“Lessee”). In consideration of the mutual promises and covenants described in this Master Lease, the parties agreeas follows: EACH LEASE MADE UNDER THIS MASTER LEASE IS A NON-CANCELABLELEASE (OTHER THAN AS PERMITTED BY THETERMS HEREIN) 1. AGREEMENT TO LEASE. Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment (“LeasedEquipment”) described in the Schedule(s) of Leased Equipment (each, a “Schedule”) executed byLessor and Lessee from time to time. Each Schedule references this Master Lease and the terms of thisMaster Lease are deemed incorporated by such reference into and are a part of each Schedule. EachSchedule constitutes a separate lease agreement between Lessor and Lessee. This Master Lease and aSchedule taken together are referred to herein as a “Lease.” In the event of a conflict between thisMaster Lease and any Schedule, the terms of the Schedule shall prevail. This Master Lease and allSchedules shall be binding upon Lessee and Lessor only after each is duly executed by authorizedsigners of both Lessee and Lessor. No Lease may be cancelled for any reason other than as permitted bythe terms herein. A Lease may not be terminated by Lessee prior to the expiration of the Initial Term (asdefined below) other than as permitted by the terms herein. Each Schedule shall state whether the Leased Equipment to which such Schedule relates is beingpurchased by Lessor from a third party or being purchased by Lessor from Lessee (the latter beingreferred to herein as a “Sale Leaseback”). The purchase of the Leased Equipment in a Sale Leasebackshall be evidenced by a bill of sale in the form of Exhibit A attached hereto, and the purchase price forsuch Leased Equipment shall be its Original Equipment Value, as defined below. Each Schedule shall set forth the Original Equipment Value of the Leased Equipment to which it relates,as agreed by the parties. “Original Equipment Value” means: (i) in the case of Leased Equipmentpurchased by Lessor from a third party, the total amount actually paid by Lessor for the LeasedEquipment, plus related Soft Costs; (ii) in the case of Leased Equipment purchased by Lessee from athird party within six (6) months prior to the Lease Date, the total amount actually paid by Lessee for theLeased Equipment, plus related Soft Costs; (iii) in the case of Leased Equipment purchased by Lesseefrom a third party more than six (6) months prior to the Lease Date, the Fair Market Value (as definedbelow) of the Leased Equipment on the Lease Date, as determined by Lessor, plus related SoftCosts; and(iv) in the case of Leased Equipment manufactured by Lessee, approximately $[***] per unit, plusrelated Soft Costs. In each case, Lessee shall supply all documentation reasonably requested by Lessorto [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 1 - Confidentialverify the Original Equipment Value of the Leased Equipment and shall certify as to its accuracy. In noevent shall software costs, sales taxes, shipping, duties installation costs and other “soft costs”(collectively, “Soft Costs”) exceed [***] of the Original Equipment Value of the Leased Equipmentsubject to any Schedule. The total aggregate Original Equipment Value of all Leased Equipment leased pursuant to all Schedulesunder this Master Lease shall not exceed $10,000,000. 2.TERM. A Schedule commences and Lessee’s obligation to pay rental installments thereunder begins on theLease Date (as defined below), and shall continue for the term set forth in such Schedule (the “InitialTerm”, and if extended pursuant to the terms and conditions of the applicable Lease, the “Term”). TheInitial Term of each Lease shall be 36 months. “Lease Date” means the date on which Lessee has certified in writing to Lessor, in the form of theDelivery and Acceptance Certificate attached to a Schedule, that all of the Leased Equipment under aLease has been received and accepted by Lessee as installed, tested and ready for use. 3.STATUS OF PARTIES, WARRANTIES AND DEFENSES. Each Lease is a finance lease (as defined in California Uniform Commercial Code Section 10103 (a)(7)).Lessee has selected each item of Leased Equipment from the supplier of such Leased Equipment (the“Supplier”). Lessor has not manufactured or supplied any of the Leased Equipment but is acquiring thesame or the right to possession and use of the same solely in connection with each applicable Lease andat the request of Lessee. Lessee acknowledges that Lessee has received copies of all contractsevidencing the purchase of Leased Equipment and the rights with respect thereto. With respect to anyLease that is not a Sale Leaseback, Lessor will use reasonably efforts to provide Lessee with copies allcontracts with the applicable Supplier. Lessee’s sole remedy in the event of a claimed breach of warranty or other defect in or failure of anyLeased Equipment shall be in accordance with the applicable Supplier’s warranty. Lessee covenants notto assert any claim against Lessor on account of any alleged defect or failure of any Leased Equipmentand Lessee may not withhold or fail to pay any rental installments due to Lessor under a Lease.Provided no undisputed Default (as defined below) has occurred and is continuing (and notice thereofhas been delivered and the applicable cure period has expired), Lessor assigns to Lessee for theapplicable Term the benefit of any Leased Equipment warranty and any right of return provided byany Supplier. LESSOR LEASES LEASED EQUIPMENT “AS IS,” AND BEING NEITHER THE MANUFACTUREROF ANY LEASED EQUIPMENT NOR THE AGENT OF EITHER THE MANUFACTURER ORSELLER, LESSOR DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND,EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDITION OR PERFORMANCE OF LEASEDEQUIPMENT, ITS MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WITHRESPECT TO PATENT INFRINGEMENTS OR THE LIKE. OTHER THAN LOSSES CAUSED BY THEGROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR OR ITS EMPLOYEES ORAGENTS, LESSOR SHALL HAVE NO LIABILITY TO LESSEE OR ANY OTHER PERSON FOR ANYCLAIM, LOSS OR DAMAGE OF ANY KIND OR NATURE WHATSOEVER, NOR SHALL THERE BEANY ABATEMENT OF RENTAL FOR ANY REASON INCLUDING CLAIMS ARISING OUT OF ORIN CONNECTION WITH (i) THE DEFICIENCY OR INADEQUACY OF LEASED EQUIPMENT FORANY PURPOSE, WHETHER OR NOT KNOWN OR DISCLOSED TO LESSOR,(ii) ANY DEFICIENCY OR DEFECT IN LEASED EQUIPMENT, (iii) THE USE OR PERFORMANCE [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 2 - ConfidentialOF LEASED EQUIPMENT, OR (iv) ANY LOSS OF BUSINESS OR OTHER CONSEQUENTIALLOSS OR DAMAGE, WHETHER OR NOT RESULTING FROM ANY OF THE FOREGOING. Lessor shall not interfere with Lessee’s right to possession and quiet enjoyment of Leased Equipmentduring the applicable Term, provided no Default has occurred and is continuing. 4.PAYMENT. Lessee promises and agrees to pay all rental installments shown on each Schedule on the timeline setforth in each Schedule and to pay such other charges as are herein provided. Rental installments shall bepaid on an monthly basis, in advance, and shall be a fixed amount for the Initial Term of such Lease.Monthly rental installments for each Lease shall be calculated by multiplying the Original EquipmentValue of the Leased Equipment by [***] (the “Lease Rate”). By way of example, for a Lease with anOriginal Equipment Value of $1,000,000, the monthly rental installment would be $[***]. Lessor mayincrease the Lease Rate, as to future Schedules that have not yet been entered into at the time of theproposed increase to the Lease Rate, commensurate with increases in the three-year interest swap rate(as published by the Federal Reserve Board), provided that no such increase in the prospective LeaseRate will be made unless such three-year interest swap rate has increased by more than [***] basis pointssince the date of this Master Lease. Payments of rental installments shall be payable at the office of Lessor, or to such other person and/or atsuch other place as Lessor may from time to time designate in writing. Lessor may apply remittancesreceived to unpaid rental installments and/or charges on a due date basis, remittance received beingapplied to the oldest unpaid rental installment or charge. Each Lease is a net lease, it being the intention of the parties that all costs, expenses and liabilitiesassociated with Leased Equipment or its lease shall be borne by Lessee other than any income taxespayable to the account of Lessor. Lessee’s agreement to pay all obligations under each Lease, includingbut not limited to rental installments, is absolute and unconditional and such agreement is for the benefitof Lessor and its assignees. Lessee’s payment obligations shall not be subject to any abatement,deferment, reduction, setoff, defense, counterclaim or recoupment for any reason whatsoever, in eachcase subject to applicable law and Lessor’s compliance with the terms of this Master Lease andany Lease. 5.FINANCIAL AND EQUIPMENT CONDITION. Lessor may inspect Leased Equipment at any time during business hours upon reasonable notice. Lesseeagrees to keep Leased Equipment in good condition and repair (ordinary wear and tear excepted) atLessee’s expense and house the same in suitable shelter, and not to sell or otherwise dispose of LeasedEquipment or any accessories attached hereto. The foregoing inspections by Lessor shall be conductedno more often than once every twelve (12) months unless a Default has occurred and is continuing andLessor shall take commercially best efforts to not interfere with Lessee’s business or operations. Lesseeshall cause Leased Equipment to be maintained and serviced in accordance with the recommendationsof the applicable Supplier and otherwise in accordance with sound and customary industry practices.Leased Equipment shall be installed at, and shall not be removed from the Equipment Locationidentified in the applicable Lease without Lessor’s written consent, such consent not to be unreasonablywithheld. Leased Equipment required to be registered under applicable state laws shall not be removedfrom the state of registration without Lessor’s written consent, such consent not to beunreasonably withheld. Lessee agrees to furnish Lessor current financial statements on a quarterly basis that accurately reflectLessee’s financial status during the Term of any Lease, it being acknowledged that Lessee is a publiccompany and the filing of Lessee’s quarterly financial statements with the Securities and Exchange [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 3 - ConfidentialCommission (the “SEC”) and their public availability on the SEC’s website at www.sec.gov shall satisfythe delivery requirement under this section. 6.OWNERSHIP. The parties agree that each Lease creates a lease of personal property, rather than a security interest,within the meaning of California Uniform Commercial Code Section 1203, and that the Initial Term ofeach unit of Leased Equipment is less than the remaining economic life of such Leased Equipment. Notitle or right in any Leased Equipment shall pass to Lessee except the rights expressly granted in a Lease.Upon the termination of an Initial Term, except as provided in Section 7, Lessee will promptly crate,insure, and ship the applicable Leased Equipment and operating manuals to whatever destination in thecontinental United States Lessor shall direct, all at Lessee’s reasonable expense, in as good condition asexisting on the Lease Date less normal wear and tear, said destination to be confirmed by Lessee prior toshipment. Lessee agrees to pay Lessor monthly rent for Leased Equipment at the rate specified for theapplicable Term on a pro rata basis for any month or part thereof from the end of the applicableTerm until such Leased Equipment is shipped by Lessee. Leased Equipment shall always remain and bedeemed personal property even though attached to realty. Lessee shall maintain each unit of LeasedEquipment so that it may be removed from the building in which it is placed without material damage tothe building. All replacements, accessories, or capital improvements made to or placed in or upon saidLeased Equipment that cannot be removed without causing material damage to the Leased Equipmentshall become component parts thereof and title thereto shall immediately vest in Lessor and shall beincluded under the terms hereof. Lessee agrees that Lessor is authorized, at its option, to file financingstatements or amendments thereto without the signature of Lessee with respect to any or all LeasedEquipment and, if a signature is required by law, then Lessee appoints Lessor as Lessee’s attorney-in-fact for the purpose of executing any such financing statements and further agrees to pay Lessor areasonable documentation fee to cover the expense of making such filing(s). Lessee further agrees toitself execute such documents and take such action, as Lessor may reasonably request to protect Lessorand Lessor’s lenders and carve out the interest from any owner or encumbrancer of real property onwhich Leased Equipment shall be installed or located, waiving any claim of interest in the applicableLeased Equipment and consenting to its removal upon the expiration or sooner termination of theapplicable Lease. If Lessee has one or more secured lenders, Lessee will, upon the request of Lessor, provide Lessor witha release of collateral relating to Leased Equipment executed by each such secured lender and fileappropriate UCC financing statement amendments to delete Leased Equipment from the financingstatements filed by each such secured lender. 7.EXPIRATION OF LEASE; PURCHASE OPTION. For each unit of Leased Equipment, at the expiration of the applicable Initial Term, Lessee shall provideat least ninety (90) days prior written notice to Lessor of Lessee’s intent to either (a) purchasesuch Leased Equipment pursuant to the purchase option set forth in the applicable Lease, (b) extend theapplicable Lease for a specified period of time, which shall not be less than one year, at a monthly rentalrate equal to the Fair Market Value Rental Rate for such Leased Equipment at such time; or (c)return such Leased Equipment to Lessor pursuant to Section 6 above. In the event that notice is notgiven at least ninety (90) days prior to the expiration of the applicable Initial Term or any renewal orextension then in effect, then the applicable Lease shall continue as an unlawful hold-over on a month-to month basis, and Lessee shall continue to pay the monthly rent then required under such Lease on apro rata basis, until Lessee thereafter meets the ninety (90) day prior written notice requirement. Nothingin any Lease shall be deemed or construed as a waiver of Lessor’s rights and remedies upon theexpiration or termination of an Initial Term. [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 4 - ConfidentialProvided that Lessee has complied in all material respects with all the terms and conditions of a Lease,no Default is continuing under such Lease, and Lessee has paid in full all amounts due under suchLease, including all rental payments and applicable taxes, then Lessee shall have the option to purchasethe applicable Leased Equipment upon the expiration of the Initial Term or upon the expiration of anyrenewal or extension as provided in the applicable Lease. Upon the proper exercise of this purchaseoption, including timely notice under this Section 7, Lessee may purchase the applicable LeasedEquipment for an amount equal to the lesser of: (x) the Leased Equipment’s then Fair Market Valueor(y) [***] of the Original Equipment Value of such Leased Equipment, plus any applicable taxes,provided that Lessor receives payment in full on or before the last day of the applicable term. Uponany such exercise of this purchase option and payment in full, title to the applicable Leased Equipmentshall be transferred to Lessee free and clear of all liens, security interests and other encumbrancescreated by Lessor and the applicable Lease shall then terminate. Lessor will deliver to Lessee (and file, ifrequired) documentation as reasonably requested by Lessee terminating any liens, security interests andother encumbrances created by Lessor. “Fair Market Value” means the value which would be obtained in an arm’s length transaction betweenan informed and willing buyer-user (other than a lessee currently in possession or a used equipmentdealer) under no compulsion to buy, and an informed and willing seller under no compulsion to selland, in such determination, costs of removal from the location of current use shall not be a deductionfrom such value. Fair Market Value shall be determined by the mutual agreement of Lessor and Lesseein accordance with the preceding sentence or, if Lessee and Lessor cannot agree within twenty (20) daysafter Lessor’s receipt of Lessee’s notice of election, by a qualified independent equipment appraiserselected by Lessor, the cost to be shared between Lessor and Lessee 50/50. “Fair Market Value Rental Rate” means the periodic amount which would be payable for theapplicable Leased Equipment in an arm’s length transaction between an informed and willing lessee andan informed and willing lessor, neither under the compulsion to lease. In determining the Fair MarketValue Rental Rate, the costs of removing the applicable Leased Equipment from the premises or otherphysical location where Leased Equipment will be installed or located (the “Equipment Location”) andmoving it to a new location shall not be deducted from its value. The Fair Market Value Rental Rateshall be determined by the mutual agreement of Lessor and Lessee in accordance with the precedingsentence or, if Lessee and Lessor cannot agree within twenty (20) days after Lessor’s receipt of Lessee’snotice of election, by a qualified independent equipment appraiser selected by Lessor, the cost to beshared between Lessor and Lessee 50/50. 8.ASSIGNMENT. Lessor may assign this Master Lease or any Lease, and any such assignee(s) may further assign thisMaster Lease or any Lease, without notice to or consent of Lessee. Any such assignee shall succeed toall rights of Lessor under this Master Lease or the applicable Leases, and such assignee’s rights shall befree from all defenses, set-offs or counter-claims of any kind which Lessee may be entitled to assertagainst Lessor other than for Lessee’s right to use and possession of Leased Equipment; provided thatsuch assignee enter into an assignment and assumption agreement reasonably requested by Lessee.Lessee hereby waives the right to assert any such defense, set-off or counter-claim against any suchassignees, it being understood that such assignees shall assume the obligations of Lessor named in theapplicable Lease. Notwithstanding the foregoing, so long as no Default shall have occurred and iscontinuing, Lessor shall not assign its interest in this Master Lease or any Lease to any assignee who inthe reasonable estimation of Lessor is (i) a direct competitor of Lessee, whether as an operatingcompany or direct or indirect parent with voting control over such operating company, or (ii) a vultureor distressed debt fund. By the foregoing waiver, Lessee does not waive the right to any defense, set-off or counterclaim it may [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 5 - Confidentialhave against Lessor in the event that Lessor assigns this Master Lease or any Lease pursuant to thisprovision. LESSEE SHALL NOT ASSIGN, MORTGAGE OR HYPOTHECATE THIS MASTER LEASE OR ANYLEASE OR ANY INTEREST THEREIN, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,SUCH CONSENT NOT TO BE UNREASONABLY DELAYED OR WITHHELD, AND ANY SUCHTRANSFER OR ASSIGNMENT WITHOUT SUCH CONSENT WILL BE VOID. TITLE TO LEASEDEQUIPMENT SUBJECT TO A LEASE IS RETAINED BY LESSOR AND LESSEE COVENANTS THATIT WILL NOT PLEDGE OR ENCUMBER SUCH LEASED EQUIPMENT IN ANY MATTERWHATSOEVER, NOR PERMIT ANY LIENS, CHARGES, OR ENCUMBRANCES TO ATTACHTHERETO (OTHER THAN THOSE CREATED BY LESSOR). The provisions of this Section 8 apply to and bind the heirs, executors, administration, successors andpermitted assigns of the respective parties hereto. 9.INSURANCE. Lessee assumes the entire risk of loss or damages to Leased Equipment, whether or not covered byinsurance, and no such loss shall relieve Lessee of its obligations hereunder. Lessee agrees to keep allLeased Equipment insured and, upon reasonable request, to provide proof of insurance to Lessor in allLeased Equipment; to protect all interests of Lessor, at Lessee’s expense, against all risks of loss ordamage from any cause whatsoever for not less than the unpaid balance of the lease rentals due underthe applicable Lease with respect to a unit of Leased Equipment or eighty percent (80%) of the thencurrent Fair Market Value of such Leased Equipment, whichever is higher, and to purchase insurance inthe amount set forth in Lessee’s approved equipment lease application to cover the liability of Lessor forpublic liability or property damage. During the Term of a Lease, Lessor and Lessor’s lenders shall benamed as an additional insured in all such insurance policies providing and as a loss payee in thepolicies insuring the applicable Leased Equipment. Each policy shall expressly provide that saidinsurance as to Lessor and its assigns shall not be canceled by any acts, omissions or neglect of Lessee(other than non- payment by Lessee of amounts due) and each policy shall not be canceled without ten(10) days prior written notice by Lessee to Lessor. As to each policy, Lessee shall furnish Lessor acertificate of insurance from the insurer reflecting the coverage required by this Section 9 on or beforethe applicable Lease Date. The proceeds of such insurance resulting from any loss or damage to LeasedEquipment, shall be applied toward the replacement or repair of such Leased Equipment. Upon writtennotice to lessor, Lessee may place such replaced or repaired Leased Equipment at a different EquipmentLocation. Lessee shall name Lessor as a loss payee for loss or damage or return premium under anyinsurance policy issued with respect to Leased Equipment. If Lessee fails to maintain the insurancerequired by this Section 9, Lessor may, but it is not obligated to, obtain insurance in such forms andamounts as it deems reasonable to protect its interests and Lessee agrees to reimburse Lessor for all suchcosts together with interest at the rate provided herein upon demand. 10.INDEMNITY. Lessee shall, at its sole cost and expense, indemnify, hold harmless and defend Lessor and its agents,employees, officers and directors from and against any and all claims, actions, suits, proceedings, costs,expenses, damages and liabilities, including reasonable attorney’s fees, arising out of, connected with,resulting from or relating to Leased Equipment or the condition, delivery, leasing, location,maintenance, manufacture, operation, ownership, possession, purchase, repair, repossession, return,sale, selection, service or use thereof, including without limitation (a) claims involving latent or otherdefects (whether ornot discoverable by Lessee or Lessor), (b) claims for trademark patent or copyright infringement, and(c) claims for injury or death to persons or damage to property, whether resulting from acts or omissions, [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 6 - Confidentialincluding negligence, of Lessee or Lessor or otherwise. This indemnity shall not extend to any claimcaused by the gross negligence or willful misconduct of Lessor or its employees or agents. Each partyshall give the other party prompt written notice of any claims or liability covered by this Section 10,provided that the failure of Lessor to give prompt written notice to Lessee shall not affect Lessee’sindemnification obligations hereunder. Lessee shall not be obligated to indemnify Lessor for any claimsthat Lessor settles without Lessee’s consent, which consent will not be withheld or delayedunreasonably. The indemnities under this Section 10 shall survive the satisfaction of all other obligationsof Lessee herein and the termination of any Lease and this Master Lease. 11.TAXES AND FEES. Lessee agrees to use, operate and maintain Leased Equipment in accordance with all laws in all materialrespects; to pay all licensing and registration fees for Leased Equipment pursuant to applicable terms; tokeep the same free of levies, liens and encumbrances other than those created by Lessor; to show allLeased Equipment as “leased equipment” on Lessee’s personal property tax returns; to pay all personalproperty taxes assessed against equipment, which sum Lessee shall remit to taxing authorities; to pay allother federal, state and local taxes, assessments, fees and penalties which may be levied or assessed onor in respect to Leased Equipment or its use or any interest therein, or rental payments thereon includingbut not limited to all sales and use taxes, however designated, levied or assessed upon Lessee andLessor or either of them or said equipment, or upon the sale, ownership, use or operation thereof (otherthan, in each case, those measured by or in connection with Lessor’s net income). Lessee may deferpayment of any contested taxes, provided that (i) Lessee in good faith contests its obligation to pay thetaxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Lessor inwriting of the commencement of, and any material development in, the proceedings, and (iii) postsbonds or takes any other steps required to prevent the governmental authority levying such contestedtaxes from obtaining a lien upon any Leased Equipment. Lessor may pay such taxes and other amountsand may file such returns on behalf of Lessee if Lessee fails to do so as provided herein. Lessee agreesto reimburse Lessor for reasonable costs incurred in collecting any charges, taxes, assessments or feesfor which Lessee is liable hereunder. 12.ADVANCES. All advances made and costs reasonably incurred by Lessor to preserve any Leased Equipment or todischarge and pay any taxes, assessments, fees, penalties, liens or encumbrances thereon or to insureany Leased Equipment shall be added to the unpaid balance of rentals due under the applicable Lease orLeases and shall be repayable by Lessee to Lessor immediately together with interest thereon at the rateof [***] percent per month (or, if lower, the highest rate then allowed by law) until paid. 13.DEFAULT. Lessee shall be in default hereunder upon receipt by Lessee of notice from Lessor of the occurrence ofany of the following events (each a “Default”): (i) failure of Lessee to pay any rental payment or otheramount required under any Lease when due, which failure continues for ten (10) days after becomingdue under any Lease; (ii) failure of Lessee to perform any other obligation under any Lease or observeany other term or provision of a Lease, which failure continues for ten (10) days after written notice isdelivered by Lessor to Lessee; (iii) any representation or warranty made to Lessor by Lessee or by anyGuarantor proves to have been false in any material respect when made; (iv) levy, seizure orattachment or other involuntary transfer of Leased Equipment, and such levy, seizure or attachment isnot within ten(10) days after the occurrence thereof, removed, discharged or rescinded; (v) a filing by or againstLesseeunder the provisions of any federal or state bankruptcy or insolvency law and, in the case of any [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 7 - Confidentialinvoluntary petition, such petition is not dismissed or stayed within sixty (60) days, or Lessee otherwisebecomes subject to the provisions of such law, or assignment for benefit of creditors or bulk transfer ofassets by, or cessation of business, termination of existence, death or dissolution of, Lessee or anyGuarantor; or (vi) the receipt by Lessor of a written notice from the landlord of an Equipment Locationthat (a) Lessee has vacated or abandoned such Equipment Location, or (b) any default by Lessee underits real property lease with such landlord has occurred and such landlord intends to retake possession ofsuch Equipment Location as a result of such default. For the avoidance of doubt, a Default under anyLease shall be deemed to be a Default under each Lease then outstanding and under this Master Lease. “Guarantor” means any guarantor of a Lease and any owner of any property given as security forLessee’s obligations hereunder. 14.REMEDIES. If a Default occurs and is continuing, Lessor may exercise any one or more of the following remedieswithout demand or additional notice to Lessee and without terminating or otherwise affecting Lessee’sobligations hereunder; (i) accelerate the obligation of Lessee under any or all of the Leases and, in suchevent, shall be entitled to recover the sum of (a) delinquent rental payments under each such Lease withinterest thereon at the legal rate, (b) the total monthly rental payments that would have become due inthe future under each such Lease, discounted to present value as of the date of entry of judgment at arate equal to 80% of the New York Prime Rate as published from time to time in the Wall Street Journalas of that date (the “Discount Rate”), and (c) the amount that would have been paid by Lessee withrespect to each such Lease upon the exercise of the purchase option set forth in Section 7 at the end ofthe Initial Term of each such Lease, discounted to present value as of the date of entry of judgment at arate equal to the Discount Rate; (ii) require Lessee to assemble all Leased Equipment under any or all ofthe Leases and make it available to Lessor at a place designated by Lessor in the continental UnitedStates, in its reasonable discretion; (iii) take and hold possession of Leased Equipment in a reasonablemanner under any or all of the Leases from any premise where the same may be located without liabilityto Lessee for any damage caused thereby; (iv) sell or lease Leased Equipment, under any or all of theLeases, or any part thereof at public or private sale for cash, on credit or otherwise with or withoutrepresentations or warranties, and upon such commercially reasonable terms as shall be acceptable toLessor; (v) subject to the Landlord Waiver (if applicable), use and occupy any Equipment Location forthe purpose of taking, holding, reconditioning, displaying, selling or leasing Leased Equipment underany or all of the Leases, without cost to Lessor or liability to Lessee; and (vi) demand, sue for andrecover from Lessee all sums due hereunder. Lessee shall be entitled to credit for net proceeds receivedby Lessor upon sale or reletting of Leased Equipment, if any, discounted to present value. Lessee shallalso be liable for all reasonable costs incurred by Lessor in retaking, protecting, and disposing of LeasedEquipment, including reasonable legal fees and costs. The total of the amounts specified in clauses (i)(a), (i)(b) and (i)(c) of this Section with respect to any Lease shall be referred to as the “Default Amount”for such Lease. 15.LATE CHARGE. In the event a rent payment or personal property tax payment is not made when due under a Lease,Lessee promises to pay a late charge to Lessor or its assigns not later than one month thereafter, in anamount calculated at the rate of [***] per one ($1.00) dollar of each such delayed payment. The latecharge and/or the interest payment set forth in this contract shall apply only when permitted by law and,if not permitted by law, the late charges and/or interest payments shall be calculated at the thenmaximum rate permissible by law. 16.TERMINATION OF LESSOR’S OBLIGATIONS. [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 8 - ConfidentialLessor shall have no obligation to initiate any new Lease under this Master Lease after the earliest of thefollowing: (i) 12/31/2016; or (ii) the occurrence of any Default that is continuing. 17.OMISSION. The omission by Lessor at any time to enforce any default or right reserved to it, or to requireperformance of any of the terms, covenants or provisions of any Lease or Lessee at any time designated,shall not be a waiver of any such default or right to which the Lessor is entitled, nor shall it in any wayaffect the right of Lessor to enforce any such provisions thereafter. Lessor may exercise all remediessimultaneously, pursuant to the terms hereof, and such action shall not operate to release Lessee untilthe full arrival of the rentals due and to become due and all other sums to be paid under any or all of theLeases have been paid. 18.LESSOR’S TAX BENEFITS. Lessee acknowledges that Lessor shall be entitled to claim all tax benefits, credits and deductions relatedto Leased Equipment for federal and state income tax purposes as the owner of such equipmentincluding, without limitation: (i) deductions on Lessor’s cost of Leased Equipment for each of its taxyears during the Term of any Lease under any method of depreciation or other cost recovery formulapermitted by the Internal Revenue Code of 1986, as amended (hereinafter called the “Code”), and (ii)interest deductions as permitted by the Code on the aggregate interest paid to any assignee (hereinaftercollectively “Lessor’s Tax Benefits”). Lessee agrees to take no action inconsistent with the foregoing orwhich would result in the loss, disallowance, recapture or unavailability to Lessor of Lessor’sTax Benefits. 19.NOTICES. Any notice or other communication to be given under a Lease shall be in writing and shall be (as electedby the party giving such notice): (i) personally delivered; (ii) transmitted by postage prepaid registeredor certified mail, return receipt requested; (iii) deposited prepaid with a nationally recognized overnightcourier service; or (iv) transmitted by electronic mail via the Internet (with a copy of such transmissiondelivered promptly thereafter by registered or certified mail or courier). Unless otherwise providedherein, all notices shall be deemed to be effective on: (a) if delivered personally or by courier, the dateof receipt (or if delivery is refused, the date of such refusal); (b) if by electronic mail, the datetransmitted to the appropriate electronic mail address and an appropriate return receipt or telephoneconfirmation is received; or (c) if transmitted by registered or certified mail, three (3) days after the dateof posting. Any notice shall refer to the applicable Lease, including the specific section under whichnotice is being given. Notice shall be directed to a party at the address for such party set forth on thefirst page of this Master Lease or to such other address or to such other person as either party shall havelast designated by such notice to the other party hereto. 20.GOVERNING LAW, VENUE, and JURY WAIVER. This Agreement and all legal relations between the parties shall be governed by and construed inaccordance with the laws of the State of California applicable to contracts made and performed in suchState, excluding any laws that direct the application of another jurisdiction’s laws. Any dispute thatarises under or relates to this Agreement (whether in contract, tort, or both) shall be resolved in theSuperior Court of the State of California or, if there is federal subject matter jurisdiction, the UnitedStates District Court for the Central District of California. By execution and delivery of this Agreement,each party hereto irrevocably submits to the exclusive jurisdiction of such courts for itself and on behalfof its permitted successors and assigns. The parties further agree that the mailing by certified orregistered mail, return receipt requested, of any process required by any such court shall constitute validand lawful [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 9 - Confidentialservice of process against them, without necessity for service by any other means provided by statute orrule of court. To the extent permitted by law, the parties waive their right to a jury trial. 21.INTEGRATION. This Master Lease, together with each Schedule and other addenda, constitutes the entire agreementbetween Lessor and Lessee with respect to the lease of Leased Equipment. No waiver or amendmentof, or any consent with respect to, any provisions of this Master Lease, each Schedule and relateddocuments shall bind either party unless set forth in writing, specifying such waiver, consent oramendment and signed by each party 22.COUNTERPARTS. This Master Lease (and each Schedule hereto and any amendment hereto or thereto or any otherdocument delivered pursuant hereto) may be executed in one or more counterparts and, at such time aseach party has signed and delivered at least one such counterpart to the other parties hereto, eachcounterpart shall be deemed an original and, taken together, the counterparts shall constitute one and thesame agreement. The transmission of a counterpart signed with an electronic signature and thetransmission of a facsimile, including in portable document format (PDF), of any original signedcounterpart by electronic mail shall both be treated for all purposes as the delivery of an original signedcounterpart. 23.LEGAL REPRESENTATION AND CONSTRUCTION. Each party hereto has been represented by legal counsel in connection with the negotiation and draftingof this Master Lease, each Schedule and any related documents. The parties acknowledge that eachparty and its counsel have reviewed and revised this Master Lease, each Schedule and relateddocuments, and that the normal rule of construction to the effect that any ambiguities are to be resolvedagainst the drafting party shall not be employed in the interpretation of this Master Lease, any Scheduleor any related documents. As used in a Lease, the terms “includes” or “including” shall mean“including, without limitation.” Wherever the context may require, any pronouns used in a Lease shallinclude the corresponding masculine, feminine or neuter forms, and the singular form of nouns orpronouns shall include the plural and vice versa. Time is of the essence of each lease. A Lease is not effective nor accepted until the Schedule is signed by an officer of Lessor and Lessee,which is the last act necessary for the effectiveness of a Lease. 24.SEVERABILITY. If any one or more of the provisions of this Master Lease or any Schedule is for any reason held by acompetent authority to be unenforceable, such determination shall not invalidate the remainingprovisions of any Lease, and the unenforceable provision shall be replaced by a mutually acceptablevalid and enforceable provision that is closest to the original intention of the parties. 25.CONTACT WITH LESSEE’S CUSTOMERS. Lessor agrees not to communicate in any way with Lessee’s customers with respect to any Lease, anyLeased Equipment or the relationship between Lessor and Lessee (including visiting or informing suchcustomer of this lease arrangement), including customer locations at which any leased Equipment islocated, without the prior written consent of Lessee. [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 10 - Confidential26. TERMINATION. Any Lease may be terminated at the option of Lessee, and the Lessee willbecome the owner of the Leased Equipment to which such Lease relates, effective ten (10) business daysafter Lessee delivers to Lessor (i) written notice of such termination, and (ii) full payment of the DefaultAmount with respect to such Lease. Those obligations that are expressly specified in this Master Leaseand any Lease, respectively, as surviving termination of such Master Lease and Lease, respectively, shallcontinue to survive notwithstanding such termination. (Signature Page Follows) [***] Certain information in this document has been omitted and filed separately with the Securities and ExchangeCommission. Confidential treatment has been requested with respect to the omitted portions.- 11 - ConfidentialIN WITNESS WHEREOF, each of the parties has caused this Master Lease Agreement to be executed byits duly authorized officers. LESSEE: T2 BIOSYSTEMS, INC., a Delaware corporation By: /s/ Maurice Castonguay__________Title: Chief Financial OfficerDate: 10/31/2015 By: /s/ Michael Gibbs_______________Title: Senior Corporate CounselDate: 10/31/2015 Accepted by LESSOR: ESSEX CAPITAL CORPORATION, a California corporation By: /s/ Brad Wheatley____________Title: Chief Financial OfficerDate: 10/30/2015  August 3, 2015 Maurice Castonguay Dear Moe: On behalf of T2 Biosystems, Inc., (the “Company”) I am delighted to make this offer of employment toyou to join us in the role of Chief Financial Officer for the Company beginning August 5, 2015, immediatelyfollowing the Company’s filing with the Securities and Exchange Commission of its quarterly report on Form10-Q for the quarter ending June 30, 2015. At T2 Biosystems, our mission is to lower mortality rates, improve patient outcomes and reduce thecost of healthcare by empowering medical professionals to make targeted therapeutic treatment decisionsearlier. As we proceed with the commercial launch of our first products, you are joining us at a very excitingtime! In September 2014, we received FDA clearance to sell our first two products, the T2Dx Instrument andT2Candida Panel, which provide sensitive detection of specific sepsis-causing pathogens directly from a wholeblood specimen in 3-5 hours versus 2-5 days for competitive detection methods. Published data hasdemonstrated that this improvement in time to detection may reduce the current mortality rate of 40% for thoseinfections to 11%. We are truly excited to bring this product to market. This speed and detection capability is made possible by our proprietary magnetic resonance-baseddiagnostic technology platform, called T2MR, which has been in development since our inception in2006. Our next clinical applications for our T2MR technology will target bacterial sepsis, lyme disease andhemostasis, areas of significant unmet medical need where existing therapies could be more effective withimproved diagnostics. Moe, we are excited to extend this offer of employment to you. We think you can help us fulfill ourmission and we believe you will be a great fit with our team. To kick things off, you will find all of thepertinent information related to our offer of employment in the attached pages. Please read the offer carefullyand, if it is acceptable, sign and return one copy to my attention (PDF copy is fine). If you have any questions, please do not hesitate to contact me at (781) 457-1220 or email atjmcdonough@t2biosystems.com. We are looking forward to having you on our team! Sincerely, John McDonoughCEO & President OFFER OF EMPLOYMENT Date of employment: Should you accept the terms of this offer, your employment with the Company willcommence on August 5, 2015, immediately following the Company’s filing with the Securities and ExchangeCommission of its quarterly report on Form 10-Q for the quarter ending June 30, 2015. Background check: Your employment is contingent upon your successful completion of a background check,which is required for all employees of the Company. The Company will forward you the appropriatedocuments, and such documents shall be required to be submitted to the Company by no later than one weekprior to your start date. Position: You have been offered the position of Chief Financial Officer. In this capacity, you will report to JohnMcDonough, Chief Executive Officer. Your duties and responsibilities will include all those customarilyattendant to such a position, and any other such duties or responsibilities that John McDonough or theCompany may, from time to time, assign to you. You agree that you shall not enter into any employmentendeavors which may conflict with your ability to devote the necessary time and energies to the Company’sbusiness interest while engaged by the Company. You further agree to comply with all applicable laws andwith all Company rules and policies established by the Company from time to time. Compensation and Tax Matters: Your base salary shall be $12,500.00, payable semi-monthly (the equivalentof $300,000 when annualized) (your “Base Salary”) and subject to pro-ration for any partial initial or terminalweek during which you are employed, in accordance with the normal payroll practices and schedule of theCompany. You will be eligible to receive an annual bonus (the "Annual Bonus") based upon the achievement of specificcompany and individual milestones as determined by the Board of Directors. The target amount of yourAnnual Bonus will be 40% of your Base Salary, subject to adjustment by the Board of Directors. Payment ofthe Annual Bonus will in all events be subject to your continued employment with the Company through thedate of payment. Your bonus eligibility for calendar year 2015 shall be pro-rated based on the actual numberof days you are employed by the Company in 2015. All compensation amounts stated are before any deductions for FICA taxes, state and federal withholding taxesand other payroll deductions required to be made by the Company under applicable law. Stock Options: Subject to the approval of the Board of Directors and your execution of the Company’s StockOption Agreement, you will be offered options to purchase 146,600 shares of T2 Biosystems common stockunder the Company’s 2014 Incentive Award Plan (the “2014 Plan”). The exercise price of the options will beequal to their fair market value on the date of grant (determined in accordance with the 2014 Plan). The stockoptions will have a 4-year vesting schedule with 25% of the options vesting one year from the vestingcommencement date (your start date) and the remaining options vesting in equal monthly installments over thefollowing 36 months. The terms and conditions of such stock option grant are more fully described in the 2014Plan. Change of Control Severance Agreement: Subject to the approval of the Board of Directors and your executionof the attached Change of Control Severance Agreement (the “Change in Control Agreement”), you will beoffered certain benefits in the event of a change in control of the Company, as set forth in more detail anddefined in the Change in Control Agreement, including severance compensation and the acceleration of certainstock options, each such benefit to be subject to the terms of the Change in Control Agreement. Active: 2015 Fringe Benefits: You will have the opportunity to participate in the Company’s fringe benefitsprogram. Currently, these fringe benefits are as follows: ·The Company currently provides contributions toward a medical and dental plan for yourself andimmediate family members ·Three (3) weeks paid vacation, Company designated holidays, personal holidays and sick days (seeBenefits Summary for more information). ·The Company provides 100% contribution towards Term Life Insurance, Accidental Death andDismemberment Insurance, and Short and Long-Term Disability Insurance; ·The opportunity to enroll in the Company’s 401(k) Investment and Section 125 Plans based on planeligibility requirements; and ·The Company shall pay or reimburse you in accordance with the Company’s reimbursement policiesfrom time to time in connection with the performance of your duties for the Company subject to yoursubmission of satisfactory documentation with respect thereto. The Company reserves the right to amend, delete or change any of its employment policies and/or benefits atany time in its sole discretion. Non Competition/Non-Disclosure/Invention Assignment Agreement: No later than on the first day of youremployment with the Company you will be required to sign the enclosed Non-Competition/Non-Disclosure/Inventions Assignment Agreement (“Obligations Agreement”) which includes nondisclosure,inventions ownership, and other provisions that are necessary to protect the Company’s confidentialinformation, intellectual; property, trade secrets, and customer relationships. As you may be given access tosuch protectable interests, your employment is contingent upon your signing the Obligations Agreement. Theterms of the Obligations Agreement will survive termination, for whatever reason, of the employmentrelationship. Prior Agreements: You acknowledge and confirm that you have provided/disclosed to the Company allrestrictive covenants and agreements, including nondisclosure and confidentiality agreements, to which you area party. You agree that you shall not disclose to the Company or use while an employee of the Company anyconfidential or trade secret information obtained by you from other persons or employers and shall not bringany property upon the Company premises which has been misappropriated by others. You also acknowledgethat the Company expects you to honor any prior obligations to former employers to which you remain bound.Employment At Will: Although you are being hired as an employee commencing on or about August 5,2015, immediately following the Company’s filing with the Securities and Exchange Commission of itsquarterly report on Form 10-Q for the quarter ending June 30, 2015, your employment with the Company shallbe at will. This means that your employment is not guaranteed for any definite period of time, and you or theCompany may terminate your employment relationship with or without notice at any time and for any or noreason or cause. Other than as required by applicable laws, the Company is not bound to follow any policy,procedure, or process in connection with employee discipline, employment termination or otherwise. Entire Agreement: This letter (together with the attached Obligations Agreement and Change inActive: 2015 Control Agreement) sets forth the entire understanding between the Company and yourself with respect toyour employment by the Company. All prior discussions, negotiations, correspondence and otherunderstandings between you and the Company are superseded, and there are no representations, warranties orundertakings by the Company or you with respect to your employment by the Company, which are not setforth in this letter. If you agree with the terms of this offer, please acknowledge your understanding and acceptance of this offerby signing where indicated below and return to me by August 4, 2015. We look forward to working with you. Sincerely, T2 Biosystems, Inc. By: ___________________________________________John McDonough DateCEO & President I have read agree with and accept the items contained in this letter. By: ___________________________________________Maurice Castonguay Date The Immigration Control and Reform Act of 1986 requires that all new employees complete the I-9 form and submit proof of employment eligibilityto work in the United States within the first three days of their start date. If accepting employment the Company will provide you the I-9 form andrequests that you present appropriate documents when you report to the Company and a representative of the Company will complete the I-9 formwith you. Accordingly, you will have three days from your start date to submit proof of your eligibility to work in the United States.Active: 2015Exhibit 21.1 Subsidiaries of T2 Biosystems, Inc.: NameJurisdiction of OrganizationT2 Biosystems Securities CorporationMassachusettsExhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements (Form S-3 No. 333-206707and Form S-8 Nos. 333-197946) of T2 Biosystems, Inc. and in the related Prospectus of our report dated March 9, 2016, withrespect to the consolidated financial statements of T2 Biosystems, Inc. included in this Annual Report (Form 10-K) for theyear ended December 31, 2015. /s/ Ernst & Young LLP Boston, MassachusettsMarch 9, 2016 Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John McDonough, certify that: 1.I have reviewed this Annual Report on Form 10-K of T2 Biosystems, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the periodin which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting. Date: March 9, 2016By:/s/ John McDonough John McDonough President and Chief Executive Officer Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Maurice Castonguay, certify that: 1.I have reviewed this Annual Report on Form 10-K of T2 Biosystems, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the periodin which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting. AuriceDate: March 9, 2016By:/s/ Maurice Castonguay Maurice Castonguay Chief Financial Officer Exhibit 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of T2 Biosystems, Inc. (the “Company”) on Form 10-K for the fiscal year endedDecember 31, 2015 (the “Report”), as filed with the Securities and Exchange Commission on or about the date hereof, I,John McDonough, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (i)the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of1934, as amended; and (ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 9, 2016By:/s/ John McDonough John McDonough President and Chief Executive Officer This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and ExchangeCommission and is not to be incorporated by reference into any filing of T2 Biosystems, Inc. under the Securities Act of1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.Exhibit 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of T2 Biosystems, Inc. (the “Company”) on Form 10-K for the fiscal year endedDecember 31, 2015 (the “Report”), as filed with the Securities and Exchange Commission on or about the date hereof, I,Maurice Castonguay, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (i)the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of1934, as amended; and (ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. RDate: March 9, 2016By:/s/ Maurice Castonguay Maurice Castonguay Chief Financial Officer This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and ExchangeCommission and is not to be incorporated by reference into any filing of T2 Biosystems, Inc. under the Securities Act of1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. 

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