T2 Biosystems (NASDAQ:TTOO) stock has been rallying this week after investors learned that the Nasdaq exchange had granted it an extension to regain compliance with two of the exchange’s rules. Specifically, the exchange gave the company additional time to meet its requirements by raising its share price above $1 and increasing its market capitalization “to at least $35 million for 10 straight trading days. ”
TTOO stock soared 50% yesterday and is climbing another 45% in early trading today.
T2 develops medical diagnostic tests for hospitals. According to the company’s website, its biggest market is in tests for detecting sepsis, which costs the U.S. healthcare system $62 billion a year.
More About the Compliance Issue
On July 31, T2 disclosed that it had been granted until Nov. 20 by Nasdaq to become in compliance with the exchange’s rules.
With the shares changing hands around 30 cents, well below the $1 threshold, T2 may have some work to do to meet the exchange’s share price requirement. However, the firm will likely be able to take care of that issue by simply carrying out a reverse split. In the latter scenario, the company would significantly reduce the number of shares outstanding, causing the price of each share to jump well above $1.
As far as the market capitalization issue is concerned, the company appears to be above the minimum threshold, as its market capitalization now stands at $45.7 million, according to MarketWatch. But if that metric does fall below $35 million again, the company would likely have difficulty raising it. In order to do so, it would likely have to find a way to convince investors that its business outlook was meaningfully improving.
But it’s also worth pointing out that even if TTOO stock is delisted from the Nasdaq, its shares will probably not disappear. Instead, they would likely move over to one of the over-the-counter exchanges. And if that scenario materializes, the owners of its shares would not necessarily lose a significant amount of their investments in the longer term.
TTOO Stock: A Bigger Worry
But the owners of TTOO stock would likely lose all or most of their investments if the company goes bankrupt. And the latter scenario could indeed occur since the company had just $10 million of cash at the end of last quarter, while its operating cash flow in the 12 months that ended in June was -$49 million.
On the other hand, on July 20, the Food and Drug Administration (FDA) did grant breakthrough status to T2’s rapid blood test for a drug-resistant fungal infection. As a result, other firms may be willing to invest in T2, and banks may be prepared to loan it more funds, enabling it to avoid bankruptcy.
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On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
