Taking T2 Biosystems Off The Table

Today T2 Biosystems was removed from the Tailwinds Select Portfolio at a price of $7.22. This represents a 38% return in the slightly less than 2 months which we had it in the portfolio, so chalk it up as a win. However, Tailwinds is looking for long term, multi-baggers and, as such, TTOO was a disappointment for us.

TTOO still might end up being a big winner. The Company is expecting approval from the FDA on their sepsis diagnostic in the 2nd quarter. We have no reason to think that the FDA won’t approve the diagnostic and, therefore, T2 likely has a major catalyst in front of them. Therefore, we may have been early in selling out of the shares.

But, we still took TTOO out of the portfolio today, regardless of the upcoming potential catalyst. Why is this? Well, there are several reasons, which I will outline below.

  1. The CFO leaving the Company. This happened almost immediately after we invested and is a big red flag. The fact that three CFOs have left in recent years, compounds the issue. We held on to the shares despite this departure, but it set off alarm bells.
  2. Concern over the uptake in the sepsis diagnostic, post approval. Several analysts have expressed concern about this and there was an excellent discussion on Seeking Alpha from several medical investors and industry professionals, which detailed the issues around uptake. This, and neutral opinions from Goldman and Leerink, caused us concern.
  3. Fear of a financing taking away the approval upside. This Company burns cash and, if uptake is slow, they will need to raise more money sometime soon. If that’s the case, it diminishes the potential returns.
  4. Management’s unresponsiveness to several attempts (through IR) to schedule a conference call. I like to speak with any Company I’m invested in, just to hear it from their lips. The management’s lack of interest in speaking with an investor worried me.
  5. And, the straw that broke the camel’s back, the COO resigned last week. This, in an of itself, is not a game-changer. However, the resignation came the same day as their earnings call…AND WAS NOT MENTIONED!!! Instead, two days later, the Company issued an 8-K about the resignation. This was on a Friday and after the close of the market. In my book, while not illegal, this is a very deceptive move by management and caused me to have zero trust in them.

So, between the multiple management changes, a lack of trust, and concern about the uptake (and a potential financing), we decided it was prudent to pull the plug on TTOO. Time to take the nice gain and redeploy the proceeds into other, higher confidence, investments.

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