UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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
TCR2 Therapeutics Inc.
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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(Address of Principal Executive Offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of April 30, 2020, there were
TCR2 Therapeutics Inc.
Table of Contents
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5 |
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Item 1. |
5 |
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Unaudited Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 |
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Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 |
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Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 |
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11 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
36 |
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Item 4. |
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38 |
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Item 1. |
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Item 1A. |
38 |
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Item 2. |
98 |
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Item 3. |
99 |
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Item 4. |
99 |
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Item 5. |
99 |
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Item 6. |
100 |
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101 |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of TCR2 Therapeutics Inc. ("we," "us," and "our") contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could”, “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects”, “potential,” “continue” or the negative of these terms or other comparable terminology. Forward-looking statements appear in a number of places in this Quarterly Report on Form 10-Q and include, but are not limited to, statements about:
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the timing of preclinical studies and clinical trials of TC-210, TC-110 and any other product candidates; |
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our need to raise additional funding before we can expect to generate any revenues from product sales; |
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our ability to submit our planned INDs, conduct successful clinical trials and obtain regulatory approval for TC-210, TC-110 or any other product candidates that we may identify or develop; |
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the ability of our TRuC-T cell platform to generate and advance additional product candidates; |
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our ability to establish an adequate safety, potency and purity profile for TC-210, TC-110 or any other product candidates that we may pursue; |
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our ability to manufacture TC-210, TC-110 or any other product candidate in conformity with our specifications and with the U.S. Food and Drug Administration’s requirements and to scale up manufacturing of our product candidates to commercial scale, if approved; |
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the implementation of our strategic plans for our business, any product candidates we may develop and our technology; |
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our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology; |
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the rate and degree of market acceptance and clinical utility for any product candidates we may develop; |
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our expectations related to the use of proceeds from our initial public offering; |
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our estimates regarding our expenses, future revenues, capital requirements and our needs for additional financing; |
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our ability to maintain and establish collaborations; |
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our ability to effectively manage our anticipated growth; |
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developments relating to our competitors and our industry, including the impact of government regulation; |
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our estimates regarding the market opportunities for our product candidates; |
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our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals; |
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our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing; |
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our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act, or the JOBS Act; |
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our financial performance; and |
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other risks and uncertainties, including those listed under the section titled “Risk Factors.” |
Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, and involve known and unknown risks, uncertainties and other factors including, without limitation, risks, uncertainties and assumptions regarding the impact of the COVID-19 pandemic on our business, operations, strategy, goals and anticipated timelines, our ongoing and planned preclinical activities, our ability to initiate, enroll, conduct or complete ongoing and planned clinical trials, our timelines for regulatory submissions and our financial position that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results under “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019 and in this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. We do not intend, and undertake no obligation, to update any forward-looking information to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.
Part I
Item 1. Financial Statements
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
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March 31, 2020 |
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December 31, 2019 |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ |
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$ |
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Investments |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Investments, non-current |
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Restricted cash |
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Deferred offering costs |
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Total assets |
$ |
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$ |
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Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) |
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Accounts payable |
$ |
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$ |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 7) |
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Stockholders’ equity (deficit) |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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Total stockholders’ equity (deficit) |
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Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit) |
$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements
5
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
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For the Three Months Ended March 31, |
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2020 |
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2019 |
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Operating expenses |
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Research and development |
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$ |
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$ |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Interest income, net |
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Loss before income taxes |
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Income taxes |
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- |
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Net loss |
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Accretion of redeemable convertible preferred stock to redemption value |
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- |
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Net loss attributable to common stockholders |
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$ |
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$ |
( |
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Per share information |
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Net loss per share of common stock, basic and diluted |
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$ |
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$ |
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Weighted average shares outstanding, basic and diluted |
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See accompanying notes to unaudited consolidated financial statements
6
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(amounts in thousands)
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For the Three Months Ended March 31, |
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2020 |
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2019 |
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Net loss |
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$ |
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$ |
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Unrealized gain (loss) on investments, net |
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Comprehensive loss |
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$ |
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$ |
( |
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See accompanying notes to unaudited consolidated financial statements
7
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(amounts in thousands, except share data)
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Additional |
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Accumulated Other |
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Total Stockholders' |
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Common Stock |
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Paid-In |
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Accumulated |
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Comprehensive |
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Equity |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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(Deficit) |
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Balance at December 31, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Reclassification of shares issued and previously subject to repurchase |
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- |
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- |
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- |
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Exercise of stock options |
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- |
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- |
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- |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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Unrealized gain on investments |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Net loss |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Balance at March 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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See accompanying notes to unaudited consolidated financial statements
8
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(amounts in thousands, except share data)
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Redeemable Convertible Preferred Stock |
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Additional |
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Accumulated Other |
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Total Stockholders' |
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Series A |
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Series B |
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Common Stock |
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Paid-In |
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Accumulated |
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Comprehensive |
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Equity |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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(Deficit) |
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Balance at December 31, 2018 |
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$ |
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$ |
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$ |
- |
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$ |
- |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Reclassification of shares issued and previously subject to repurchase |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Exercise of stock options |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Unrealized gain on investments |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Accretion of redeemable preferred stock to redemption value |
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- |
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- |
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- |
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- |
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( |
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( |
) |
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- |
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( |
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Conversion of shares upon IPO |
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( |
) |
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( |
) |
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( |
) |
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( |
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- |
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- |
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Initial public offering, net of issuance costs |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
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Balance at March 31, 2019 |
|
|
- |
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$ |
- |
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- |
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$ |
- |
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$ |
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$ |
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$ |
( |
) |
|
$ |
|
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|
$ |
|
|
See accompanying notes to unaudited consolidated financial statements
9
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
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Three months Ended March 31, |
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2020 |
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2019 |
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Operating activities |
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Net loss |
$ |
( |
) |
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$ |
( |
) |
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Adjustments to reconcile net loss to cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Accretion on investments |
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( |
) |
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( |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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( |
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( |
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Accounts payable |
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( |
) |
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Accrued expenses and other liabilities |
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( |
) |
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( |
) |
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Cash used in operating activities |
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( |
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( |
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Investing activities |
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Purchases of equipment |
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( |
) |
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( |
) |
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Purchase of investments |
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( |
) |
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( |
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Proceeds from sale or maturity of investments |
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Cash used in investing activities |
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( |
) |
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( |
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Financing activities |
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Proceeds from initial public offering, net of issuance costs |
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Proceeds from the exercise of stock options |
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Deferred offering costs |
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( |
) |
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( |
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Cash provided by financing activities |
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Net change in cash, cash equivalents, and restricted cash |
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( |
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( |
) |
|
Cash, cash equivalents, and restricted cash at beginning of year |
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at end of period |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash financing activities |
|
|
|
|
|
|
|
|
Conversion of redeemable convertible preferred stock to common stock |
$ |
|
|
|
$ |
|
|
|
Accretion of redeemable convertible preferred stock to redemption value |
|
|
|
|
|
|
|
|
Deferred offering costs included in accounts payable |
|
|
|
|
|
|
|
|
Property and equipment additions in accounts payable |
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
10
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items)
1. Organization and Description of Business
TCR2 Therapeutics Inc. (the Company) is a clinical-stage immunotherapy company developing the next generation of novel T cell therapies for patients suffering from cancer. The Company was incorporated under the laws of the State of Delaware on May 29, 2015 under the name TCR2, Inc. In November 2016, the Company changed its name to TCR2 Therapeutics Inc. The Company’s principal operations are located in Cambridge, Massachusetts.
Initial Public Offering
In February 2019, the Company completed the initial public offering of its common stock (the IPO) pursuant to which it issued and sold
Reverse Stock Split
On February 1, 2019, the Company effected a reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying unaudited consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the redeemable convertible preferred stock conversion ratios.
Shelf Registration Statement
On March 6, 2020, we filed a shelf registration statement on Form S-3, or Shelf, with the Securities and Exchange Commission, or SEC, which covers the offering, issuance and sale by us of up to an aggregate of $
2. Liquidity
The Company’s operations to date have focused on organization and staffing, business planning, raising capital, acquiring technology and assets, manufacturing, conducting preclinical studies, and clinical activities. The Company does not have any product candidates approved for sale and has not generated any revenue from product sales. The Company’s product candidates are subject to long development cycles and the Company may be unsuccessful in its efforts to develop, obtain regulatory approval for or market its product candidates.
The Company is subject to a number of risks including, but not limited to, the need to obtain adequate additional funding for the ongoing and planned clinical development of its product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical products and development, the Company is unable to accurately predict the timing or amount of funds required to complete development of its product candidates, and costs could exceed the Company’s expectations for a number of reasons,
11
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items)
including reasons beyond the Company’s control. The Company is also subject to a number of other risks including possible failure of preclinical studies or clinical trials, the need to obtain marketing approval for its product candidates, the development of new technological innovations by competitors, the need to successfully commercialize and gain market acceptance of any of the Company’s products that are approved and uncertainty around intellectual property matters. If the Company does not successfully commercialize any of its products, it will be unable to generate product revenue or achieve profitability.
The Company expects to continue to generate losses for the foreseeable future. The Company expects that its cash, cash equivalents and investments as of March 31, 2020 of $
3. Summary of Significant Accounting Policies
Principles of consolidation and basis of presentation
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and in accordance with Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC), and reflect the financial position, results of operations and cash flows of the Company's business. Accordingly, they do not include all of the disclosures required by U.S. GAAP for a complete set of annual audited financial statements. All significant intercompany accounts and transactions are eliminated in consolidation.
The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K filed with the SEC on March 30, 2020 for the year ended December 31, 2019 (the 2019 Form 10-K). In the opinion of the Company's management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included.
Use of estimates
The preparation of the accompanying unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these unaudited consolidated financial statements include, but are not limited to, the fair value of the royalty transfer agreement obligations, the valuation of redeemable convertible preferred and common stock prior to the IPO, and the fair value of stock-based compensation awards granted under the Company’s equity-based compensation plans. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Concentrations of credit risk and of manufacturing risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and investments. The Company’s cash, cash equivalents and investments are held by financial institutions in the United States. Amounts on deposit may at times exceed federally insured limits. Management believes that the financial institutions are financially sound, and accordingly, minimal credit risk exists with respect to the financial institutions.
12
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items)
As of March 31, 2020, the Company has manufacturing arrangements with vendors for the supply of materials for use in preclinical and clinical studies. If the Company were to experience any disruptions in the party’s ability or willingness to continue to provide manufacturing services, the Company may experience significant delays in its product development timelines and may incur substantial costs to secure alternative sources of manufacturing.
Fair value of financial instruments
At March 31, 2020 and December 31, 2019, the Company’s financial instruments consist of money market funds, commercial paper, asset-backed securities, agency and corporate bonds and are included in investments. The carrying value of investments is the estimated fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Cash equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of March 31, 2020 and December 31, 2019, cash equivalents consisted of U.S treasuries, corporate bonds, and government-backed money market funds.
Investments
As of March 31, 2020, all investments were classified as available-for-sale and were carried at their estimated fair value. Unrealized gains and losses are recorded as a component of accumulated other comprehensive income (loss) until realized. The Company determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company periodically reviews its investments in debt securities for impairment and adjusts these investments to their fair value when a decline in market value is deemed to be other than temporary. If losses on these securities are considered to be other than temporary, the loss is recognized in earnings. The Company classifies its available-for-sale marketable securities as current or non-current based on each instrument’s underlying effective maturity date and for which the Company has the intent and ability to hold the investment for a period of greater than 12 months. Marketable securities with maturities of less than 12 months are classified as current and are included in investments in the consolidated balance sheets. Marketable securities with maturities greater than 12 months for which the Company has the intent and ability to hold the investment for greater than 12 months are classified as non-current and are included in investments, non-current in the consolidated balance sheets.
Deferred offering costs
The Company capitalizes costs that are directly associated with in-process equity financings until such financings are consummated at which time such costs are recorded against the gross proceeds of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the unaudited consolidated statements of operations.
Restricted cash
Cash accounts that are restricted as to withdrawal or usage are presented as restricted cash. Restricted cash includes amounts held as a security deposit in the form of a letter of credit for the Company’s leased facilities.
13
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items)
Classification and accretion of redeemable convertible preferred stock
Through the date of the IPO, the Company had classified redeemable convertible preferred stock outstanding and classified outside of stockholders’ equity (deficit) because the shares contain certain redemption features that are not solely within the control of the Company. The carrying value of the redeemable convertible preferred stock was accreted to redemption value at the end of each reporting period, up to the date of the IPO, as if the end of the reporting period were the redemption date. Increases to the carrying value of redeemable convertible preferred stock were charged to additional paid-in capital or, in the absence of additional paid-in capital, charged to accumulated deficit. Upon completion of the IPO during February 2019, all redeemable convertible preferred stock was converted to common stock.
Stock-based compensation
The Company measures employee stock-based awards at grant-date fair value and records compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues awards with only service-based vesting conditions. The Company accounts for forfeitures as they occur.
The Company measures the fair value of stock-based awards granted to non-employees on the date at which the related service is complete. Compensation expense is recognized over the period during which services are rendered by such non-employee consultants until completed. In the second quarter of 2019, the Company adopted ASU 2018-07 on a retrospective basis effective January 1, 2019, the beginning of the fiscal year of adoption. Prior to the adoption of ASU 2018-07, share-based payments awards granted to non-employees were measured at fair value on their grant date, subject to periodic remeasurement at each reporting period, and share-based compensation expense was recognized over their vesting terms. After the adoption of ASU 2018-07, the fair value of all outstanding and unvested previously granted non-employee awards was established on January 1, 2019, the effective date of adoption, and share-based compensation expense will continue to be recorded on a straight-line basis over their remaining vesting period, consistent with share-based payment awards granted to employees.
Common shares issued and stock-options exercised prior to vesting are subject to repurchase by the Company until vested at the lesser of the initial exercise price and the fair market value of the Company’s common stock at the time of repurchase. The proceeds from the shares subject to repurchase are classified as a liability and reclassified to equity as the shares vest.
Estimating the fair value of stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and, for stock options and warrants, the expected life of the options and stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards and warrants. The assumptions used in calculating the fair value of stock-based awards represent management’s estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
The Company classifies stock-based compensation expense in its statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
14
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items)
Research and development expenses
Research and development costs are expensed as incurred and consist primarily of funds paid for employee wages and funds paid to third parties for the provision of services for product candidate development, clinical and preclinical development and related supply and manufacturing costs, and regulatory compliance costs. At the end of the reporting period, the Company compares payments made to third party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs.
Upfront milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed as services are rendered.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A reduction in the carrying value of the deferred tax assets is required when it is not more likely than not that such deferred tax assets are not realizable.
Net loss per share
Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. Therefore, the weighted-average shares used to calculate both basic and diluted loss per share are the same.
The following potentially dilutive securities, on an as converted basis have been excluded from the computation of diluted weighted-average shares outstanding as of March 31, 2020 and 2019, as they would be antidilutive:
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Stock options outstanding |
|
|
|
|
|
|
|
|
Common stock warrants |
|
|
|
|
|
|
|
|
Employee stock purchase plan |
|
|
|
|
|
|
|
|
Unvested shares of restricted stock |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Comprehensive loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources (which excludes investments from owners). The Company’s only element of other comprehensive loss is unrealized gains and losses on investments.
15
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items)
Reconciliation of cash, cash equivalents and restricted cash as presented in the statements of cash flows
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets to the total of the same such amounts shown in the unaudited consolidated statements of cash flows for the three months ended March 31, 2020 and 2019.
|
|
As of March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Cash and cash equivalents |
$ |
|
|
|
$ |
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash shown in the statements of cash flows |
$ |
|
|
|
$ |
|
|
JOBS Act accounting election
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recently issued accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which will require lessees to record most operating leases on their balance sheets but recognize the expenses in the statements of operations in a manner similar to current practice. Under the new standard, lessees will be required to recognize a lease liability for the obligation to make lease payments, and an asset for the right to use the underlying asset for the lease term, for all leases with terms longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statements of operations. Expenses related to operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile, in which interest and amortization are presented separately in the statements of operations. The principal effect on the Company’s financial statements will be an increase in assets and liabilities.
The standard will be effective for public business entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company will adopt the new standard beginning January 1, 2021. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to apply the standard either (1) on the January 1, 2021 effective date, or (2) the beginning of the earliest comparative period presented in its financial statements. The standard includes a number of practical expedients that the Company is evaluating and may elect to apply. Early adoption is permitted. The Company expects that the adoption of the new leasing standards will result in the recognition of material right-of-use assets and lease liabilities on the consolidated balance sheets but does not expect it to have a material impact on its results of operations or cash flows.
16
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items)
4. Investments and Fair Value Measurements
As of March 31, 2020, investments were comprised of the following:
|
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Current Marketable Securities |
|
|
Non-Current Marketable Securities |
|
||||||
|
Corporate bonds |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
As of December 31, 2019, investments were comprised of the following:
|
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Investments |
|
|
Non-Current Marketable Securities |
|
||||||
|
Corporate bonds |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The amortized cost and estimated fair value of marketable securities, by contractual maturity:
|
|
|
|
|
|
|
March 31, 2020 |
|
|||||
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
||
|
Due within one year or less |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Due after one year through five years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|||||
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
||
|
Due within one year or less |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The Company believes that the decline in value of its debt securities is temporary and primarily related to the change in market interest rates since purchase. The Company believes it is more likely than not that it will be able to hold these securities to maturity. Therefore, the Company anticipates full recovery of its debt securities’ amortized cost basis at maturity.
The Company follows FASB’s accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. Where available, fair value is based on observable market prices, or parameters derived from such prices. Where observable prices or inputs are not available, valuation models are applied. This hierarchy requires the use of observable market data when available and to minimize the use of unobservable inputs when determining fair value. These valuation techniques involve some level of management estimation and judgment. The degree of management estimation and judgment is dependent on the price transparency for the instruments, or market, and the instruments’ complexity.
The guidance requires fair value measurements to be classified and disclosed in one of the following three categories:
Level 1—Quoted prices (unadjusted in active markets for identical assets or liabilities)
Level 2—Inputs other than quoted prices in active markets that are observable either directly or indirectly
Level 3—Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions
17
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items)
As of March 31, 2020, the Company has classified assets measured at fair value on a recurring basis as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Based on |
|
|||||||||
|
|
|
Amortized |
|
|
|
|
|
|
Quoted Prices in Active Market |
|
|
Significant Other Observable Inputs |
|
|
Significant Unobservable Inputs |
|
||||
|
|
|
Cost |
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
|
Cash equivalents (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
As of December 31, 2019, the Company has classified assets measured at fair value on a recurring basis as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Based on |
|
|||||||||
|
|
|
Amortized |
|
|
|
|
|
|
Quoted Prices in Active Market |
|
|
Significant Other Observable Inputs |
|
|
Significant Unobservable Inputs |
|
||||
|
|
|
Cost |
|
|
Fair Value |
|
|
|||||||||||||