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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Title of each class |
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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.:
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Large accelerated filer |
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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 May 3, 2021, there were
TCR2 Therapeutics Inc.
Table of Contents
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Item 1. |
7 |
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Unaudited Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 |
7 |
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Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 |
8 |
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9 |
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Unaudited Consolidated Statements of Stockholders' Equity as of March 31, 2021 and 2020 |
10 |
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Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 |
11 |
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12 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
24 |
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Item 3. |
33 |
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Item 4. |
33 |
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35 |
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Item 1. |
35 |
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Item 1A. |
35 |
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Item 2. |
99 |
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Item 3. |
100 |
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Item 4. |
100 |
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Item 5. |
100 |
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Item 6. |
101 |
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102 |
Summary of the Material Risks Associated with Our Business
Our business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business. These risks are described more fully in “Item 1A—Risk Factors,” and include, but are not limited to, the following:
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Our approach to the discovery and development of product candidates based on our TRuC-T cell platform represents a novel approach to cancer treatment, which creates significant challenges for us. Further, we are very early in our development efforts. Most of our product candidates are still in preclinical development. If we are unable to advance our product candidates through clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed. |
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Our business is highly dependent on our clinical trials for our lead product candidates, gavo-cel and TC-110, and we must complete IND-enabling studies and clinical testing before we can seek regulatory approval and begin commercialization of any of our product candidates. We cannot be certain that we will be able to complete ongoing clinical trials, initiate future planned clinical trials, or advance our product candidates into additional trials, or to successfully develop, or obtain regulatory approval for, or successfully commercialize, any of our product candidates. |
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We have limited experience as a company in conducting clinical trials. Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future clinical trial results. If our preclinical studies and clinical trials are not sufficient to support regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such product candidate. |
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Manufacturing and administering our product candidates are complex and we may encounter difficulties in production, particularly with respect to process development or scaling up of our manufacturing capabilities. If we encounter such difficulties, our ability to provide supply of our TRuC-T cells for clinical trials or for commercial purposes could be delayed or stopped. We plan to establish our own manufacturing facility and infrastructure in addition to or in lieu of relying on third parties for the manufacture of our product candidates and the use of third-party manufacturing suites, which will be costly, time-consuming, and which may not be successful. |
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The market opportunities for our product candidates may be relatively small as it will be limited to those patients who are ineligible for or have failed prior treatments and our estimates of the prevalence of our target patient populations may be inaccurate. |
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We plan to rely on third parties to conduct our clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates. |
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Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability. We have incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future. |
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The current outbreak of novel coronavirus, or COVID-19, has caused, and could continue to cause, severe disruptions in the U.S., regional and global economies. COVID-19 has affected our on-going clinical trials and could seriously harm our development efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations. |
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If we are unable to obtain and maintain patent protection for any products we develop and for our technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to commercialize any product candidates we may develop, and our technology may be adversely affected. |
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The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates. |
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Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates. |
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We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. |
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Our stock price has been and will likely continue to be volatile. Securities class action or other litigation involving our company or members of our management team could also substantially harm our business, financial condition and results of operations. |
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We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors. We are also a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors. |
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 gavo-cel, 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 gavo-cel, 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 gavo-cel, TC-110 or any other product candidates that we may identify or develop; |
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our ability to manufacture gavo-cel, 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 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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the current and future impact of the ongoing COVID-19 pandemic on our business; |
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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 continuing 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, 2020 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, 2021 |
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December 31, 2020 |
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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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Restricted cash |
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Deferred offering costs |
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Total assets |
$ |
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$ |
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Liabilities and stockholders’ equity |
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Accounts payable |
$ |
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$ |
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Accrued expenses and other current liabilities |
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Lease financing obligation |
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- |
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Total current liabilities |
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Lease financing obligation, excluding current portion |
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- |
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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 |
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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 |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements
7
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
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Three Months Ended March 31, |
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2021 |
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2020 |
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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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( |
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( |
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Interest income, net |
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Loss before income tax expense |
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( |
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( |
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Income tax expense |
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Net loss |
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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
8
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(amounts in thousands)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Net loss |
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$ |
( |
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$ |
( |
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Unrealized loss on investments, net |
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( |
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( |
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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
9
TCR2 THERAPEUTICS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands, except share amounts)
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Additional |
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Accumulated Other |
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Total |
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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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Stockholders' |
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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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Equity |
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Balance as of December 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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Issuance of common stock, net of issuance costs |
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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 loss 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 as of March 31, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Additional |
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Accumulated Other |
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Total |
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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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Stockholders' |
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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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Equity |
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Balance as of 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 loss 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 as of March 31, 2020 |
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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
10
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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2021 |
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2020 |
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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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Deferred tax liabilities |
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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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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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Purchases 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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|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from public offering of common stock, net of issuance costs |
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
|
|
Payments on lease financing obligation |
|
( |
) |
|
|
|
|
|
Deferred offering costs |
|
( |
) |
|
|
( |
) |
|
Cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents, and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents, and restricted cash at beginning of year |
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at end of period |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities |
|
|
|
|
|
|
|
|
Property and equipment additions in accounts payable |
$ |
|
|
|
$ |
|
|
|
Assets acquired with lease finance obligation |
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
11
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.
Shelf registration statement
On March 16, 2021, the Company filed an automatic shelf registration statement on Form S-3 (the Shelf), with the Securities and Exchange Commission (SEC), which covers the offering, issuance and sale of an indeterminate amount of the Company’s common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. The Shelf was automatically effective when filed. As of March 31, 2021,
Equity offering
On July 31, 2020, the Company closed a public offering of its common stock pursuant to which it issued and sold
On January 22, 2021, the Company closed a public offering of its common stock pursuant to which it issued and sold
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, 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, 2021 of $
12
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items or noted otherwise)
fund its operating expenses and capital expenditure requirements through at least 12 months from the date of issuance of these unaudited consolidated financial statements.
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 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 16, 2021 for the year ended December 31, 2020 (the 2020 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, 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.
As of March 31, 2021, 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
As of March 31, 2021 and December 31, 2020, the Company’s financial instruments consist of money market funds, U.S. Treasury securities, 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
13
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items or noted otherwise)
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, 2021 and December 31, 2020, cash equivalents consisted of U.S treasuries, corporate bonds, and government-backed money market funds.
Investments
As of March 31, 2021, 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.
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.
Construction in progress
The Company currently applies build-to-suit accounting and is the deemed accounting owner of its leased site in Rockville, Maryland (Rockville). The Company establishes assets and liabilities for the estimated construction costs incurred under lease arrangements where it is considered the owner for accounting purposes only, to the extent it is involved in the construction of structural improvements or takes construction risk prior to commencement of a lease. Upon occupancy of facilities under build-to-suit leases, the Company assesses whether these arrangements qualify for sales recognition under the sale-leaseback accounting guidance under ASC 840, Leases. If the Company continues to be the deemed owner, for accounting purposes, the facilities are accounted for as financing obligations.
Construction in progress also includes direct costs related to the construction of various property and equipment, including leasehold improvements. Such costs are not depreciated until the asset is completed and placed into service.
Stock-based compensation
The Company measures 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. For stock-based awards granted to non-employees, compensation expense is recognized over the period during which services are rendered by such non-employees until completed.
14
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items or noted otherwise)
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 options and warrants requires the input of subjective assumptions, including the expected life of the instrument and stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards and warrants. 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.
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.
15
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items or noted otherwise)
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, 2021 and 2020, as they would be antidilutive:
|
|
As of March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Stock options outstanding |
|
|
|
|
|
|
|
|
Common stock warrants |
|
|
|
|
|
|
|
|
Employee stock purchase plan |
|
|
|
|
|
|
|
|
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.
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, 2021 and 2020.
|
|
As of March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
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.
16
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items or noted otherwise)
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 and emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating its date of adoption of the new standard and is required to adopt no later than January 1, 2022. 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 date of adoption, or 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 standard 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.
4. Investments and Fair Value Measurements
As of March 31, 2021, investments were comprised of the following:
|
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
|
Corporate bonds |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
As of December 31, 2020, investments were comprised of the following:
|
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
|
Corporate bonds |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The amortized cost and estimated fair value of marketable securities, by contractual maturity:
|
|
|
|
|
|
|
March 31, 2021 |
|
|||||
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
||
|
Due within one year or less |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
|||||
|
|
|
|
|
|
|
Amortized Cost |
|
|
Fair Value |
|
||
|
Due within one year or less |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
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.
17
TCR2 Therapeutics Inc.
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, excluding share and per share items or noted otherwise)
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
As of March 31, 2021, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
As of December 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
||||||||||