JOUNCE THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2020 that was filed with theUnited States Securities and Exchange Commission , or theSEC , onFebruary 25, 2021 . In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Quarterly Report on Form 10-Q, including those factors set forth in the section entitled "Cautionary Note Regarding Forward-Looking Statements and Industry Data," and in the sections entitled "Summary of Risk Factors" and "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Overview We are a clinical-stage immunotherapy company dedicated to transforming the treatment of cancer by developing therapies that enable the immune system to attack tumors and provide long-lasting benefits to patients. Our strategy is to use a biomarker-driven approach from discovery through clinical development. We have developed a suite of integrated technologies that comprise our Translational Science Platform, enabling us to comprehensively interrogate the cellular and molecular composition of tumors. By focusing on specific cell types, both immune and non-immune, within tumors, we can prioritize targets and then identify related biomarkers designed to match the right therapy to the right patient. Our pipeline is focused on product candidates to address PD-(L)1-inhibitor resistant and PD-(L)1 inhibitor sensitive tumors, which represent significant opportunities requiring different biological approaches. We aim to develop product candidates that address the unmet medical need of patients in both of these populations. Our highest priority program, JTX-8064, is being developed for patients with either PD-(L)1-inhibitor resistant or PD-(L)1 inhibitor sensitive tumors. JTX-8064 is the first tumor-associated macrophage candidate to emerge from our Translational Science Platform. JTX-8064 is an antibody that binds to Leukocyte Immunoglobulin Like Receptor B2, or LILRB2 (also known as ILT4), which is a cell surface receptor expressed on macrophages. InJanuary 2021 , we began enrollment in the INNATE trial, our Phase 1 dose-escalation clinical trial of JTX-8064 as a monotherapy and in combination with either our PD-1 inhibitor, pimivalimab, formerly JTX-4014, or an approved PD-1 inhibitor in patients with advanced solid tumors. Our goal is to advance this program rapidly, and, as a result, INNATE is a proof-of-concept trial that includes indication-specific expansion cohorts. Vopratelimab is a clinical-stage monoclonal antibody that binds to and activates the Inducible T cell CO-Stimulator, or ICOS, a protein on the surface of certain T cells commonly found in many solid tumors. We are currently enrolling patients in the SELECT trial, which is evaluating vopratelimab in combination with pimivalimab, our anti-PD-1 antibody, compared to pimivalimab alone in biomarker-selected, immunotherapy-naive second-line non-small cell lung cancer, or NSCLC, patients. We identify patients for SELECT using TISvopra , an 18 gene signature that includes genes relevant to both CD8 and CD4 T cell biology. TISvopra has been optimized to predict for emergence of ICOS hi CD4 T cells in the peripheral blood, which have been associated with clinical benefit in patients treated with vopratelimab alone or in combination with nivolumab. SELECT is a randomized Phase 2 clinical trial outsidethe United States , and we expect to report clinical data from SELECT in 2022. Pimivalimab is a clinical-stage anti-PD-1 antibody that we are developing primarily for potential use in combination with our product candidates, as we believe that combination therapy has the potential to be a mainstay of cancer immunotherapy. We presented safety and preliminary efficacy data from our monotherapy Phase 1 clinical trial of pimivalimab in 2019. Based on the results of that clinical trial, we are using pimivalimab in combination with vopratelimab in SELECT, and we plan to use pimivalimab in combination with JTX-8064 in INNATE. JTX-1811 is the most recent product candidate to emerge from our Translational Science Platform, and inAugust 2020 , we entered into an agreement to exclusively license JTX-1811 to Gilead Sciences, Inc., or Gilead. JTX-1811 is a monoclonal antibody that is designed to selectively deplete T regulatory cells in the tumor microenvironment, or TME, by targeting a receptor called CCR8, which is preferentially expressed on intra-tumoral T regulatory cells. Pursuant to our exclusive license agreement with Gilead, or the Gilead License Agreement, we granted Gilead a worldwide license to develop, manufacture and commercialize JTX-1811 and certain derivatives thereof, as well as backup antibodies defined within the agreement. Under the terms of the Gilead License Agreement, we will advance JTX-1811 until the clearance of an IND application or an earlier date specified by Gilead, at which time the program will be transitioned to Gilead. We are entitled to receive payments from Gilead upon the achievement of specified clinical, regulatory and sales milestones, including potential clinical development and regulatory milestone payments. We are also eligible to receive tiered royalty payments based on a percentage of annual worldwide net sales ranging from the high-single digits to mid-teens, based on future annual net sales of licensed products, on a licensed product-by-licensed product and country-by-country basis. 17
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With our biomarker-driven approach, we leverage our Translational Science Platform to interrogate cell types within the human TME and to identify and prioritize targets across a broad spectrum of immune and non-immune cell types. In addition, early in the development process, we use our Translational Science Platform to identify potential predictive biomarkers to enable us to enrich our clinical trials for patient populations that may be more likely to respond to a particular immunotherapy. Once clinical data is available for a product candidate, we then use a reverse translational approach to interrogate tumor and blood samples from patients with known outcomes. By using these reverse translational findings, we believe we are better able to design clinical trials and more efficiently develop cancer immunotherapies that potentially provide greater benefit to patients. We believe that the biomarker results, coordinated to clinical response, will assist with determining the utility of proceeding to the use of a companion diagnostic and/or complementary diagnostic for a given therapy. Beyond our product candidates, we continue to advance and build our discovery pipeline. We are discovering and developing next-generation immunotherapies by leveraging our Translational Science Platform to systematically and comprehensively interrogate cell types within the tumor microenvironment. Our broad discovery pipeline includes multiple programs targeting myeloid cells such as macrophages, T regulatory cells and non-immune cells, such as stromal cells. We believe that the use of our Translational Science Platform to efficiently identify novel immuno-oncology targets and advance them from discovery to investigational new drug application, or IND, stage is a sustainable approach that we plan to continually apply across our broad discovery pipeline and target selection process. Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, developing our Translational Science Platform and conducting research, preclinical studies and clinical trials. We do not have any products approved for sale. We are subject to a number of risks comparable to those of other similar companies, including dependence on key individuals; the need to develop commercially viable products; competition from other companies, many of which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of our products. We have funded our operations primarily through proceeds received from public offerings and private placements of our stock totaling$389.5 million and up-front payments from collaboration and license agreements totaling$360.0 million . Due to our significant research and development expenditures, we have accumulated substantial losses since our inception. As ofMarch 31, 2021 , we had an accumulated deficit of$177.5 million . We expect to incur substantial additional losses in the future as we continue to advance our programs. The spread of COVID-19 during 2020 and 2021 has caused an economic downturn on a global scale. As ofMay 4, 2021 , we have not experienced a significant financial impact directly related to the COVID-19 pandemic but have experienced some disruptions to clinical operations and to our supply chain. As the pandemic continues to unfold, the extent of its effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Financial Operations Overview Revenue For the three months endedMarch 31, 2021 , we recognized$1.5 million of license and collaboration revenue under the Gilead License Agreement for the performance of research and transition services. For the three months endedMarch 31, 2020 , we did not recognize any license or collaboration revenue. In the future, we may generate revenue from product sales, collaboration agreements, strategic alliances and licensing arrangements, including potential milestone payments and royalties under the Gilead License Agreement. We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of license fees, milestones, reimbursement of costs incurred and other payments, if any, and product sales, to the extent any products are successfully commercialized. If we or third parties fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, could be materially adversely affected. Operating Expenses Research and Development Expenses Research and development expenses represent costs incurred by us for the discovery, development and manufacture of our current and future product candidates and include: external research and development expenses incurred under arrangements with third parties, including academic and non-profit institutions, contract research organizations, contract manufacturing organizations and consultants; salaries and personnel-related costs, including non-cash stock-based compensation expense; license fees to acquire in-process technology and other expenses, which include direct and allocated expenses for laboratory, facilities and other costs. 18
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We use our employee and infrastructure resources across multiple research and
development programs directed toward developing our Translational Science
Platform and for identifying, testing and developing product candidates. We
manage certain activities such as contract research and manufacture of our
product candidates and discovery programs through our third-party vendors.
At this time, we cannot reasonably estimate or know the nature, timing and
estimated costs of the efforts that will be necessary to complete the
development of our product candidates. We are also unable to predict when, if
ever, material net cash inflows will commence from sales of our product
candidates. This is due to the numerous risks and uncertainties associated with
developing such product candidates, including the uncertainty of:
•addition and retention of key research and development personnel;
•establishing an appropriate safety profile with IND-enabling toxicology studies
and clinical trials;
•the cost to acquire or make therapies to study in combination with our
immunotherapies;
•successful enrollment in and completion of clinical trials, including the
impacts of the COVID-19 pandemic on the timing and progress of our ongoing and
planned clinical trials;
•establishing agreements with third-party contract manufacturing organizations
for clinical supply for our clinical trials and commercial manufacturing, if our
product candidates are approved;
•receipt of marketing approvals from applicable regulatory authorities;
•commercializing products, if and when approved, whether alone or in
collaboration with others;
•the cost to develop companion diagnostics and/or complementary diagnostics as
needed for each of our development programs;
•the costs associated with the development of any additional product candidates
we acquire through third-party collaborations or identify through our
Translational Science Platform;
•the terms and timing of any collaboration, license or other arrangement,
including the terms and timing of any milestone payments thereunder;
•obtaining and maintaining patent and trade secret protection and regulatory
exclusivity for our products, if and when approved; and
•continued acceptable safety profiles of the products following approval.
A change in the outcome of any of these variables with respect to the
development of any of our product candidates would significantly change the
costs, timing and viability associated with the development of that product
candidate. We plan to increase our research and development expenses for the
foreseeable future as we advance our product candidates through preclinical
development and clinical trials and continue the enhancement of our
Translational Science Platform and the progression of our pipeline.
Due to the inherently unpredictable nature of preclinical and clinical
development, we do not allocate all of our internal research and development
expenses on a program-by-program basis as they primarily relate to personnel and
lab consumables costs that are deployed across multiple programs under
development. Our research and development expenses also include external costs,
which we do track on a program-by-program basis following the program's
nomination as a development candidate. We began incurring such external costs
for vopratelimab in 2015, pimivalimab in 2016, JTX-8064 in 2017 and JTX-1811 in
2019.
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Our external research and development and external clinical and regulatory costs
for the three months ended
Three Months Ended
March 31,
(in thousands) 2021 2020
Vopratelimab / Pimivalimab combination $ 2,734 $ 1,812
JTX-8064 2,578 -
JTX-1811 1,842 739
Vopratelimab 1,425 4,927
Pimivalimab 441 504
Pre-development candidates 281 347Total external research and development and clinical and regulatory costs
$ 9,301 $ 8,329 Research and development activities account for a significant portion of our operating expenses. As we continue to implement our business strategy, we expect our research and development expenses to increase over the next several years. We expect that these expenses will increase as we: •continue our clinical development of JTX-8064, including our Phase 1 INNATE clinical trial as a monotherapy and in combination with either pimivalimab or an approved PD-1 inhibitor; •continue our clinical development of vopratelimab, including our Phase 2 SELECT clinical trial of vopratelimab and pimivalimab; •complete preclinical, IND-enabling and other development activities for JTX-1811 and transition the program to Gilead in accordance with the terms of the Gilead License Agreement; •continue to identify and develop potential predictive biomarkers and companion diagnostics and/or complementary diagnostics for our product candidates; and •continue to develop and enhance our Translational Science Platform and advance our pipeline of immunotherapy programs and our early research activities into IND-enabling activities. Product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. General and Administrative Expenses General and administrative expenses consist of salaries and personnel-related costs, including non-cash stock-based compensation expense, for our personnel in executive, business development, legal, finance and accounting, human resources and other administrative functions, consulting fees, facility costs not otherwise included in research and development expenses, fees paid for accounting and tax services, insurance expenses and legal costs. Legal costs include general corporate legal fees, patent legal fees and related costs. We anticipate that our general and administrative expenses will increase in the future to support our continued operations. Other Income, Net Other income, net, consists primarily of interest and investment income on our cash, cash equivalents and investments. Other income, net also includes gains and losses arising from foreign currency remeasurement. 20
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Results of Operations Comparison of the Three Months EndedMarch 31, 2021 and 2020 The following table summarizes our results of operations for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, (in thousands) 2021 2020 $ Change Revenue: License and collaboration revenue-related party$ 1,539 $ -$ 1,539 Operating expenses: Research and development 20,507 19,646 861 General and administrative 7,615 7,539 76 Total operating expenses 28,122 27,185 937 Operating loss (26,583) (27,185) 602 Other income, net 49 750 (701) Loss before provision for income taxes (26,534) (26,435) (99) Provision for income taxes 1 8 (7) Net loss$ (26,535) $ (26,443) $ (92) License and Collaboration Revenue For the three months endedMarch 31, 2021 , we recognized$1.5 million of license and collaboration revenue under the Gilead License Agreement. Under the Gilead License Agreement, we recognize revenue for research and transition services over time as the services related to the performance obligation are rendered. No license or collaboration revenue was recognized for the three months endedMarch 31, 2020 . See Note 3 to our consolidated financial statements included within Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the application of accounting guidance to the Gilead License Agreement. Research and Development Expenses The following table summarizes our research and development expenses for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, (in thousands) 2021 2020 $ Change Employee compensation$ 7,833 $ 7,711 $ 122 External research and development 3,580 1,468
2,112
External clinical and regulatory 5,721 6,861 (1,140) Lab consumables 1,521 1,548 (27) Facility costs 1,377 1,418 (41) Other research 475 640 (165)
Total research and development expenses
861
Research and development expenses increased by$0.9 million from$19.6 million for the three months endedMarch 31, 2020 to$20.5 million for the three months endedMarch 31, 2021 . The increase in research and development expenses was primarily attributable to the following: •$2.1 million of increased external research and development cost associated with manufacturing and IND-enabling activities for our development programs; •offset by$1.1 million of decreased external clinical and regulatory costs primarily attributable to reduced spend on vopratelimab. 21
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General and Administrative Expenses The following table summarizes our general and administrative expenses for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, (in thousands) 2021 2020 $ Change Employee compensation$ 4,246 $ 3,996 $ 250 Professional services 1,211 1,196 15 Facility costs 1,082 1,127 (45) Other 1,076 1,220 (144) Total general and administrative expenses$ 7,615 $ 7,539 $ 76 General and administrative expenses increased by$0.1 million from$7.5 million for the three months endedMarch 31, 2020 to$7.6 million for the three months endedMarch 31, 2021 . The increase in general and administrative expenses was primarily due to increased stock-based compensation expense. Other Income, net Other income, net, decreased by$0.7 million from$0.8 million for the three months endedMarch 31, 2020 to less than$0.1 million for the three months endedMarch 31, 2021 . The decrease in other income, net is attributable to reduced interest rates due to current market conditions. Liquidity and Capital Resources Sources of Liquidity We have funded our operations primarily through proceeds received from public offerings of our common stock and private placements of our common stock or convertible preferred stock totaling$389.5 million and up-front payments from collaboration and license agreements totaling$360.0 million . As ofMarch 31, 2021 , we had cash, cash equivalents and investments of$271.3 million . OnDecember 17, 2019 , we entered into a Sales Agreement withCowen and Company, LLC , or Cowen, pursuant to which we offered and sold shares of our common stock with an aggregate offering price of up to$50.0 million under the ATM Offering. The Sales Agreement provided that Cowen will be entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering. During the three months endedMarch 31, 2021 , we sold an aggregate of 3,156,200 shares of common stock at an average price of$9.87 per share under the ATM Offering for net proceeds of$30.2 million , which completed the sale of all available amounts under the ATM In addition, during the three months endedMarch 31, 2021 , we completed a follow-on public offering, selling an aggregate of 5,750,000 shares of common stock at a public offering price of$11.25 per share for net proceeds of$60.6 million . Funding Requirements Our plan of operation is to continue implementing our business strategy, the research and development of our current product candidates, our preclinical development activities, the expansion of our research pipeline and the enhancement of our internal research and development capabilities. Due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our programs and product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval, and commercialize our products, if and when approved. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast which products, if and when approved, may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. Due to our significant research and development expenditures, we have accumulated substantial losses since inception. We have incurred an accumulated deficit of$177.5 million throughMarch 31, 2021 . We expect to incur substantial additional losses in the future as we continue to advance our programs. Based on our research and development plans, we expect that our existing cash, cash equivalents and investments of$271.3 million as ofMarch 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements through the second quarter of 2023. However, we have based this estimate on assumptions that may prove to be incorrect, and we could exhaust our capital resources sooner than we expect. The timing and amount of our operating expenditures will depend largely on: 22
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•the timing and progress of preclinical and clinical development activities,
including the impacts of the COVID-19 pandemic on the timing and progress of our
ongoing and planned clinical trials;
•the cost to access, acquire or develop therapies to study in combination with
our immunotherapies;
•successful enrollment in and completion of clinical trials;
•the cost to develop companion diagnostics and/or complementary diagnostics as
needed for each of our development programs;
•our ability to establish agreements with third-party manufacturers for clinical
supply for our clinical trials and, if any of our product candidates are
approved, commercial manufacturing;
•the costs associated with the development of any additional product candidates
we acquire through acquisition or third-party collaborations or identify through
our Translational Science Platform;
•our ability to maintain our current research and development programs and
enhancement of our Translational Science Platform;
•addition and retention of key research and development personnel;
•our efforts to enhance operational, financial and information management
systems, and hire additional personnel, including personnel to support
development of our product candidates;
•the legal patent costs involved in prosecuting patent applications and
enforcing patent claims and other intellectual property claims;
•the costs and ongoing investments to in-license or acquire additional
technologies, including the in-license of intellectual property related to our
potential product candidates;
•the progress and success of our exclusive license of JTX-1811 to Gilead; and
•the terms and timing of any other collaboration, license or other arrangement,
including the terms and timing of any option and milestone payments thereunder.
A change in the outcome of any of these or other variables with respect to the
development of any of our product candidates could significantly change the
costs and timing associated with the development of that product candidate.
Furthermore, our operating plans may change in the future, and we may need
additional funds to meet operational needs and capital requirements associated
with such operating plans.
In addition to the variables described above, if and when any of our product
candidates successfully complete development, we expect to incur substantial
additional costs associated with regulatory filings, marketing approval,
post-marketing requirements, maintaining our intellectual property rights, and
regulatory protection, in addition to other costs. We cannot reasonably estimate
these costs at this time.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our cash needs through a combination of equity or debt
financings, collaborations, licensing arrangements and strategic alliances. We
currently do not have a credit facility or committed sources of capital. To the
extent that we raise additional capital through the future sale of equity or
debt, the ownership interests of our stockholders will be diluted, and the terms
of these securities may include liquidation or other preferences that adversely
affect the rights of our existing common stockholders. If we raise additional
funds through the issuance of debt securities, these securities could contain
covenants that would restrict our operations. We may require additional capital
beyond our currently anticipated amounts. Additional capital may not be
available on reasonable terms, or at all. If we raise additional funds through
collaboration arrangements in the future, we may have to relinquish valuable
rights to our technologies, future revenue streams or product candidates, or
grant licenses on terms that may not be favorable to us. If we are unable to
raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce, or terminate development or future
commercialization efforts, or grant rights to develop and market product
candidates that we would otherwise prefer to develop and market ourselves.
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Cash Flows The following table provides information regarding our cash flows for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, (in thousands) 2021 2020 Net cash (used in) provided by: Operating activities$ (33,552) $ (23,546) Investing activities (9,623) 43,744 Financing activities 91,955 1,552 Net increase in cash, cash equivalents and restricted cash$ 48,780 $ 21,750 Cash Used in Operating Activities Net cash used in operating activities for the three months endedMarch 31, 2021 was$33.6 million , compared to net cash used in operating activities of$23.5 million for the three months endedMarch 31, 2020 . Cash used in operating activities increased by$10.0 million primarily due to prepaid deposits and payment of accrued expense on scheduled manufacturing for our development programs and increased employee compensation payments during the three months endedMarch 31, 2021 . Cash (Used in) Provided by Investing Activities Net cash used in investing activities for the three months endedMarch 31, 2021 was$9.6 million , compared to net cash provided by investing activities of$43.7 million for the three months endedMarch 31, 2020 . Cash provided by investing activities decreased by$53.4 million as our cash was primarily held in cash equivalents during the three months endedMarch 31, 2021 . Cash Provided by Financing Activities Net cash provided by financing activities for the three months endedMarch 31, 2021 was$92.0 million , compared to net cash provided by financing activities of$1.6 million for the three months endedMarch 31, 2020 . Cash provided by financing activities increased by$90.4 million primarily due to proceeds received from our follow-on public offering and ATM Offering completed during the three months endedMarch 31, 2021 . Off-Balance Sheet Arrangements We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicableSEC rules. Critical Accounting Policies and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates which include, but are not limited to, accrued expenses, stock-based compensation expense and income taxes. We base our estimates on historical experience and other market specific or other relevant assumptions we believe to be reasonable under the circumstances. Actual results could differ from those estimates. There were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which was filed with theSEC onFebruary 25, 2021 . Item 3. Quantitative and Qualitative Disclosures about Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, or the Exchange Act, and are not required to provide the information under this item. 24
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