TCR2 THERAPEUTICS INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the ''Risk Factors'' section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage cell therapy company developing a pipeline of novel T cell therapies for cancer patients suffering from solid tumors by powering the T cell receptor (TCR) with our proprietary, first-in-class TCR Fusion Construct T cells (TRuC-T cells). Designed to overcome the limitations of current cell therapy modalities, our TRuC-T cells, an HLA-independent T cell therapy platform, recognize and kill cancer cells by harnessing the entire TCR signaling complex, which we believe is essential for T cell therapies to be effective in patients with solid tumors.
In
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gavo-cel: our lead, first-in-class TRuC-T cell targeting mesothelin-expressing solid tumors (gavocabtagene autoleucel, formerly TC-210)
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TC-510: our first enhanced TRuC-T cell targeting mesothelin-expressing solid tumors which incorporates a PD-1:CD28 chimeric switch receptor
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TC-520: our first TRuC-T cell targeting CD-70-expressing solid and liquid tumors which incorporates IL-15 pathway enhancements designed to improve T cell persistence
In
Proposed Transaction with
On
The Merger Agreement was approved by our board of directors (the "Board"), and
the Board resolved to recommend approval of the Merger Agreement to our
stockholders. In connection with the execution of the Merger Agreement, certain
of our stockholders and certain shareholders of
Subject to the terms of the Merger Agreement, at the effective time of the
Merger (the "Effective Time"), each issued and outstanding share of our common
stock (other than shares of our common stock held as treasury stock, or shares
of our common stock owned by
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Subject to approval by our stockholders and the shareholders of
gavo-cel
We have completed the Phase 1 portion of our Phase 1/2 clinical trial for gavo-cel to treat patients with ovarian cancer, non-small cell lung cancer (NSCLC), malignant pleural/peritoneal mesothelioma or cholangiocarcinoma.
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Based on the topline data readout presented on
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We have observed a 22% Overall Response Rate (ORR) in patients infused with gavo-cel following lymphodepletion with six (four mesothelioma, two ovarian cancer) RECIST partial responses (PRs) by independent assessment. The ORR was 29% in ovarian cancer and 21% in mesothelioma.
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The median overall survival (OS) for patients with ovarian cancer was 8.1 months, whereas the median progression-free survival (PFS) for patients with ovarian cancer was 5.8 months. The median OS for patients with MPM was 11.2 months, whereas the median PFS for patients with MPM was 5.6 months.
We designed the Phase 2 portion of our Phase 1/2 clinical trial to assess
gavo-cel in patients with ovarian cancer, NSCLC, malignant pleural/peritoneal
mesothelioma or cholangiocarcinoma. In
TC-510
We are conducting our Phase 1/2 clinical trial for TC-510 to treat patients with
mesothelin-expressing MPM, ovarian cancer, pancreatic cancer, colorectal cancer
or triple negative breast cancer. We estimate the patient population for TC-510
in the five indications which we are exploring in our clinical trial is up to
148,000 patients in
In the first half of 2022, we announced that the
In preclinical studies of TC-510, we observed enhanced signaling, increased proliferation, reduced exhaustion and improved in vivo efficacy against tumors with high PD-L1 expression. Based on these preclinical studies, we believe TC-510 can improve on the efficacy of gavo-cel in specific hostile solid tumor microenvironment settings and potentially expand into new solid tumor indications.
We expect to share initial data from the Phase 1 portion of the Phase 1/2 clinical trial for TC-510 in the second half of 2023.
TC-520
We are conducting IND-enabling activities for TC-520 to treat patients with
hematological malignancies and solid tumors, specifically renal cell carcinoma
and acute myeloid leukemia. Due to the high expression of CD70 across many
cancer types, we estimate that up to 141,000 patients express CD70 in
In our preclinical studies, we observed TRuC-T cells targeting CD70 enhanced with IL-15 resulted in a significant increase in TC-520 cells with a naïve/TSCM (memory stem T cells) phenotype, improved autonomous persistence as well as increased expansion following repeated rounds of tumor challenge with no evidence of fratricide.
We continue to invest in our clinical and commercial manufacturing network in a capital efficient manner which will provide capacity in a regulated timeline that aligns with preparation for a commercial launch for gavo-cel. We are devoting resources in process development and manufacturing to optimize the reliability of our product candidates and reduce manufacturing costs and time.
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Since our inception, we have incurred significant operating losses. Our ability
to generate product revenue sufficient to achieve profitability will depend
heavily on the successful development and eventual commercialization of one or
more of our product candidates. As of
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initiate and conduct clinical trials for our product candidates;
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continue to discover and develop additional product candidates;
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acquire or in-license other product candidates and technologies;
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maintain, expand and protect our intellectual property portfolio;
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hire additional clinical and scientific personnel;
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expand our manufacturing capabilities with third parties;
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seek regulatory approvals for any product candidates that successfully complete clinical trials; and
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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts and our operations as a public reporting company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.
Impact of the COVID-19 Pandemic
Since the outbreak of a novel strain of virus named SARS-CoV-2 (severe acute
respiratory syndrome 2), or coronavirus (COVID-19) in
The COVID-19 pandemic has impacted our development timelines for gavo-cel and TC-510; however, we believe that we have been able, as of the date of this Annual Report, to mitigate some of the impact from the COVID-19 pandemic on our ongoing clinical programs. The future impact of the ongoing COVID-19 pandemic on our industry, the healthcare system, clinical trials and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, as well as the effect of any relaxation of current restrictions within our local community or regions in which our partners and clinical sites are located, and the direct and indirect economic effects of the pandemic and containment measures, among others. See "Item 1A. Risk Factors" for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.
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Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our product candidates, which include:
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employee-related expenses, including salaries, benefits and stock-based compensation;
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expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants, contractors and contract research organizations (CROs);
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the cost of acquiring and manufacturing preclinical and clinical trial materials, including under agreements with third parties, such as consultants, contractors and contract manufacturing organizations (CMOs);
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consultant fees and expenses associated with outsourced professional scientific development services;
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facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and
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payments made under third-party licensing agreements.
We expense research and development costs as incurred. Any non-refundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development and manufacturing activities in the near term and in the future. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
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the timing and progress of our preclinical studies and clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the performance of third-party contractors;
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the number and scope of preclinical and clinical programs we decide to pursue;
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the progress of the development efforts of parties with whom we may enter into collaboration arrangements;
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our ability to maintain our current research and development programs and to establish new ones;
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our ability to establish licensing or collaboration arrangements;
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our ability to complete IND enabling studies and successfully submit IND or comparable applications;
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whether we are required by the FDA or similar foreign regulatory authorities to conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates or any future product candidates;
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the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;
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our ability and the ability of third parties with whom we contract to manufacture adequate clinical and commercial supplies of our product candidates or any future product candidates, remain in good standing with regulatory agencies and develop, validate and maintain commercially viable manufacturing processes that are compliant with cGMP;
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our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, potency, purity and acceptable risk to benefit profile of our product candidates or any future product candidates;
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the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or future product candidates, if any;
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our ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates;
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our ability to successfully develop a commercial strategy and thereafter
commercialize our product candidates or any future product candidates in
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the willingness of physicians, operators of clinics and patients to utilize or adopt any of our product candidates or future product candidates to treat solid and hematologic cancers;
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patient demand for our product candidates and any future product candidates, if licensed;
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competition with other products; and
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continued acceptable safety profile of our therapies following approval.
A change in the outcome of any of these 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. We may never succeed in obtaining regulatory approval for any of our product candidates.
Impairment and Restructuring Expenses
Impairment and restructuring expenses consist of severance, personal property
assets, construction-in-progress assets, right-of-use assets and associated
professional fees. Impairment expenses consist primarily of the write-down of
long-lived assets classified as held for sale related to the
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, legal, and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Interest Income, net
Interest income, net, consists of interest earned on our cash equivalents and investment balances, net of investment charges.
Income Tax Expense
Income tax expense is generated by investment income of our investment portfolio
and the profit margin on our
Consolidated Statements of Operations
(in thousands)
For the Years Ended December 31,
2022 2021 Change
Operating expenses
Research and development $ 98,643 $ 73,578 $ 25,065
Impairments and restructuring charges 30,417 3,661 26,756
General and administrative 24,439 22,503 1,936
Total operating expenses 153,499 99,742 53,757
Loss from operations (153,499 ) (99,742 ) (53,757 )
Interest income, net 1,938 224 1,714
Loss before income taxes $ (151,561 ) $ (99,518 ) $ (52,043 )
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Comparison of the Years Ended
Research and Development Expenses
Research and development expenses were
(in thousands)
For the Years Ended December 31,
2022 2021 Change
Clinical program expenses
7,427 (3,891 )
Personnel expenses 36,417 34,638 1,779
Allocated facility expenses 14,424 14,379 45
Other expenses 3,367 3,363 4
$ 98,643 $ 73,578 $ 25,065 Our clinical trial program expenses increased
Impairment and Restructuring Expenses
During the year ended
During the year ended
General and Administrative Expenses
General and administrative expenses were
Interest Income, net
Interest income, net was
Liquidity and Capital Resources
Since our inception, we have incurred net losses and generated negative cash
flows from operations and have funded our operations with proceeds from the sale
of our stock. During 2021, we raised
During
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Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
(in thousands)
For the Years Ended December 31,
2022 2021
Operating activities $ (101,461 ) $ (81,603 )
Investing activities (88,486 ) 78,447
Financing activities 125 132,138
Operating Activities
During the year ended
During the year ended
Investing Activities
During the year ended
During the year ended
Financing Activities
During the year ended
During the year ended
Funding Requirements
During
As of
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faster than we currently anticipate and we may need to spend more money than currently expected because of circumstances beyond our control.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution, or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures, or declaring dividends. If we raise additional funds through collaborations, strategic alliances, or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug 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 or other arrangements when needed, we may be required to delay, limit, reduce, or terminate our research, product development, or future commercialization efforts, or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in
While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
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vendors in connection with preclinical development activities; • CMOs in connection with the production of preclinical and clinical trial materials; and • CROs in connection with preclinical studies and clinical trials.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to
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the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees based on their fair value on the date of the grant and recognize compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. We apply the straight-line method of expense recognition to all awards with service-based vesting conditions. 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.
We estimate the fair value of restricted stock at the then-current fair value of our common stock and for other stock-based awards we use the Black-Scholes option-pricing model, which requires subjective assumptions, including the fair value of our common stock, volatility, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options and our expected dividend yield. The assumptions used in our Black-Scholes option-pricing model represent management's best estimates and involve a number of variables, uncertainties and assumptions and the application of management's judgment, as they are inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future.
We do not estimate and apply a forfeiture rate as we have elected to account for forfeitures as they occur.
These assumptions are estimated as follows:
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Fair Market Value of Common Stock. The Company's stock is traded on The Nasdaq Global Select Market. Fair market value of our stock is considered the quoted market price on NASDAQ. • Volatility. The expected volatility is based on the historical stock volatility of ours and several comparable publicly traded companies over a sufficient period of time equal to the expected term of the options, as we do not have sufficient trading history to use the volatility of our own common stock. • Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We calculated the expected term using the simplified method based on the average of each option's vesting term and the contractual period during which the option can be exercised, which is typically 10 years following the date of grant. • Risk-Free Interest Rate. The risk-free interest rate was based on the yields ofU.S. Treasury securities with maturities commensurate with the expected term of the award. • Expected Dividend Yield. We have not paid dividends on our common stock nor do we expect to pay dividends in the foreseeable future.
Royalty Transfer Agreement
In connection with the sale of Series A redeemable convertible preferred stock
prior to our IPO, certain investors are entitled to receive, in the aggregate, a
royalty from us equal to one percent of: (i) all global net sales of any of our
products; and (ii) any license income on intellectual property that was in
existence at the time of the Series A preferred stock financing. We have elected
to account for this liability at fair value with changes recognized in the
Statement of Operations. Given the nature of the underlying technology and
inherent risks associated with obtaining regulatory approval and achieving
commercialization, we ascribed no value to the royalty agreement at inception
and at
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report.
Emerging Growth Company Status
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act), and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any
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time, which election is irrevocable. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We rely on exemptions and reduced reporting requirements under the JOBS Act.
Subject to certain conditions, as an emerging growth company, we may rely on
certain of these exemptions, including without limitation (i) providing an
auditor's attestation report on our system of internal controls over financial
reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii)
complying with any requirement that may be adopted by the
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