TCR2 Therapeutics Inc. Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 FORM 10-Kx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ___________ to ___________Commission file number 001-38811 TCR2 Therapeutics Inc.(Exact name of Registrant as specified in its charter)Delaware 47-4152751(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)100 Binney Street, Suite 710Cambridge, Massachusetts 02142(Address of Principal Executive Offices)(617) 949-5200(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, $0.0001 Par Value The Nasdaq Stock Market, LLCSecurities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No xIndicate by check if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No xIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for 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. Yes x No oIndicate 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). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.(Check one):Large accelerated filer o Accelerated filer oNon-accelerated filer x Smaller reporting company x Emerging growth company xIf 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 financialaccounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. oIndicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No xThe registrant did not have a public float on the last business day of its most recently completed second fiscal quarter because there was no public market for the registrant’scommon equity as of such date.As of March 25, 2019, there were 23,939,901 shares of the registrant’s Common Stock, $0.0001 par value per share, outstanding. TCR2 Therapeutics Inc.Table of ContentsPART I 5Item 1.Business5Item 1A.Risk Factors52Item 1B.Unresolved Staff Comments114Item 2.Properties114Item 3.Legal Proceedings114Item 4.Mine Safety Disclosures114PART II 115Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities115Item 6.Selected Financial Data117Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations118Item 7A.Quantitative and Qualitative Disclosures About Market Risk128Item 8.Financial Statements129Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure157Item 9A.Controls and Procedures157Item 9B.Other Information157PART III Item 10.Directors, Executive Officers and Corporate Governance158Item 11.Executive Compensation161Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters169Item 13.Certain Relationships and Related Transactions, and Director Independence172Item 14.Principal Accountant Fees and Services179PART IV 181Item 15.Exhibits and Financial Statement Schedules181 Exhibit List182 Signatures183SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K of TCR2 Therapeutics Inc. (the “Company”) contains or incorporates statements that constitute forward-lookingstatements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forwardlooking 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 othercomparable terminology. Forward-looking statements appear in a number of places in this Annual Report on Form 10-K and include, but are notlimited to, statements about:▪the timing of preclinical studies and clinical trials of TC-210, TC-110 and any other product candidates;▪our need to raise additional funding before we can expect to generate any revenues from product sales;▪our ability to submit our planned INDs and conduct successful clinical trials or obtain regulatory approval for TC-210, TC-110 or any otherproduct candidates that we may identify or develop;▪the ability of our TRuC-T cell platform to generate and advance additional product candidates;▪our ability to establish an adequate safety, potency and purity profile for TC-210, TC-110 or any other product candidates that we maypursue;▪our ability to manufacture TC-210, TC-110 or any other product candidate in conformity with the U.S. Food and Drug Administration’srequirements and to scale up manufacturing of our product candidates to commercial scale, if approved;▪the implementation of our strategic plans for our business, any product candidates we may develop and our technology;▪our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rightscovering our product candidates and technology;▪the rate and degree of market acceptance and clinical utility for any product candidates we may develop;▪our expectations related to the use of proceeds from our initial public offering;▪our estimates regarding our expenses, future revenues, capital requirements and our needs for additional financing;▪our ability to maintain and establish collaborations;▪our financial performance;▪our ability to effectively manage our anticipated growth;▪developments relating to our competitors and our industry, including the impact of government regulation;▪our estimates regarding the market opportunities for our product candidates;▪our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals; and▪our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additionalfinancing;▪our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business StartupsAct, or the JOBS Act;▪our financial performance; and▪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 marketgrowth, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance orachievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by theseforward-looking statements. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affectour3business and operating results under “Item 1A. Risk Factors” in this Annual Report on Form 10-K. You are cautioned not to place undue relianceon these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes noobligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrenceof unanticipated events, unless required by law to do so.4Part IExcept where the context otherwise requires or where otherwise indicated, the terms “TCR2,” “TCRR,” “we,” “us,” “our,” “our company,” “thecompany,” and “our business” refer to TCR2 Therapeutics Inc. and its consolidated subsidiary.Item 1. BusinessOverviewWe are a clinical-stage immunotherapy company developing the next generation of novel T cell therapies for patients suffering from cancer. Ourproprietary TCR Fusion Construct T cells (TRuC-T cells) specifically recognize and kill cancer cells by harnessing the entire T cell receptor (TCR)signaling complex, which we believe is essential for T cell therapies to be effective in patients with solid tumors.We have designed our TRuC-T cells so that tumor cell recognition does not require human leukocyte antigens (HLA), which provides two importantadditional benefits. First, in contrast to current engineered T cell therapies that use the full TCR (TCR-T cells), our technology is designed so that itcan be applied to all patients that express the cancer surface antigen irrespective of HLA subtype, which we believe will allow us to address asignificantly larger patient population. Second, HLA is downregulated or lost in many tumors which can prevent their recognition by T cells and leadto diminished response rates and higher relapse rates. We therefore believe our approach will allow us to deliver the first HLA-independent TCR-Tcell therapy for patients with solid tumors. We also believe that our product candidates have the potential to improve upon the efficacy and safetyof currently approved chimeric antigen receptor T (CAR-T) cell therapies in CD19-positive B-cell hematological malignancies. This belief is basedon preclinical studies comparing our product candidates to CAR-T cells that we engineered.According to a 2017 press release from the FDA on the licensure of the first engineered T cell therapy for cancer, the field is "entering a newfrontier in medical innovation with the ability to reprogram a patient’s own cells to attack a deadly cancer." We founded our company to build onthese early T cell therapy innovations while addressing their limitations and making our product candidates available to a broader patientpopulation.The immune system is responsible for protecting the human body against viral and bacterial infections, as well as mutated and cancerous cells. Acritical component of the immune system are T cells that are able to target and kill these agents by using TCR recognition of cell surface markersknown as antigens. Existing T cell therapies for cancer, including CAR-T cells and engineered TCR-T cells, attempt to replicate this mechanism.While current T cell therapies have shown encouraging efficacy data, they have limitations that we believe our TRuC-T cell product candidates canaddress.In January 2019, the investigational new drug application (IND) for our lead solid tumor product candidate, TC-210, to treat patients withmesothelin-positive solid tumors was cleared by the U.S. Food and Drug Administration (FDA). We have initiated our Phase 1/2 clinical trial for TC-210 to treat patients with non-small cell lung cancer (NSCLC), ovarian cancer, malignant pleural/peritoneal mesothelioma and cholangiocarcinoma.We estimate the patient population for TC-210 in the four indications which we are exploring in our clinical trial is up to 81,000 in the United Statesalone. In our preclinical studies, TC-210 has demonstrated better anti-tumor activity, longer persistence, and lower cytokine release compared toCAR-T cells we engineered with the same mesothelin binder. We expect to generate our first clinical data for TC-210 in the second half of 2019.We expect to file an IND in the second half of 2019 for our lead hematology product candidate, TC-110, to treat patients with CD19-positive B-cellhematological malignancies, including diffuse large B-cell lymphoma (DLBCL), adult acute lymphoblastic leukemia (aALL), follicular lymphoma(FL), and other non-Hodgkin lymphoma (NHL) subtypes. These are indications for which CAR-T cells have either not been5approved (FL), been too toxic (aALL) or where durable benefit is limited to a minority of patients (DLBCL). In our preclinical studies of TC-110, wehave observed better anti-tumor activity and persistence compared to CAR-T cells we engineered to target CD19 while also exhibiting lower levelsof cytokine release. We expect to generate our first clinical data for TC-110 in the second half of 2020. In addition, we plan to file an IND for oursecond solid tumor product candidate, TC-220, to treat MUC16-positive solid tumors, in the first half of 2020 and we expect to generate our firstclinical data for TC-220 in the first half of 2021.Our Novel T-Cell Receptor Fusion Construct (TRuC) PlatformWe are pioneering the development of a novel, transformative T cell engineering platform which, based on its design and our preclinical studies, webelieve has the potential to address the shortcomings of CAR-T cells and TCR-T cells and is fundamentally different from existing approaches.Research over more than two decades has shown that each of the TCR subunits makes distinct contributions to the activation and regulation ofT cells and only the sum of the TCR subunits can adequately activate and control all functions of T cells. We believe that engaging the entire TCRsignaling complex is required to fully leverage T cells in their fight against cancer.Our T cell engineering approach relies upon natural TCR elements to produce therapeutic T cells that function independently of HLA restriction. Tothat end, we fuse a cancer antigen recognition domain (i.e. antibody-based binder) directly to a subunit of the TCR and use a lentiviral vector totransfer the genetic information for the TRuC construct into a patient’s own T cells. This modified subunit then naturally integrates into the nativeTCR complex, creating an engineered T cell equipped with a new "homing device" to detect and engage a specific antigen on the surface of cancercells. Upon antigen engagement, these T cells harness the entire TCR to produce a more powerful yet controlled T cell response against cancer.We refer to T cells engineered with our TCR fusion constructs as TRuC-T cells. In preclinical studies of both solid tumors and hematologicalmalignancies we have observed greater anti-tumor activity, longer persistence and less cytokine release compared to CAR-T cells we haveengineered to target the same cancer antigen. We believe that these properties could translate into more durable responses with potentially feweradverse events for patients with cancer.The figure below describes the natural HLA-restricted TCR complex as compared to the HLA-independent TRuC TCR.6Our platform enables the design of TRuC-T cells with a number of potential advantages, as described in the table below: ATTRIBUTES FEATURES MECHANISMS DESIRED PATIENT OUTCOMEEnhancedSignaling TRuC construct integrates into andutilizes the entire TCR • Naturally controlled T cell responses through TCRregulatory motifs• Lower cytokine production• No requirement for built-in costimulatory domain • Produce a more powerful, yet controlled T cellresponse• Controlled T cell responses, leading to lower adverseevent ratesEfficientMetabolism Longer persistence and survival ofTRuC-T cells in the hostile tumormicroenvironment • Enhanced tumor penetration and retention• Enhanced energy production, including higher sparerespiratory capacity• Promotion of memory T cell phenotype • Higher T cell tumor infiltration leading to improvedresponse rates• Long-term persistence reducing risk of relapseAdvancedTargeting Antibody-based tumor cellrecognition • Reprogramming of T cell specificity to recognizetumor surface antigen• HLA-independent binding to tumor • Access to larger patient population• TRuC-T cells have the potential to improve uponexisting therapies because of HLA downregulation Dual targeting • Ability to attack tumors based on the recognition oftwo different antigens • Reduced risk of relapse due to antigen escape• Improved response rates in tumors withheterogeneous target antigen expression Amenability to various tumor cellrecognition modalities • Binder formats include, but are not limited to, single-chain variable fragments, single-domain antibodiesand receptors• Humanized binders • Improved response rates and lower relapse ratesOur goal is to improve upon the efficacy and safety of T-cell therapies by enhancing trafficking of T cells into tumors, tumor antigen targeting, theability to withstand the tumor microenvironment, long-lasting T-cell persistence, and a controlled anti-tumor response. In our preclinical studies,TRuC-T cells have shown improvements in each of these key characteristics compared to CAR-T cells we have engineered with the same binders.7We use our TRuC-T cell platform to target many different cancer antigens. Our core format, in which we target a single cancer antigen, is knownas a mono TRuC-T cell. Our mono TRuC-T cell product candidates have shown promising anti-tumor activity and persistence in our preclinicalstudies.We are supplementing our core format with a series of next-generation enhancements that may further improve clinical outcomes. These fall intotwo broad categories. First, we are developing formats that target two antigens, known as dual TRuC-T cells, which could improve tumor responsein patients who express more than one cancer antigen and combat potential antigen escape, which is a leading mechanism of cancer relapse inpatients receiving CAR-T cell therapy. Second, we are developing several strategies to counter the immunosuppressive microenvironment of solidtumors including mechanisms to block a key cancer defense known as the programmed cell death 1 (PD-1) pathway, which can inhibit anti-tumorresponses by T cells.Our StrategyOur goal is to cure cancer with our TRuC-T cell therapies. We intend to make a difference in the lives of patients by building a fully integratedcancer immunotherapy company offering the first HLA-independent TCR-T cell therapies. The key components of our strategy are:▪Rapidly advance our solid tumor pipeline. We have initiated our Phase 1/2 clinical trial for TC-210, our lead mono TRuC-T cell targetingpatients with mesothelin-expressing solid tumors. We expect to generate initial data from the Phase 1 portion of this clinical trial in thesecond half of 2019. Our plan is to begin the dose-escalation portion of our Phase 1/2 clinical trial in patients who have malignantpleural/peritoneal mesothelioma, cholangiocarcinoma (bile duct cancer), ovarian cancer and non-small cell lung cancer (NSCLC). TC-210has received FDA Orphan Drug Designation for the treatment of mesothelioma. Our goal is to obtain FDA Fast Track designations formalignant pleural/peritoneal mesothelioma and cholangiocarcinoma as a means to potentially facilitate FDA Accelerated Approval basedon Phase 2 data. We anticipate filing an IND for our second mono TRuC-T cell, TC-220, targeting patients with MUC16 positive solidtumors, in the first half of 2020. We are also developing product candidates targeting other cancer antigens expressed on solid tumors.▪Rapidly advance our hematological malignancy pipeline. We intend to file an IND for TC-110, our lead mono TRuC-T cell targetingpatients with CD19-positive B-cell hematological malignancies, in the second half of 2019. We are conducting preclinical studies andhave developed a clinical plan for patients with adult acute lymphoblastic leukemia (aALL), diffuse large B-cell lymphoma (DLBCL),follicular lymphoma (FL), and other non-Hodgkin lymphoma (NHL) subtypes. Our goal is to obtain FDA Fast Track designations for bothALL and DLBCL, and we believe this will provide the potential for FDA Accelerated Approval based on Phase 2 clinical data.▪Exploit the versatility of our platform to broaden our pipeline. We have developed several additional tools that may be incorporated intoour future product candidates to overcome tumor defense mechanisms, including dual-antigen targeting TRuC-T cells to minimizepotential for antigen escape and cancer relapse. Our most advanced dual-antigen targeting programs include a dual mesothelin/MUC16TRuC-T cell for solid tumors and a dual CD19/CD22 TRuC-T cell for hematological malignancies. We are also developing several tools tocounter the immunosuppressive tumor microenvironment, including interference with immune checkpoint pathways. We are alsoevaluating multiple proprietary designs for allogeneic, or off-the-shelf, TRuC-T cells.▪Scale our manufacturing capacity to match our future product needs. We plan to develop our own manufacturing capabilities. We arecurrently manufacturing GMP-grade clinical lots for TC-210 through third-party contractors. We have also entered into an agreement withCell8Therapy Catapult Limited (Catapult), which will allow us to manufacture our TRuC-T cells using our own personnel at Catapult’s facility,while also expanding our capacity to supply future clinical trials. If our clinical trials are successful, given the size of the patientpopulation that can potentially be targeted by our product candidates, we plan to build our own manufacturing plant.▪Retain significant economic and commercial rights to our product candidates. We currently own all rights to our product candidates andprograms and intend to build a fully integrated cancer immunotherapy company. We intend to maintain product rights in key geographies,in particular for TC-210. We believe the versatility of our platform presents an opportunity for us to selectively form collaborations andstrategic partnerships to expand our capabilities and product offerings into other therapeutic areas and potentially accelerate thedevelopment and maximize the commercial potential of our product candidates.Our PipelineThe versatility of our platform is highlighted by the multiple programs and multiple formats of the product candidates in our pipeline. We havegenerated a broad pipeline with assets that address both solid tumors and hematological malignancies. Our product candidates are listed in thefigure below. *In the Discovery stage, we identify the antigen-specific binders, tether these to a TCR subunit via a linker and then, upon introduction into T cells, test the killing activity and cytokine release in vitro.Thereafter, the programs enter Lead Optimization stage, where we optimize the antigen binder sequence and linker length and re-test T cells expressing the enhanced TRuC sequences in cellularassays for functional activity and specificity. At this stage, we also investigate the anti-tumor activity, cytokine release, pharmacodynamics and phenotype of TRuC-T cells in mouse studies. The IND-Enabling stage is defined by the nomination of a product candidate. At this stage of drug development, we initiate the GMP production of lentiviral vector and process development of TRuC-T cells. Inaddition, we conduct studies addressing the specificity and toxicity to support the submission of an IND application.TC-210: Our Lead Mono TRuC-T Cells Targeting Mesothelin Positive Solid TumorsOur most advanced TRuC-T cell product candidate is TC-210, which targets mesothelin-positive solid tumors. Mesothelin is a cell-surface proteinwhose expression is mostly restricted to mesothelial cell layers lining the pleura, pericardium and peritoneum but which is not known to beexpressed on any vital organs. While its expression on normal tissues is low, mesothelin is highly expressed in many solid tumors. The cancertypes that we intend to treat in our Phase 1/2 clinical trial include non-small cell lung cancer, ovarian cancer, malignant pleural/peritonealmesothelioma and cholangiocarcinoma. These cancers represent a patient population of up to 81,000 in the United States alone. By comparison,the9addressable U.S. patient population with hematological malignancies for approved CD19-directed CAR-T therapies is estimated to beapproximately 8,000.In our preclinical studies we have observed better anti-tumor activity and persistence of TRuC-T cells compared with CAR-T cells we engineered totarget mesothelin while also exhibiting lower levels of cytokine release. The FDA cleared our IND for TC-210 in January 2019. We subsequentlyreceived a request from the FDA’s Center for Devices and Radiological Health (CDRH) for the submission of an investigational device exemption(IDE) application regarding our use of a commercially available in vitro diagnostic assay for screening mesothelin expression in tumors. The CDRHhas since determined we do not need to submit an IDE application and we have initiated our Phase 1/2 clinical trial for TC-210. We expect togenerate our first clinical data from our Phase 1/2 trial in the second half of 2019. We have received an FDA Orphan Drug Designation for thetreatment of mesothelioma with TC-210 and also plan to apply for FDA Fast Track designation for TC-210.Mesothelin is overexpressed on the cell surface in multiple cancers, including approximately 76% of malignant pleural mesotheliomas (the mostcommon type of mesothelioma), 58% of ovarian cancers and 31% of NSCLC, among others. The following figure illustrates the proportion ofcancer patients with mesothelin expressed on the surface of their tumors and are therefore candidates for TC-210 therapy. NSCLC BackgroundNSCLC remains the leading cause of cancer-related mortality worldwide, accounting for approximately 18% of all cancer deaths. There are anestimated 200,000 new cases in the United States annually with an estimated 62,000 (31%) expressing mesothelin on the cell surface.Patients with metastatic NSCLC have a poor prognosis with a median survival of approximately ten months and a five-year survival rate ofapproximately 15% to 20%. While recent advances with checkpoint inhibitors have demonstrated promising results, the majority of patients treatedwith these agents do not derive a long-term benefit. Notably, no standard of care is available for patients failing to respond or relapsing aftercheckpoint inhibitor therapy, a segment of the NSCLC market which is expected to grow in size as the use of immune checkpoint inhibitorsincreases in first- and second-line settings.10Ovarian Cancer BackgroundEpithelial ovarian cancer comprises approximately 90% of all ovarian malignancies. Approximately 22,000 patients in the United States werediagnosed with ovarian cancers in 2018 with an estimated 13,000 cases expressing mesothelin on the cell surface.Taxane and platinum-based combinations have been the backbone of ovarian cancer treatment for the past 20 years, despite having very lowefficacy rates (below 15%) in patients with advanced forms of the disease. The majority of patients progressing after platinum retreatment have noapproved treatment options. Relapsed, recurrent ovarian cancer remains incurable with an estimated 14,000 deaths from ovarian cancer in 2018 inthe United States alone.Malignant Pleural/Peritoneal Mesothelioma Background Malignant mesothelioma is a rare and aggressive malignancy arising from mesothelial cells lining the cavity surrounding the lungs (pleura),abdomen (peritoneum), heart (pericardium) or testes. Patients with either malignant pleural mesothelioma or malignant peritoneal mesothelioma areeligible for enrollment in our Phase 1/2 clinical trial of TC-210.Malignant pleural mesothelioma is the most common form of mesothelioma, accounting for an estimated 84% of cases. Asbestos exposurecauses approximately 80% of malignant pleural mesothelioma cases. There are an estimated 2,200 new cases per year of malignant pleuralmesothelioma in the United States of which an estimated 1,700 express mesothelin on the cell surface.Effective treatment options for patients with malignant pleural mesothelioma are very limited. The standard of care recommended is chemotherapythat includes a platinum salt and an anti-folate. Unfortunately, the ORR is 17% to 40% and the median overall survival of patients with malignantpleural mesothelioma is 12 to 19 months when systemic chemotherapy is used with or without anti-angiogenic agents or targeted therapy.Malignant pleural mesothelioma caused approximately 2,200 deaths in 2018 in the United States alone.Malignant peritoneal mesothelioma is the second-most common form of mesothelioma, accounting for an estimated 10% of cases. Whilemalignant peritoneal mesothelioma is less commonly studied than malignant pleural mesothelioma, similar systemic chemotherapy regimens ofplatinum and antifolate combinations are often used. The prognosis for patients with malignant peritoneal mesothelioma is poor as only 35% ofpatients survive more than two years after diagnosis.Cholangiocarcinoma BackgroundCholangiocarcinoma is a form of cancer that is composed of mutated epithelial cells that originate in the bile ducts. There are an estimated 8,000new cholangiocarcinoma cases in the United States per year with about 50% expressing mesothelin on the cell surface. Most patients withcholangiocarcinoma have advanced-stage disease at presentation, for which the available standard-of-care chemotherapy (gemcitabine andcisplatin) renders a median overall survival of less than one year. Multiple products, including checkpoint inhibitors and others, are being tested inclinical trials, but cholangiocarcinoma remains an unmet medical need. Cholangiocarcinoma causes over 7,000 deaths per year in the UnitedStates alone.We plan to submit an FDA Orphan Drug Designation application for TC-210’s treatment of cholangiocarcinoma. In addition, we plan to apply forFDA Fast Track, FDA Breakthrough Therapy and additional Orphan Drug Designations, as well as Accelerated Approvals, where applicable.11TC-210 Phase 1/2 Trial in Mesothelin-Positive TumorsWe have initiated a Phase 1/2 clinical trial of TC-210 in patients with mesothelin-positive NSCLC, ovarian cancer, malignant pleural/peritonealmesothelioma and cholangiocarcinoma. Given the high unmet need and limited treatment options in malignant pleural/peritoneal mesothelioma andcholangiocarcinoma, our goal is to obtain Fast Track designations for TC-210 in those indications from the FDA, which we believe will provide thepotential for accelerated licensing based on Phase 2 clinical trial data.Our Phase 1/2 clinical trial consists of two parts:▪In the Phase 1 portion of the clinical trial, patients will receive TC-210 at four dose levels with or without lymphodepleting chemotherapyto determine the recommended Phase 2 dose (RP2D).▪The objective of the Phase 2 portion of the clinical trial, in addition to further characterizing the safety profile of TC-210, is to evaluatethe efficacy of TC-210 in mesothelin-expressing cancers as assessed by ORR according to standard Response Evaluation Criteria InSolid Tumors (RECIST) v1.1 criteria (ORR: complete response + partial response). Secondary endpoints will include time to response,duration of response, progression free survival and overall survival. Approximately 50 patients will receive TC-210 at the RP2D scheduleand will be stratified according to their cancer diagnosis in four groups: NSCLC, ovarian cancer, malignant pleural/peritonealmesothelioma and cholangiocarcinoma. A total of ten patients per indication will be infused with TC-210 T cells, except in the NSCLCcohort where 20 patients will be treated, including eight receiving TC-210 as single agent and 12 receiving TC-210 in combination with theprogrammed cell death 1 (PD-1) blocking antibody.The design of our Phase 1/2 clinical trial, as illustrated in the figure below, will allow us to further expand individual cohorts in the Phase 2 portionof the trial to evaluate the efficacy of TC-210 in a larger sample size, which we believe may accelerate regulatory timelines for approval in theUnited States.12Design of TC-210The construct used to generate TC-210 is comprised of a humanized single-domain antibody that specifically binds to mesothelin on the cellsurface. This binding domain is tethered to the human CD3ε subunit via a flexible linker to form the mesothelin-targeting TRuC construct, as shownbelow. We use a lentiviral vector to transfer the genetic information for the TRuC construct into a patient’s own T cells. Once in the T cell, theTRuC protein is expressed and integrated into the endogenous TCR followed by transport of the reprogrammed TCR to the cell surface. There, itredirects the TRuC-T cells to recognize mesothelin-positive tumor cells and activate them to eliminate mesothelin-positive tumors. We believe thatTC-210’s unique way of engaging and powering T cells as well as its humanized binding domain could lead to improved clinical outcomes forpatients. The following figure illustrates the design of TC-210.Preclinical Studies of TC-210TC-210 has shown robust anti-tumor activity in cellular assays and animal models of malignant pleural/peritoneal mesothelioma, lung and ovariancancers. We have completed a number of preclinical studies that have generated data on the mechanism-of-action, pharmacodynamic andpharmacology/toxicology data of TC-210. In those studies, TC-210 was compared head-to-head against mesothelin-targeting CAR-T cells (MSLNCAR-T cells) that we engineered with the same mesothelin binder expressed by TC-210. Our preclinical studies have highlighted the followingattributes of TC-210 that we believe to be important for solid tumor clearance:▪Migration to and accumulation in the tumor site that was significantly faster and greater for TC-210 than that observed for the MSLNCAR-T cells;▪Mesothelin-dependent T cell activation, expansion and tumor clearance by TC-210 was faster than that observed for the MSLN CAR-Tcells;▪Long-term functional persistence of TC-210 which is critical for preventing relapse; and▪Systemic cytokine levels produced by TC-210 were lower compared to the MSLN CAR-T cells, which could potentially translate intolower rates of adverse events.13TC-210 Showed Robust Mesothelioma Tumor ClearanceTo compare the anti-tumor activity of TC-210 and MSLN CAR-T cells, we used a mouse xenograft model of mesothelioma. In the experimentshown below, we tested TC-210 against MSLN CAR-T cells that we engineered to incorporate the CD28 costimulatory domain – described belowas MSLN-28ζ CAR-T. Mesothelioma cells overexpressing mesothelin were injected into mice. When tumors reached approximately 200 to 300mm3, the mice were infused with a total of 1.0x107 T cells containing either 2.0x106 TC-210 or 1.0x106 MSLN-28ζ CAR-T cells. A separate group ofnine animals was treated with a control. Treatment of tumor-bearing animals with TC-210 showed rapid tumor control and clearance of tumors byday 25 after start of treatment in all of the nine animals tested. In contrast, while the MSLN-28ζ CAR-T cell treated animals showed initial tumorregression, tumor relapse was only observed in four out of the nine animals tested with MSLN CAR-T cells. These observations conform to priorpublished studies showing poor long-term activity of MSLN-28ζ CAR-T cells in similar models.TC-210 showed faster trafficking to and accumulation in mesothelioma tumorsOne of the major challenges for CAR-T cell therapies in solid tumors has been the ability of CAR-T cells to migrate into the tumor tissue insignificant numbers. In our preclinical studies, we observed that TC-210 expressed higher levels of the chemokine receptors CXCR3 and CCR10than MSLN CAR-T cells we engineered. We believe this is one of the major factors causing the faster migration to and greater accumulation of TC-210 in tumors as compared to the MSLN CAR-T cells we engineered.We investigated the ability of TC-210 to traffic to and accumulate in mesothelioma tumors. After mesothelin-overexpressing xenograft tumorsreached a mean volume of approximately 200 mm3, the mice were randomized into two groups of five mice. The mice were then intravenouslyinfused with either TC-210 or the MSLN CAR-T cells, which we engineered to co-express a tracing agent to analyze the migration pattern of TC-210 and the MSLN CAR-T cells using living images. As illustrated in the figure below, imaging studies showed that TC-210 migrated into the tumorfaster and accumulated in greater number than observed for the MSLN CAR-T cells. The faster trafficking and accumulation of TC-210 correlatedwith faster tumor clearance compared to the MSLN CAR-T cells. Therefore, we believe that these properties of TC-210 could translate intoimproved clinical outcomes in patients.14TC-210 demonstrated persistent anti-tumor activity in a mesothelioma rechallenge modelTo evaluate the ability of TC-210 to persist and maintain its anti-tumor activity, we conducted a mesothelioma xenograft mouse study. Theexperiment consisted of two phases. In the first phase, mice with established mesothelioma tumors were treated with TC-210 or unmodified Tcells. As shown before, tumors were cleared in all mice and no relapse was observed until 56 days after treatment with a single dose of TC-210. Inthe second phase, TC-210-treated mice were injected at a new site with mesothelioma cells to simulate tumor recurrence. As shown in the graphbelow, TC-210 controlled the outgrowth of new tumors until the end of the study after 90 days. By contrast, in untreated mice, the rechallenge withmesothelioma cells caused a rapid outgrowth of tumors.In this study, TC-210 showed both long-term elimination of the primary mesothelin-expressing tumor cells and lasting functional persistence. Thispersistence is associated with the ability to migrate to new tumor sites and recognize and kill tumor cells expressing mesothelin.15TC-210 produced less cytokines than MSLN CAR-T cellsCytokine release syndrome (CRS) is a life-threatening toxicity frequently associated with approved CD19-targeting CAR-T cell therapies. Wecompared the systemic release of cytokines in a mesothelin-positive lung cancer xenograft mouse model where one cohort was treated with TC-210 and another cohort with our engineered MSLN CAR-T cells. The serum levels of cytokines IFNγ, IL-2, IL-4, IL-5 and GM-CSF were measuredat several time points after treatment. As shown in the figure below, TC-210 treated animals consistently produced lower circulating cytokine levelsthan the MSLN CAR-T cell treated animals over the time course examined. We believe this was due to natural feedback loops integrated into theentire TCR complex that could regulate overproduction of cytokines. We have observed similar results in a mesothelioma xenograft model. Basedon our preclinical studies, we also believe that lower cytokine production by TC-210 and other TRuC-T cells could translate into lower rates of CRSand improved treatment tolerability.TC-110: Our Lead Mono TRuC-T Cells Targeting CD19-Positive B-Cell Hematological MalignanciesWe are also developing TC-110, a TRuC-T cell targeting CD19-positive B-cell hematological malignancies. The clinical development plan for TC-110 will initially focus on treating patients with adult ALL, DLBCL, FL, and other NHL subtypes. These are indications for which CAR-T cells haveeither been approved but faced clinical outcome limitations (specifically, DLBCL), proven to be too toxic for use (specifically, adult ALL), or havenot been approved at all (specifically, FL). In our preclinical studies, we have observed better anti-tumor activity and persistence of TRuC-T cellscompared to CAR-T cells we engineered to target CD19 while also exhibiting lower levels of cytokine release. We recently held a pre-IND meetingwith the FDA for TC-110 and we expect to file an IND in the second half of 2019 and seek FDA Fast Track designation.Adult ALL BackgroundNon-Hodgkin lymphomas (NHL) comprise a heterogeneous group of malignancies. DLBCL is the most common subtype of NHL, constituting up to40% of cases globally. In 2018, there were an estimated 75,000 new cases of NHL and 20,000 related deaths in the United States. Approximatelytwo-thirds of16patients with DLBCL are cured of their disease with frontline chemoimmunotherapy (R-CHOP). However, refractory patients have a median overallsurvival of only 6.3 months.CD19-directed CAR-T cell therapy has shown activity in heavily pre-treated patients with CD19-positive DLBCL and two CAR-T cell therapies,Kymriah and Yescarta, have been approved for that indication. However, the response rate six months post-infusion ranges from 37% to 41% andboth therapies are associated with high rates of severe CRS (13% to 23%) and neurotoxicity (12% to 28%). Our preclinical data show better anti-tumor activity and lower cytokine release with TC-110 compared to CD28-based or 4-1BB-based CAR-T cells we engineered against CD19-expressing tumors.DLBCL BackgroundNon-Hodgkin lymphomas (NHL) comprise a heterogeneous group of malignancies. DLBCL is the most common subtype of NHL, constituting up to40% of cases globally. In 2018, there were an estimated 75,000 new cases of NHL and 20,000 related deaths in the United States. Approximatelytwo-thirds of patients with DLBCL are cured of their disease with frontline chemoimmunotherapy (R-CHOP). However, refractory patients have amedian overall survival of only 6.3 months.CD19-directed CAR-T cell therapy has shown activity in heavily pre-treated patients with CD19-positive DLBCL and two CAR-T cell therapies,Kymriah and Yescarta, have been approved for that indication. However, the response rate six months post-infusion ranges from 37% to 41% andboth therapies are associated with high rates of severe CRS (13% to 23%) and neurotoxicity (12% to 28%). Our preclinical data show better anti-tumor activity and lower cytokine release with TC-110 compared to CD28-based or 4-1BB-based CAR-T cells we engineered against CD19-expressing tumors.Follicular Lymphoma BackgroundFollicular Lymphoma (FL) is the most common indolent NHL in the Western hemisphere accounting for 20% of patients with newly diagnosed NHL.Approximately 15,000 patients were diagnosed in the United States with FL in 2018. The clinical course of patients with FL is generally indolent,with many patients remaining asymptomatic for months or even years after diagnosis. However, 20% of patients with FL relapse within two yearsof R-CHOP therapy and have a median five-year survival rate of only 50% compared to 90% for the remaining 80% of patients with a longerresponse duration. The experience with CAR-T cell therapy in FL is much more limited than in ALL or DLBCL but preliminary data indicate thatCD19-directed adoptive T cell approaches are promising in high-risk FL.Background on Other NHL SubtypesIn addition to DLBCL and FL, we also plan to study TC-110 in patients with other, less common NHL subtypes, including mantle cell lymphoma(MCL) and primary mediastinal B-cell lymphoma (PMBCL). Patients with relapsed/refractory disease in these other NHL subtypes also have asubstantial unmet medical need. MCL is an aggressive form of NHL with a median survival of approximately 5 years. PMBCL tends to respondwell to initial therapy, but relapsed/refractory patients have a poor prognosis with a reported 25% 2-year survival.We plan to apply for FDA Fast Track designation, FDA Breakthrough Therapy and Orphan Drug designations for TC-110, where applicable, as wellas Accelerated Approval.17Design of TC-110The construct used to generate TC-110 is comprised of the single chain variable fragment, FMC63, that specifically binds to CD19 on the cellsurface that is fused with a flexible linker to the human CD3ε subunit. We use a lentiviral vector to introduce the genetic information of TC-110 intoa patient’s own T cells. In the cell, the fusion construct is integrated into the natural TCR and transported to the cell surface. The reprogramming ofthe TCR specificity enables TC-110 to attack and destroy hematological malignancies that are CD19-positive. The following figure illustrates thedesign of TC-110:Summary of our Preclinical Data on TC-110TC-110 showed robust activity in preclinical models where we compared the T cell signaling, cytokine production and anti-tumor activity of TC-110with CD19-targeting CAR-T cells, which we engineered with the same CD19 binder as TC-110. These CAR-T cells had a similar design as currentlyused in approved CD19 CAR-T cell therapies but are not identical. Our preclinical data support our hypothesis that TC-110 could result in potentanti-tumor activity with lower cytokine levels than existing T cell therapies. In our preclinical studies of TC-110, we observed the following results:▪Rapid regression and clearance of tumors in a CD19-positive leukemia model;▪Elimination of tumors in a subcutaneous CD19 lymphoma model; and▪Lower cytokine release compared to CD19-targeting CAR-T cells that we engineered.TC-110 cleared subcutaneous lymphoma in a mouse model more efficiently than CAR-T cellsWe compared the anti-tumor activity of TC-110 with that of two CD19 CAR-T cells that we engineered to replicate approved CAR-T cell therapies ina subcutaneous lymphoma xenograft model (Raji cell line). Six days after lymphoma cell injection under the skin, mice were treated with similarnumbers of either unmodified T cells, TC-110, CD19 CAR-T cells we engineered with a 4-1BB costimulatory domain or CD19 CAR-T cells weengineered with a CD28 costimulatory domain, in each case bearing an identical CD19-binding domain (FMC63). As shown below, treatment withTC-110 resulted in tumor clearance in the majority of mice at the end of the study. In contrast, the CD19 CAR-T cells we engineered were not18capable of eradicating the lymphoma cells and despite an initial response, a significant number of animals relapsed. We believe these data supportthat TC-110 may have a higher and more sustained activity in treating lymphoma than the two CAR-T cell variants. The following figure shows acomparison of the tumor control of TC-110 and the two CAR-T cell variants in the Raji NSG model.TC-110 releases less cytokines than CAR-T cells We investigated the effect of TC-110 on cytokine release compared to CAR-T cells we engineered in a cell culture model. CRS is a major safetyconcern for CAR-T cell therapies. In the model, cytokine levels produced by TC-110 were significantly lower than those released by the CAR-Tcells we engineered. These results, as illustrated below, are consistent with the lower levels of cytokine release observed in solid tumor modelstreated with TC-210 or the engineered CAR-T cells. Additional TRuC-T Cell Product CandidatesTC-220: We are conducting IND-enabling studies for our mono TRuC-T cell product candidate, TC-220, targeting MUC16-positive solid tumors.While its expression in normal tissues is low, MUC16 is highly expressed in many solid tumors, including ovarian, pancreatic, gastric andcolorectal cancers. We plan to initially develop TC-220 for the treatment of MUC16 overexpressing ovarian cancer, which represents a patientpopulation of up to 17,000 in the United States alone. TC-220 has shown strong anti-tumor activity in preclinical models of MUC16-positive ovariancancers. We plan to file an IND for TC-220 in the first half of 2020 and we expect to generate our first clinical data in the first half of 2021.MUC16 is a highly glycosylated transmembrane protein with a very large extracellular region. It serves as a physical mucous barrier protecting theepithelium from invasion by pathogens. In cancer, MUC16 expression increases the risk of metastases and contributes to tumorimmunosuppression. When overexpressed in tumors, the large extracellular domain of the MUC16 protein, known as CA-125, is shed. CA-125 isused as a biomarker of tumor progression in patients with ovarian, pancreatic and other cancers. Previous therapeutic approaches targetingMUC16 have not proven to be effective because they bind to soluble CA-125, whereas TC-220 is activated only upon binding to MUC16 expressedon the surface of tumor cells.19Dual TRuC Programs:In cancer therapy, loss of antigen expression is one tumor escape mechanism that can lead to relapse. Once the antigen recognized by a T celltherapy is lost from the tumor cell surface, such cancer cells become invisible to T cells and can regrow a resistant tumor. For example, patientswith glioblastoma multiforme (GBM) treated with CAR-T cells have been reported to relapse with target-negative tumor cells. Dual targeting is ameans to potentially increase the response rates by binding to two target antigens. We believe that combined antigen targeting will enhance thepotential of TRuC-T cells to more broadly recognize cancer cells, which may result in fewer cases of relapse due to target loss.TC-310: We are developing TC-310, dual TRuC-T cells targeting both CD19 and CD22. Antigen escape is a leading mechanism of relapse inpatients treated with CD19-targeting CAR-T cells. For example, 40% of patients treated with Kymriah relapse within twelve months post-infusion,and 65% of those relapsing cases are CD19-negative. This phenomenon has also been recently identified as a mechanism whereby DLBCL canrelapse post CD19-directed CAR-T cell therapy. We believe simultaneously targeting two tumor antigens on leukemia or lymphoma cells willpotentially improve response rates and reduce the risk of recurrence due to antigen escape, thus leading to more durable responses. Thesefindings underscore the continued high medical need for patients with ALL and DLBCL and the possibility of improving clinical outcomes throughthe targeting of more than one antigen.We believe that CD22 is an ideal partner for CD19 because it is present on most cases of ALL and DLBCL and both CD19 and CD22 expressionon normal cells is restricted to the B-cell lineage. In a third-party Phase 1 clinical trial of a CD22-directed CAR-T cell therapy, 73% of patientsshowed initial objective response rates. But similar to CD19-targeting CAR-T cell therapies, patients relapsed due to loss of CD22 expression ontumor cells, which rendered the therapy ineffective. We intend to advance TC-310, which is currently at the preclinical development stage, intoIND-enabling studies in 2019.TC-410: We are developing TC-410, a dual TRuC-T cell designed to increase response rates and reduce the potential for antigen escape in solidtumors by targeting both mesothelin and MUC16. We are conducting preclinical studies to further characterize the expression profile of mesothelinand MUC16 in various cancers. We plan to advance TC-410 into IND-enabling studies in 2019.Broadening our Core TRuC-T Cell Platform with a Series of Next-Generation EnhancementsWe have developed a novel, transformative platform to address the limitations of existing T cell therapies. Our TRuC-T cell platform is designed todeliver the first HLA-independent TCR-T cell therapies to a broader population of patients with solid tumors and hematological malignancies. Ourapproach is to fuse a cancer antigen recognition domain directly to a subunit of the TCR, which becomes fully integrated into the natural complex.This has the effect of activating the entire TCR to produce a more powerful, yet controlled T cell response to cancer.We are focused on continued innovation to broaden our platform through internal research and collaboration with leading academic laboratories andindustry partners in the field of T-cell immunology, cell therapy, gene editing, and process development. These innovations fall into three broadcategories:▪First, we are developing enhancements that target two antigens, or dual TRuC-T cells, to deal with potential antigen escape, a leadingmechanism of cancer relapse in patients receiving CAR-T cell therapy.▪Second, we are developing several enhancements to control on-target, off-tumor activity and counter the immunosuppressivemicroenvironment of solid tumors. These include mechanisms to block a key cancer defense known as the PD-1/PD-L1 pathway.▪Third, we are evaluating multiple proprietary designs for off-the-shelf TRuC-T cells, aiming to give patients faster access to and reducethe costs of TRuC-T cell therapies.20Manufacture and Delivery of TRuC-T Cells to PatientsTRuC-T Cell Production and DeliveryThe process of manufacturing cell and gene therapies, such as TRuC-T cells, is highly complex. As shown in the figure below, the generation ofour TRuC-T cells starts with the collection of white blood cells from patients, known as leukapheresis, at the treatment center. The blood cells areshipped to a central manufacturing facility where they are further processed. Following the enrichment of the sample T cells, they are activated,which causes them to divide. In the next step, a viral vector is used to shuttle the genetic information encoding the TRuC construct into the Tcells. During the assembly process of the TCR, the TRuC construct is integrated into the natural TCR complex and transported to the cell surface.The now reprogrammed TRuC-T cells are further stimulated to replicate and produce enough quantities to administer a therapeutic dose to thepatient from whom the cells were originally collected. We use a next-generation cell processing platform that performs cell sample loading, cell washing, density-based cell separation, magneticseparation, cell culture and final product formulation. This is a semi-automated and functionally closed system that we believe will enable us toscale our TRuC-T cell manufacturing and overcome the constraints associated with current processes.TRuC-T Cell Manufacturing StrategyWe are devoting extensive resources to process development and manufacturing to optimize the reliability of our product candidates and reducemanufacturing costs and vein-to-vein time. This investment will ensure that our manufacturing and delivery process will have utility across all theproduct candidates in our pipeline.21The generation of a genetically-modified autologous T cell therapy such as TRuC-T cells involves several integrated and complex steps,including the collection of T cells through apheresis, cryopreservation, manufacture of the transfer vector under cGMP conditions, exvivo selection, activation, transduction, and expansion of the TRuC-T cells, ultimately leading to infusion of TRuC-T cells into patients. Thetechnical, logistical, and regulatory challenges associated with the virus and cell manufacturing processes are significant. We plan to simplify themanufacturing process through the implementation of automated technologies and the development of scalable processes aimed at reducing thecost of goods.We have already taken two critical steps geared towards simplifying our manufacturing process. First, our TRuC-T cells are manufactured via asemi-automated and functionally closed system (CliniMACS Prodigy), which provides a common platform that will be employed in the developmentof all of the product candidates in our pipeline. This manufacturing process is economical, reliable, and scalable, and can support rapiddevelopment of the product candidates throughout the clinical life cycle and regulatory approvals. This system has a small footprint, which enablesus to manufacture multiple products in parallel units within the same minimally controlled space, thereby reducing operating costs. Second, boththe input leukapheresis material that enters the manufacturing process as well as the final TRuC-T cells are cryopreserved products, whichsimplifies the logistics for delivery to the patient and reduces the risk of product delivery failure. The entire vein-to-vein manufacturing process hassafe-guards in place designed to ensure product identity and integrity throughout the production life-cycle.We have entered into manufacturing agreements for the supply of GMP-S plasmids for generation of the viral vectors, which are manufactured bythird parties. The viral vectors are manufactured through established agreements with various CDMOs. We outsource our T cell manufacturingprocess and we may enter into additional agreements to increase capacity for future clinical trials and commercialization if licensed. Because ourstarting materials are frozen, we expect to be able to base future agreements on rolling forecasts of regularly scheduled manufacturing runs, whichwe expect will minimize any cost overruns due to loss of reservation fees. Depending on the results of our clinical trials, we may choose todevelop our own manufacturing capabilities.As part of our manufacturing strategy, we plan to expand our capacity as we begin clinical trials and are planning for potential further expansion inanticipation of an approval for any of our TRuC-T cell product candidates. Under our existing agreements with CDMOs, we estimate that we havepotential access to capacity to produce up to approximately 100 annual treatments per year, which we believe will be sufficient to conduct ourinitial planned clinical trials. We are in the process of adding manufacturing capacity to support larger clinical trials for our product candidates. Tothat end, in December 2018, we contracted with Cell Therapy Catapult Limited, United Kingdom to occupy a suite with our own personnel in theirGMP manufacturing center in Stevenage, United Kingdom. We expect the suite to be operational in the second half of 2019, which we estimatewould expand our manufacturing capacity to a total of approximately 400 treatments per year and facilitate conducting clinical trials in Europe. Ifour clinical trials are successful, we plan to acquire and develop our own manufacturing infrastructure to generate the additional capacity needed tosupport expanded clinical trials and commercial scale production. We believe our manufacturing platform can be scaled with minimal infrastructurewhile meeting GMP requirements, which will facilitate the design and building of a standard centralized manufacturing facility. Further into thefuture, however, we expect this system to be amenable to manufacturing in a controlled non-classified environment closer to or at the point ofcare, such as at a regional hub or hospital, resulting in a decentralized manufacturing model. We anticipate that this decentralized model wouldrequire minimal infrastructure, be led by operators that would require minimal technical training, shorten vein-to-vein time, and decrease costs.Intellectual PropertyIntellectual property is a fundamental component of our business and of vital importance in our field. We actively seek to protect the intellectualproperty and proprietary technology that we believe is important to22our business, including seeking, maintaining, enforcing and defending patent rights for our product candidates and processes, whether developedinternally or licensed from third parties. We may additionally rely on regulatory protection afforded through orphan drug designations, dataexclusivity, market exclusivity, and patent term extensions where available.The TRuC-T cell platform was initially conceived and developed by our scientific founder, Dr. Patrick Baeuerle. The priority patent applicationdisclosing the TRuC-T cell platform was filed in May 2015. Our further work encompassing a broad range of TRuC concepts has been described insubsequent patent applications.Additional patent applications filed by us since 2015 include at least the following additional technological innovations and product-related claims:▪TRuC-T cells targeting an array of tumor antigens;▪TRuC-T cells targeting multiple types of antigens on the same tumor;▪engineered TRuC-T cells with enhanced activity and/or modulated activity;▪second generation off-the-shelf TRuC-T cells; and▪methods of using TRuC-T cells to treat human diseases, including solid tumors.Our strategy is to pursue a variety of broad claims in the United States and foreign jurisdictions to provide multiple layers of patent protection,including:▪pursuing broad claims in the United States for the TRuC concept;▪pursuing claims to specific compositions of matter in connection with particular TRuC constructs (including specific protein and nucleicacid sequences); and▪methods of using the TRuC-T cell platform as monotherapy or in combination with other anti-cancer or immune system enhancingtherapeutics.Many of the patent applications that we own or in-license, including our trademark filings, are still in the early stages of prosecution and no claimshave yet issued, with the exception of one issued U.S. patent. Examination of most of the patent applications that we own has not yetcommenced, because they are either provisional applications or Patent Cooperation Treaty (PCT) applications that are not examined. We will needto decide whether and where to pursue protection for the inventions disclosed in these provisional and PCT applications before applicable statutorydeadlines, our applications will only be examined in jurisdictions where we elect to pursue protection, and we will only have the opportunity toattempt to obtain patents in such jurisdictions where we elect to pursue protection. We are seeking protection across a range of commerciallyimportant territories, including (but not limited to) countries in North America, Europe, and Asia. As of March 15, 2019, our patent portfolio includesone issued U.S. patent, at least 16 pending U.S. provisional or nonprovisional patent applications, at least four pending Patent Cooperation Treaty(PCT) international applications, and at least 31 pending foreign patent applications, which patent applications we own or in-license. The claims ofthese patent applications are directed toward various aspects of our product candidates and research programs including compositions of matter,methods of use, and processes. These owned and in-licensed patent applications, if issued, are expected to expire on various dates from 2036through 2039, in each case without taking into account any possible patent term adjustments or extensions.Within our patent portfolio, as of March 15, 2019, we owned one issued U.S. patent, at least six pending U.S. provisional or U.S. nonprovisionalpatent applications at least two pending PCT international applications, and at least 21 pending foreign patent applications, and had a nonexclusivelicense from Harpoon Therapeutics, Inc. (Harpoon) to at least one pending U.S. provisional or U.S. nonprovisional patent application, and at leastone pending PCT international application, and had an exclusive license to at least four pending foreign patent applications that include claimsdirected to TC-210, such as compositions of matter, manufacturing precursors or uses thereof. These owned and in-licensed patent applications, ifissued, are expected to expire on various dates from 2036 through 2039, in each case23without taking into account any possible patent term adjustment or extensions.Within our patent portfolio, as of March 15, 2019, we owned at least six pending U.S. provisional or U.S. nonprovisional patent applications, atleast two pending PCT international application, and at least 14 pending foreign patent applications, and had an exclusive license to at least fourpending foreign patent applications that include claims directed to TC-220, such as compositions of matter, manufacturing precursors or usesthereof. These owned and in-licensed patent applications, if issued, are expected to expire on various dates from 2036 through 2039, in each casewithout taking into account any possible patent term adjustment or extensions.Within our patent portfolio, as of March 15, 2019, we owned at least five pending U.S. provisional or U.S. nonprovisional patent applications, atleast two pending PCT international application, and at least 15 pending foreign patent applications, and had an exclusive license to at least fourpending foreign patent applications that include claims directed to TC-110, such as compositions of matter, manufacturing precursors or usesthereof. These owned and in-licensed patent applications, if issued, are expected to expire on various dates from 2036 through 2039, in each casewithout taking into account any possible patent term adjustment or extensions.Within our patent portfolio, as of March 15, 2019, we owned one issued U.S. patent, at least nine pending U.S. provisional or U.S. nonprovisionalpatent applications, at least three pending PCT international applications, and at least 21 pending foreign patent applications; and had a non-exclusive license to at least one pending U.S. provisional or U.S. nonprovisional patent application, and at least one pending PCT internationalapplication and had an exclusive license to at least four pending foreign patent applications, that include claims directed to TC-410, such ascompositions of matter, manufacturing precursors or uses thereof. These owned and in-licensed patent applications, if issued, are expected toexpire on various dates from 2036 through 2039, in each case without taking into account any possible patent term adjustment or extensions.Within our patent portfolio, as of March 15, 2019, we owned at least five pending U.S. provisional or U.S. nonprovisional patent applications, atleast three pending PCT international applications, and at least 15 pending foreign patent applications and had an exclusive license to at least fourpending foreign patent applications that include claims directed to TC-310, such as compositions of matter, manufacturing precursors or usesthereof. These owned and in-licensed patent applications, if issued, are expected to expire on various dates from 2036 through 2039, in each casewithout taking into account any possible patent term adjustment or extensions.The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in whichwe file, the patent term is 20 years from the date of filing of the first non-provisional application to which priority is claimed. In the United States, apatent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent andTrademark Office (PTO) in granting a patent or may be shortened if a patent is terminally disclaimed over an earlier-filed patent. The term of apatent that covers an FDA-approved drug may also be eligible for a patent term restoration of up to five years under the Hatch-Waxman Act, whichis designed to compensate for the patent term lost during the FDA regulatory review process. The length of the patent term restoration iscalculated based on the length of time the drug is under regulatory review. A patent term restoration under the Hatch-Waxman Act cannot extendthe remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drugmay be restored. Moreover, a patent can only be restored once, and thus, if a single patent is applicable to multiple products, it can only beextended based on one product. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent thatcovers an approved drug. If and when possible, we expect to apply for patent term extensions for patents covering our product candidates or theirmethods of use.24Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for commerciallyimportant technology, inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our tradesecrets; and operate without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties frommaking, using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid and enforceablepatents or trade secrets that cover these activities. With respect to both in-licensed and company-owned intellectual property, we cannot be surethat patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in thefuture, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful inprotecting our commercial products and methods of manufacturing the same. Development and commercialization of products can be subject tosubstantial delays and it is possible that, at the time of commercialization, any patent covering the product has expired or will be in force for only ashort period of time following commercialization. Numerous third-party U.S. and non-U.S. issued patents exist in the area of programmed T celltherapies, including patents held by our competitors. We cannot predict with any certainty if any third-party U.S. or foreign patent rights, or otherproprietary rights, will be deemed infringed by the use of our technology, nor can we predict with certainty which, if any, of these rights will or maybe asserted against us by third parties. Should we need to defend ourselves against any such claims, substantial costs may be incurred,regardless of whether such defense is successful. Furthermore, parties making such claims may be able to obtain injunctive or other equitablerelief, which could effectively block our ability to develop or commercialize some or all our product candidates in the United States, the EU andother major markets.We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek toprotect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientificadvisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical securityof our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals,organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. Inaddition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants,contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resultingknow-how and inventions.Our trademark portfolio currently contains registration applications for TCR2, TRuC, and our logo in the United States.Collaborations and LicensesHarpoon LicenseIn June 2017, we entered into a license with Harpoon (the Harpoon License) that grants us a perpetual, irrevocable, world-wide, non-exclusive,royalty free, sublicensable license to research, develop, make, use, sell, commercialize or otherwise exploit products based on Harpoon’s MSLNpolypeptide binding proteins (the MSLN Binder). We have incorporated the MSLN Binder into TC-210.As consideration for the Harpoon License, we granted Harpoon a perpetual, irrevocable, world-wide, non-exclusive, royalty free, sublicensablelicense to research, develop, make, use, sell, commercialize or otherwise exploit products based on certain binding proteins which we haddeveloped (the Out-Licensed Binder). We do not incorporate the Out-Licensed Binder into any of our product candidates.Under the Harpoon License, we retain ownership of the Out-Licensed Binder and own any of our improvements to the MSLN Binder and any of ourproduct candidates incorporating the MSLN25Binder. Similarly, Harpoon retains ownership of the MSLN Binder and owns any of its improvements to the Out-Licensed Binder and any of itsproducts incorporating the Out-Licensed Binder. Each party is responsible for the prosecution and maintenance of the patent rights owned by suchparty.The Harpoon License is effective through the expiration of all patents underlying the MSLN Binder and Out-Licensed Binder and it may beterminated by either party upon a material breach that remains uncured for 60 days after receiving notice thereof, or in the event of the otherparty’s bankruptcy.Cell Therapy Catapult Limited Collaboration AgreementOn December 18, 2018, we entered into a Collaboration Agreement with Cell Therapy Catapult Limited (Catapult) to establish our GMPmanufacturing and supply chain at their GMP manufacturing center in Stevenage, United Kingdom. The agreement also provides us with an optionto expand our collaboration area with a second GMP cleanroom suite in Catapult’s second phase of development. The agreement is for a term ofthree years with earlier termination available to us on provision of twelve months’ notice. Termination is also possible in the event of materialbreach of the Agreement that remains uncured for 90 days and insolvency of a party.The Catapult manufacturing center is a GMP facility. The agreement will enable us to have our own dedicated manufacturing space in the Catapultmanufacturing center. Catapult’s contribution to collaboration is their GMP support, expertise, and inbound and outbound logistics and supplychain, being developed at the center. We expect the GMP manufacturing to be operational in the second half of 2019. We will use our ownmanufacturing process and we will be responsible for the operation of the manufacturing process in the suite.CompetitionWe believe our novel TRuC-T cell platform, its design flexibility, superior performance over CAR-T cell and TCR-T cell therapies, emergingenhancements, and our knowledge of cellular immunotherapy should enable us to successfully develop novel and highly effective treatments forcancer. However, we may face intense and increasing competition from larger biotechnology and pharmaceutical companies with greater financialresources, who are also developing immuno-oncology therapies (including cellular therapies) and more traditional treatments for cancer. In addition,academic institutions, governmental agencies, public and private research institutions, and early stage or smaller companies could also provecompetitive.The market opportunity in oncology has led to a number of collaborations (GlaxoSmithKline plc (GlaxoSmithKline)/Adaptimmune Therapeutics PLC(Adaptimmune), Janssen Biotech, Inc. (Janssen)/ Nanjing Legend Pharmaceutical & Chemical Co., Ltd (Legend), bluebird bio, Inc. (bluebird)/Regeneron Pharmaceuticals Inc. (Regeneron) and bluebird/Gritstone Oncology, Inc.) and major acquisitions (Gilead Sciences, Inc. (Gilead)/KitePharma Inc. (Kite), Celgene Corporation (Celgene)/Juno Therapeutics, Inc. (Juno)) among companies focused on cellular cancer therapies. If thistrend continues, which we expect, we could see further consolidation of technical expertise and human capital. This potentially provides apartnership opportunity for us but could also make it more challenging for us to acquire complementary technology or products and recruit andretain qualified scientific and management personnel. In addition, this competition could impact our ability to recruit clinical trial sites and patientsin a timely manner for our clinical trials. Larger companies with greater financial flexibility and global reach may be able to obtain regulatoryapprovals and gain widespread market acceptance before us, which could impact our commercial launch and could make our products obsolete ornon-competitive.We are developing one of our lead product candidates, TC-210, in combination with an immune checkpoint inhibitor for the treatment of NSCLC.Others are evaluating these immune checkpoint inhibitor approaches in combination with CAR-T cells and TCR-T cells to enhance efficacy in thetreatment of solid tumors and hematological malignancies. We therefore could experience significant direct competition from this type ofcombination immunotherapy. We may also face substantial competition in the future from26other immunotherapies, if their use alone or in combination demonstrates a significant improvement in efficacy. Development of more effectivesmall molecules, antibody-based approaches, cancer vaccines, oncolytic viruses and other products could lead to them preferentially being usedas first- or second-line treatments, which would reduce the opportunity for our product candidates.Despite the unique approach that we have developed to address the limitations of CAR-T cells and TCR-T cells, we expect to face increasingcompetition as new more effective treatments for cancer enter the market and further advancements in technologies are made. We expect marketadoption of any treatments that we develop and commercialize to be dependent on, among other things, efficacy, safety, delivery, price and theavailability of reimbursement from government and other third-party payors.We expect the commercial opportunity for our products that we take to regulatory licensing to be reduced or eliminated if competitors develop andcommercialize products that are more effective, safer (have fewer or less severe side effects), are more convenient or are less expensive or betterreimbursed than any products that we may commercialize. We compete with larger, better-funded companies, who may obtain regulatory approvalfor their products more rapidly than we may obtain licensing for ours. This could result in our competitors establishing a strong market position foreither the product or a specific indication before we are able to enter the market.Competition for TC-210The overexpression of mesothelin by numerous solid tumors, combined with its low expression on mesothelial cells lining the pleura, peritoneum,and pericardium, has led to a number of different mesothelin-targeting agents being tested in Phase 1/2 trials. These approaches include novelantibody therapeutics, such as unconjugated monoclonal antibodies, antibody-drug conjugates, bispecific antibodies as well as vaccines.Antibody-based approaches are being pursued by F. Hoffmann-La Roche Ltd, Bayer AG, Bristol-Myers Squibb Company, Selecta Biosciences,Inc., Novimmune SA, Harpoon Therapeutics, Inc., Amgen Inc., and Morphotek, Inc., among others. Antibody-based agents in development havebeen limited to date by immunogenicity, poor tumor penetration and dose-limiting toxicities associated with the therapy. Novartis, AtaraBiotherapeutics, Inc., Memorial Sloan Kettering Cancer Center, the National Institutes of Health Clinical Center, Maxcyte, Inc., and severalChinese academic institutions are developing anti-mesothelin CAR-T cell therapies. Anti-mesothelin CAR-T cell therapies have been limited in theclinic by poor expansion, short persistence and immunogenicity.Competition for TC-220Approaches targeting tumors expressing MUC16 include antibody-based therapeutics, such as monoclonal antibodies and recombinantimmunotoxins, as well as T cell-based approaches, such as CAR-T cells, and vaccines. Regeneron (in collaboration with Sanofi S.A.) isconducting a Phase 1/2 trial with a bispecific MUC16xCD3 antibody in patients with advanced platinum resistant ovarian cancer. Juno, incollaboration with Memorial Sloan Kettering Cancer Center, is conducting a Phase 1 trial of CAR-T cells against MUC16.27Competition for TC-110 and TC-310Recent regulatory approvals of Gilead’s and Novartis’ CAR-T cell therapies and clinical results for Juno’s CAR-T cell therapy have led a number ofcompanies to increase their research and development efforts in the cell therapeutics field, including Janssen through its collaboration withLegend, as well as the entry into the field by many other companies. In addition to these CAR-T cell therapies, many companies are developingenhanced TCR-T cells, which may compete with TC-110 and TC-310 in B-cell hematological malignancies. These include Cellectis S.A./AllogeneTherapeutics, Inc., Mustang Bio, Inc., Autolus Therapeutics plc, Crispr Therapeutics AG, Precision BioSciences, Inc., Unum Therapeutics, Inc.,Eureka Therapeutics, Inc., Triumvira Immunologics, Inc., Poseida Therapeutics, Inc. and Miltenyi Biotec GmbH, among others. Companies suchas F. Hoffmann-La Roche Ltd, Amgen Inc., Regeneron, MorphoSys AG, Forty Seven, Inc., and others are pursuing antibody based approaches.We therefore expect competition within the cell therapy field to intensify and for antibody-based approaches to more directly compete with TCR-Tcell therapies in the future.Government Regulation and Product LicensureGovernment authorities in the United States, at the federal, state, and local level, and in other countries and jurisdictions, including the EU,extensively regulate, among other things, the research, development, testing, manufacture, pricing, quality control, approval, packaging, storage,recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export ofbiopharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, alongwith compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financialresources.Licensure and Regulation of Biologics in the United StatesIn the United States, biological products including gene therapy products, such as our lead product candidates, are licensed for marketing by theFDA under the Public Health Service Act (PHSA), and regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (FDCA), as well asby other federal, state and local statute and regulations. Both the FDCA and the PHSA and their corresponding regulations govern, among otherthings, the testing, manufacturing, safety, potency, labeling, packaging, storage, record keeping, distribution, reporting, advertising, and otherpromotional practices involving biological products. Additionally, each clinical trial protocol for a gene therapy product candidate is reviewed by theFDA and, in limited situations, the National Institutes for Health (NIH) through its Recombinant DNA Advisory Committee (RAC). The FDA mustlicense a biological product before it may be marketed within the United States.Within the FDA, the Center for Biologics Evaluation and Research (CBER) regulates gene therapy products. Within the CBER, the review of genetherapy and related products is consolidated in the Office of Tissues and Advanced Therapies and the FDA has established the Cellular, Tissueand Gene Therapies Advisory Committee to advise the CBER on its reviews. The CBER works closely with the NIH and the RAC, which makesrecommendations to the NIH on gene therapy issues and engages in a public discussion of scientific, safety, ethical and societal issues related toproposed and ongoing gene therapy protocols. To date, the FDA has licensed three human gene therapy products for sale and the agency hasprovided guidance for the development of other gene therapy products. This guidance includes a growing body of guidance documents onchemistry, manufacturing and control (CMC), clinical investigations and other areas of gene therapy development, all of which are intended tofacilitate the industry’s development of gene therapy products and their implementing regulations. Recently, NIH proposed to revise its guidelinesoverseeing gene therapy research, including deleting the protocol registration and reporting requirements for certain therapies and eliminating RACreview and reporting requirements for human gene transfer research.28The failure of an applicant to comply with the applicable regulatory requirements at any time during the product development process, includingnon-clinical testing, clinical testing, the approval process or post-approval process, may result in delays to the conduct of a study, regulatoryreview and approval, and/or administrative or judicial sanctions. These sanctions may include, but are not limited to, the FDA’s refusal to allow anapplicant to proceed with clinical trials, refusal to approve pending applications, license suspension or revocation, withdrawal of an approval,warning letters, adverse publicity, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, andcivil or criminal investigations and penalties brought by the FDA or Department of Justice (DOJ), or other government entities, including stateagencies.An applicant seeking licensing to market and distribute a new biologic in the United States generally must satisfactorily complete each of thefollowing steps before the product candidate will be licensed by the FDA.▪preclinical testing including laboratory tests, animal studies, and formulation studies, which must be performed in accordance with theFDA’s good laboratory practice (GLP) regulations and standards;▪submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;▪approval by an institutional review board (IRB) representing each clinical site before each clinical trial may be initiated;▪performance of adequate and well-controlled human clinical trials to establish the safety, potency, and purity of the product candidate foreach proposed indication, in accordance with current good clinical practices (GCP);▪preparation and submission to the FDA of a BLA for a biological product which includes not only the results of the clinical trials, but alsodetailed information on the chemistry, manufacture, and quality controls for the product candidate and proposed labeling for one or moreproposed indication(s) and the payment of user fees (unless exempt);▪FDA acceptance and substantive review of the BLA;▪review of the product candidate by an FDA advisory committee, where appropriate or if applicable;▪satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which theproduct candidate or components thereof are manufactured to assess compliance with cGMP requirements and to assure that thefacilities, methods, and controls are adequate to preserve the product’s identity, strength, quality, and purity;▪satisfactory completion of any FDA audits of the non-clinical and clinical trial sites to assure compliance with GCP and the integrity ofclinical data in support of the BLA;▪securing FDA licensure of the BLA to allow marketing of the new biological product; and▪compliance with any post-licensing requirements, including the potential requirement to implement a REMS and the potential requirementto conduct and any post-licensing studies required by the FDA.Preclinical Studies and Investigational New Drug ApplicationBefore an applicant begins testing a product candidate with potential therapeutic value in humans, the product candidate enters preclinical testing.Preclinical tests include laboratory evaluations of product chemistry, formulation, and stability, as well as other studies to evaluate, among otherthings, the toxicity of the product candidate. The conduct of the preclinical tests and formulation of the compounds for testing must comply withfederal regulations and requirements, including GLP regulations and standards. The results of the preclinical tests, together with manufacturinginformation and analytical data, are submitted to the FDA a part of an IND. Some long-term preclinical testing, such as animal tests ofreproductive adverse events and carcinogenicity, and long-term toxicity studies, may continue after the IND is submitted. 29The IND and IRB ProcessesAn IND is an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for use in aninvestigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such authorization must besecured prior to interstate shipment and administration of any product candidate that is not the subject of an approved BLA. In support of a requestfor an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA aspart of the IND. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical dataor literature and plans for clinical trials, among other things, must be submitted to the FDA as part of an IND. The FDA requires a 30-day waitingperiod after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determinewhether human research subjects will be exposed to unreasonable health risks. At any time during this 30-day period, or thereafter, the FDA mayraise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, theIND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that trial. A clinical holdis an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinicalhold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is notallowed to proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA willprovide the sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation mayonly resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on informationprovided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical trial is conducted under an IND,all FDA IND requirements must be met unless waived. When a foreign clinical trial is not conducted under an IND, the sponsor must ensure thatthe study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketingapproval or licensing. In particular, such studies must be conducted in accordance with GCP, including review and approval by an independentethics committee (IEC) and informed consent from subjects. The GCP requirements in the final rule encompass both ethical and data integritystandards for clinical studies and the FDA must be able to validate the data through an onsite inspection, if deemed necessary by the FDA. TheFDA’s regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the qualityand integrity of the resulting data. They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required forIND studies.If a gene therapy trial is conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA research, prior to the submission ofan IND to the FDA, a protocol and related documents must be submitted to, and the study registered with, the NIH Office of BiotechnologyActivities (OBA) pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules (the NIH Guidelines). Compliance with theNIH Guidelines is mandatory for investigators at institutions receiving NIH funds for research involving recombinant DNA. However, manycompanies and other institutions, not otherwise subject to the NIH Guidelines, voluntarily follow them. NIH is responsible for convening the RACthat discusses protocols that raise novel or particularly important scientific, safety or ethical considerations at one of its quarterly public meetings.The OBA will notify the FDA of the RAC’s decision regarding the necessity for full public review of a gene therapy protocol. RAC proceedings andreports are posted to the OBA website and may be accessed by the public.30In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve theplan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at leastannually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to studysubjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, oran institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate hasbeen associated with unexpected serious harm to patients.Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safetymonitoring board or committee (DSMB). This group provides authorization as to whether or not a trial may move forward at designated checkpoints based on access that only the group maintains to available data from the study. Suspension or termination of development during anyphase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk. Otherreasons for suspension or termination may be made by us based on evolving business objectives and/or competitive climate.Information about clinical trials must be submitted within specific timeframes to the NIH for public dissemination on its ClinicalTrials.gov website.Additional Regulation for Gene Therapy Clinical TrialsIn addition to the regulations discussed above, there are a number of additional standards that apply to clinical trials involving the use of genetherapy. The FDA has issued various guidance documents regarding gene therapies, which outline additional factors that the FDA will consider ateach of the above stages of development, which relate to, among other things: the proper preclinical assessment of gene therapies; the CMCinformation that should be included in an IND; the proper design of tests to measure product potency in support of an IND or BLA; and measuresto observe delayed adverse effects in subjects who have been exposed to investigational gene therapies when the risk of such effects is high.Further, the FDA usually recommends that sponsors observe subjects for potential gene therapy-related delayed adverse events for a 15-yearperiod, including a minimum of five years of annual examinations followed by ten years of annual queries, either in person or by questionnaire,although the FDA recently proposed updating its guidance on long-term follow-up after administration of human gene therapy products.The NIH and the FDA have a publicly accessible database, the Genetic Modification Clinical Research Information System, which includesinformation on gene therapy trials and serves as an electronic tool to facilitate the reporting and analysis of adverse events on these trials.Human Clinical Trials in Support of a BLAClinical trials involve the administration of the investigational product candidate to human subjects under the supervision of a qualified investigatorin accordance with GCP requirements which include, among other things, the requirement that all research subjects provide their informed consentin writing before their participation in any clinical trial. Clinical trials are conducted under written clinical trial protocols detailing, among other things,the objectives of the study, inclusion and exclusion criteria, the parameters to be used in monitoring safety, and the effectiveness criteria to beevaluated.Human clinical trials are typically conducted in three sequential phases, but the phases may overlap or be combined. Additional studies may alsobe required after licensing.▪Phase 1 clinical trials are initially conducted in a limited population to test the product candidate for safety, including adverse effects,dose tolerance, absorption, metabolism, distribution, excretion, and pharmacodynamics in healthy humans or in patients. During Phase 1clinical31trials, information about the investigational biological product’s pharmacokinetics and pharmacological effects may be obtained to permitthe design of well-controlled and scientifically valid Phase 2 clinical trials.▪Phase 2 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks,evaluate the potency or efficacy of the product candidate for specific targeted indications, and determine dose tolerance and optimaldosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more costlyPhase 3 clinical trials. Phase 2 clinical trials are well controlled, closely monitored and conducted in a limited patient population.▪Phase 3 clinical trials proceed if the Phase 2 clinical trials demonstrate that a dose range of the product candidate is potentially potencyor effective and has an acceptable safety profile. Phase 3 clinical trials are undertaken within an expanded patient population to furtherevaluate dosage, provide substantial evidence of clinical potency or efficacy, and further test for safety in an expanded and diversepatient population at multiple, geographically dispersed clinical trial sites. A well-controlled, statistically robust Phase 3 trial may bedesigned to deliver the data that regulatory authorities will use to decide whether or not to license, and, if licensed, how to appropriatelylabel a biologic. Such Phase 3 studies are referred to as “pivotal.”In some cases, the FDA may approve a BLA for a product candidate but require the sponsor to conduct additional clinical trials to further assessthe product candidate’s safety and effectiveness after approval. Such post-approval trials are typically referred to as Phase 4 clinical trials. Thesestudies are used to gain additional experience from the treatment of a larger number of patients in the intended treatment group and to furtherdocument a clinical benefit in the case of biologics licensed under accelerated approval regulations. Failure to exhibit due diligence with regard toconducting Phase 4 clinical trials could result in withdrawal of approval for products.Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA. In addition, IND safety reports must besubmitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal orin vitro testing that suggest a significant risk in humans exposed to the product; and any clinically important increase in the case of a serioussuspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not becompleted successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at anytime on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB cansuspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted inaccordance with the IRB’s requirements or if the product has been associated with unexpected serious harm to patients. The FDA will typicallyinspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.Clinical trials sometimes require submission of an application for an Investigational Device Exemption, or IDE, to the FDA. The IDE application,when requested, must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device inhumans and that the investigational protocol is scientifically sound. The IDE application must be approved in advance by the FDA, unless theproduct is deemed a non-significant risk device and eligible for more abbreviated IDE requirements. Clinical trials for a significant risk device maybegin once the IDE application is approved by the FDA as well as the appropriate institutional review boards, or IRBs, at the clinical trial sites, andthe informed consent of the patients participating in the clinical trial is obtained.Review and Approval of a BLAIn order to obtain approval to market a biological product in the United States, a marketing application must be submitted to the FDA that providessufficient data establishing the safety, purity and potency of the proposed biological product for its intended indication. The application includes allrelevant data32available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailedinformation relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, includingstudies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish thesafety, purity and potency of the biological product to the satisfaction of the FDA.The BLA is a vehicle through which applicants formally propose that the FDA license a new product for marketing and sale in the United States forone or more indications. Every new biological product candidate must be the subject of an approved BLA before it may be commercialized in theUnited States. Under federal law, the submission of most BLAs is subject to an application user fee, which for federal fiscal year 2019 is$2,588,478 for an application requiring clinical data. The sponsor of an approved BLA is also subject to an annual program fee, which for fiscalyear 2019 is $309,915. Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee forproducts with orphan designation and a waiver for certain small businesses.Following submission of a BLA, the FDA conducts a preliminary review of the application generally within 60 calendar days of its receipt andstrives to inform the sponsor by the 74th day after the FDA’s receipt of the submission whether the application is sufficiently complete to permitsubstantive review. The FDA may request additional information rather than accept the application for filing. In this event, the application must beresubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once thesubmission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in thereview process of the BLAs. Under that agreement, 90% of original BLA submissions are meant to be reviewed within ten months of the 60-dayfiling date, and 90% of original BLAs that have been designated for “priority review” are meant to be reviewed within six months of the 60-day filingdate. The review process and the Prescription Drug User Fee Act goal date may be extended by the FDA for three additional months to considernew information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the originalsubmission.Before approving an application, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections may cover all facilities associated with a BLA submission, including component manufacturing, finished productmanufacturing and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes andfacilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond theprofessional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA willconsider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration oftreatment, seriousness of known or potential adverse events and whether the product is a new molecular entity.The FDA may refer an application for a novel product to an advisory committee or explain why such referral was not made. Typically, an advisorycommittee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides arecommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations ofan advisory committee, but it considers such recommendations carefully when making decisions.33Fast Track, Breakthrough Therapy, Priority Review and Regenerative Advanced Therapy DesignationsThe FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatmentof a serious or life-threatening disease or condition. These programs are referred to as Fast Track designation, Breakthrough Therapy designation,Priority Review designation and Regenerative Advanced Therapy designation.Specifically, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more otherproducts, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needsfor such a disease or condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may initiate review ofsections of a Fast Track product’s application before the application is complete. This rolling review may be available if the FDA determines, afterpreliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective. The sponsor must also provide, andthe FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, theFDA’s time period goal for reviewing a fast track application does not begin until the last section of the application is submitted. In addition, theFast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in theclinical trial process.Second, a product may be designated as a Breakthrough Therapy if it is intended, either alone or in combination with one or more other products,to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantialimprovement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinicaldevelopment. The FDA may take certain actions with respect to Breakthrough Therapies, including holding meetings with the sponsor throughoutthe development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in thereview process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficientmanner.Third, the FDA may designate a product for priority review if it is a product that treats a serious condition and, if licensed, would provide asignificant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed product represents asignificant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increasedeffectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documentedenhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a newsubpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten theFDA’s goal for taking action on a marketing application from ten months to six months.With passage of the 21st Century Cures Act (the Cures Act), in December 2016, Congress authorized the FDA to accelerate review and approvalof products designated as regenerative advanced therapies. A product is eligible for this designation if it is a regenerative medicine therapy that isintended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that theproduct has the potential to address unmet medical needs for such disease or condition. The benefits of a regenerative advanced therapydesignation include early interactions with FDA to expedite development and review, benefits available to breakthrough therapies, potentialeligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.Accelerated Approval PathwayThe FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic advantage topatients over existing treatments based upon a34determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grantaccelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than aneffect on irreversible morbidity or mortality (IMM) and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking intoaccount the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Products granted acceleratedapproval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign,or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often bemeasured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that isconsidered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with acceleratedapprovals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where thetherapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding thatthe therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a product.The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time isrequired to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly.Thus, accelerated approval has been used extensively in the development and approval of products for treatment of a variety of cancers in whichthe goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy andsometimes large trials to demonstrate a clinical or survival benefit. Thus, the benefit of accelerated approval derives from the potential to receiveapproval based on surrogate endpoints sooner than possible for trials with clinical or survival endpoints, rather than deriving from any explicitshortening of the FDA approval timeline, as is the case with priority review.The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approvalconfirmatory studies to verify and describe the product’s clinical benefit. As a result, a product candidate licensed on this basis is subject torigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on theclinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDAto initiate expedited proceedings to withdraw approval of the product. All promotional materials for product candidates licensed under acceleratedregulations are subject to prior review by the FDA.The FDA’s Decision on a BLAOn the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of the manufacturingfacilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the productwith specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission andmay require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies havebeen addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed toreviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additionalinformation, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for licensing.If the FDA licenses a new product, it may limit the licensed indications for use of the product. The agency may also require testing andsurveillance programs to monitor the product after commercialization, or35impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, to help ensure that thebenefits of the product outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, andelements to assure safe use (ETASU). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing,dispensing only under certain circumstances, special monitoring and the use of patent registries. The FDA may prevent or limit further marketingof a product based on the results of post-market studies or surveillance programs. After licensing, many types of changes to the licensed product,such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA reviewand approval.Post-Licensing RegulationIf regulatory licensing for marketing of a product or new indication for an existing product is obtained, the sponsor will be required to comply with allregular post-licensing regulatory requirements as well as any post-licensing requirements that the FDA may have imposed as part of the licensingprocess. The sponsor will be required to report, among other things, certain adverse reactions and manufacturing problems to the FDA, provideupdated safety and potency or efficacy information and comply with requirements concerning advertising and promotional labeling requirements.Manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and aresubject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, includingcGMP regulations, which impose certain procedural and documentation requirements upon manufacturers. Changes to the manufacturingprocesses are strictly regulated and often require prior FDA approval before being implemented. Accordingly, the sponsor and its third-partymanufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGMPregulations and other regulatory requirements.A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the productbefore it is released for distribution. If the product is subject to official release, the manufacturer must submit samples of each lot, together with arelease protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot,to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally,the FDA will conduct laboratory research related to the safety, purity, potency, and effectiveness of pharmaceutical products.Once a license is granted, the FDA may withdraw the license if compliance with regulatory requirements is not maintained or if problems occurafter the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipatedseverity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the licensedlabeling to add new safety information; imposition of post-market studies or clinical trials to assess safety risks; or imposition of distribution orother restrictions under a REMS program. Other potential consequences include, among other things:▪restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market, or product recalls;▪fines, warning letters, or holds on post-licensing clinical trials;▪refusal of the FDA to approve pending applications or supplements to licensed applications, or suspension or revocation of productlicense licenses;▪product seizure or detention, or refusal to permit the import or export of products; or▪injunctions or the imposition of civil or criminal penalties.The FDA strictly regulates the marketing, labeling, advertising and promotion of prescription drug products placed on the market. This regulationincludes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored36scientific and educational activities, and promotional activities involving the Internet and social media. Promotional claims about a drug’s safety oreffectiveness are prohibited before the drug is licensed. After licensing, a drug product generally may not be promoted for uses that are notlicensed by the FDA, as reflected in the product’s prescribing information. In the United States, health care professionals are generally permitted toprescribe drugs for such uses not described in the drug’s labeling, known as off-label uses, because the FDA does not regulate the practice ofmedicine. However, FDA regulations impose rigorous restrictions on manufacturers’ communications, prohibiting the promotion of off-label uses. Itmay be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communicationregarding off-label information, such as distributing scientific or medical journal information.If a company is found to have promoted off-label uses, it may become subject to adverse public relations and administrative and judicialenforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services(HHS), as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact,including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products. Thefederal government has levied large civil and criminal fines against companies for alleged improper promotion, and has also requested thatcompanies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (PDMA) and its implementingregulations, as well as the Drug Supply Chain Security Act (DSCA), which regulate the distribution and tracing of prescription drug samples at thefederal level, and set minimum standards for the regulation of distributors by the states. The PDMA, its implementing regulations and state lawslimit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distributionand to identify and remove counterfeit and other illegitimate products from the market.Pediatric Studies and ExclusivityUnder the Pediatric Research Equity Act, a BLA or supplement thereto for a biological product with a new active ingredient, indication, dosageform, dosing regimen or route of administration must contain data that are adequate to assess the safety and effectiveness of the product for theclaimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which theproduct is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outlineof the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requestsand other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the informationsubmitted, consult with each other and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.For products intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of an applicant, meet to discusspreparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early in thedevelopment process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-Phase 1meeting for serious or life-threatening diseases and by no later than ninety (90) days after FDA’s receipt of the study plan.The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after licensingof the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating todeferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric datarequirements do not apply to products with orphan designation.37The FDA Reauthorization Act of 2017 established new requirements to govern certain molecularly targeted cancer indications. Any company thatsubmits a BLA three years after the date of enactment of that statute must submit pediatric assessments with the BLA if the biologic is intendedfor the treatment of an adult cancer and is directed at a molecular target that FDA determines to be substantially relevant to the growth orprogression of a pediatric cancer. The investigation must be designed to yield clinically meaningful pediatric study data regarding the dosing,safety and preliminary potency to inform pediatric labeling for the product. Deferrals and waivers as described above are also available.Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of anadditional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity.This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for suchdata. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairlyrespond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by theFDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended bysix months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot license anotherapplication.Orphan Drug Designations and ExclusivityUnder the Orphan Drug Act, the FDA may designate a biological product as an “orphan drug” if it is intended to treat a rare disease or condition,generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectationthat the cost of developing and making a product available in the United States for treatment of disease or condition will be recovered from salesof the product. A company must seek orphan drug designation before submitting a BLA for the candidate product. If the request is granted, theFDA will disclose the identity of the therapeutic agent and its potential use. Orphan drug designation does not shorten the PDUFA goal dates forthe regulatory review and licensing process, although it does convey certain advantages such as tax benefits and exemption from the PDUFAapplication fee.If a product with orphan designation receives the first FDA approval for the disease or condition for which it has such designation or for a selectindication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug exclusivity. Orphandrug exclusivity means that the FDA may not license another sponsor’s marketing application for the same drug for the same condition for sevenyears, except in certain limited circumstances. Orphan exclusivity does not block the licensing of a different product for the same rare disease orcondition, nor does it block the licensing of the same product for different conditions. If a biologic designated as an orphan drug ultimately receivesmarketing licensing for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity.Orphan drug exclusivity will not bar licensing of another product under certain circumstances, including if a subsequent product with the samebiologic for the same condition is shown to be clinically superior to the licensed product on the basis of greater potency, purity or safety, orproviding a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. This is the casedespite an earlier court opinion holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan exclusivity regardless of ashowing of clinical superiority.Biosimilars and ExclusivityThe 2010 Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010, included a subtitle called the Biologics PriceCompetition and Innovation Act of 2009 (BPCIA). The BPCIA established a regulatory scheme authorizing the FDA to license biosimilars andinterchangeable38biosimilars. The FDA has licensed several biosimilar products for use in the United States. As of September 30, 2018, however, nointerchangeable biosimilars, however, have been licensed. The FDA has issued several guidance documents outlining an approach to review andlicensing of biosimilars. Additional guidances are expected to be proposed and finalized by the FDA in the near term.Under the BPCIA, a manufacturer may submit an application for licensure of a biological product that is “biosimilar to” or “interchangeable with” apreviously licensed biological product or “reference product.” In order for the FDA to license a biosimilar product, it must find, among other things,that the product is “highly similar” to the reference product notwithstanding minor differences in clinically inactive components and that there are noclinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity, and potency. For theFDA to license a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can be expectedto produce the same clinical results as the reference product, and, for products administered multiple times, that the biologic and the referencebiologic may be switched after one has been previously administered without increasing safety risks or risks of diminished potency relative toexclusive use of the reference biologic.Under the BPCIA, an application for a biosimilar or interchangeable biological product may not be submitted to the FDA until four years followingthe date of licensing of the reference product. The FDA may not license a biosimilar or interchangeable biological product until 12 years from thedate on which the reference product was licensed. Even if a product is considered to be a reference product eligible for exclusivity, anothercompany could market a competing version of that product if the FDA licenses a full BLA for such product containing the sponsor’s own preclinicaldata and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of their product. The BPCIA alsocreated certain exclusivity periods for biosimilars licensed as interchangeable products. At this juncture, it is unclear whether products deemed“interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.Patent Term Restoration and ExtensionA patent claiming a new biological product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits apatent restoration of up to five years for patent term lost during product development and FDA regulatory review. The restoration period granted ona patent covering a product is typically one-half the time between the effective date of an IND and the submission date of a marketing application(such as a BLA), plus the time between the submission date of a marketing application and the ultimate licensing date. Patent term restorationcannot be used to extend the remaining term of a patent past a total of 14 years from the product’s licensing date. Only one patent applicable to alicensed product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent inquestion and within 60 days after approval of the relevant marketing application. A patent that covers multiple products for which licensing issought can only be extended in connection with one of the licenses. The USPTO reviews and licenses the application for any patent termextension or restoration in consultation with the FDA.The 21st Century Cures ActOn December 13, 2016, President Obama signed the Cures Act into law. The Cures Act is designed to modernize and personalize healthcare, spurinnovation and research, and streamline the discovery and development of new therapies through increased federal funding of particular programs.It authorizes increased funding for the FDA to spend on innovation projects. The new law also amends the PHSA to reauthorize and expandfunding for the NIH. The Cures Act establishes the NIH Innovation Fund to pay for the cost of development and implementation of a strategic plan,early stage investigators and research. It also charges NIH with leading and coordinating expanded pediatric research. Further, the Cures Actdirects the Centers for Disease Control and Prevention to expand surveillance of neurological diseases.39With amendments to the FDCA and the PHSA, Title III of the Cures Act seeks to accelerate the discovery, development, and delivery of newmedicines and medical technologies. To that end, and among other provisions, the Cures Act reauthorizes the existing priority review voucherprogram for certain drugs intended to treat rare pediatric diseases until 2020; creates a new priority review voucher program for drug applicationsdetermined to be material national security threat medical countermeasure applications; revises the FDCA to streamline review of combinationproduct applications; requires FDA to evaluate the potential use of “real world evidence” to help support approval of new indications for approveddrugs; provides a new “limited population” approval pathway for antibiotic and antifungal drugs intended to treat serious or life-threateninginfections; and authorizes FDA to designate a drug as a “regenerative advanced therapy,” thereby making it eligible for certain expedited reviewand approval designations.Healthcare Law and RegulationHealth care providers and third-party payors play a primary role in the recommendation and prescription of biological products that are grantedmarketing licensing. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud andabuse, anti-kickback, false claims laws, patient privacy laws and regulations and other health care laws and regulations that may constrainbusiness and/or financial arrangements. Restrictions under applicable federal and state health care laws and regulations, include the following:▪the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting,offering, paying, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of anindividual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part,under a federal health care program such as Medicare and Medicaid;▪the federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibitindividuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims forpayment that are false, fictitious or fraudulent or knowingly making, using or causing to made or used a false record or statement toavoid, decrease or conceal an obligation to pay money to the federal government.▪the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created additional federal criminal laws thatprohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefitprogram or making false statements relating to health care matters;▪HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementingregulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractualterms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;▪the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or makingany materially false statement in connection with the delivery of or payment for health care benefits, items or services;▪the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the 2010 Patient Protection andAffordable Care Act, as amended by the Health Care Education Reconciliation Act (the ACA), which requires certain manufacturers ofdrugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services (CMS) within theHHS, information related to payments and other transfers of value made by that entity to physicians and teaching hospitals, as well asownership and investment interests held by physicians and their immediate family members; and▪analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to health careitems or services that are reimbursed by non-government third-party payors, including private insurers.40Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevantcompliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments tophysicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of healthinformation in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thuscomplicating compliance efforts.Pharmaceutical Insurance Coverage and Health Care ReformIn the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing theprescribed services generally rely on third-party payors to reimburse all or part of the associated health care costs. Significant uncertainty existsas to the coverage and reimbursement status of products licensed by the FDA and other government authorities. Thus, even if a product candidateis licensed, sales of the product will depend, in part, on the extent to which third-party payors, including government health programs in the UnitedStates such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage and establish adequatereimbursement levels for, the product. The process for determining whether a payor will provide coverage for a product may be separate from theprocess for setting the price or reimbursement rate that the payor will pay for the product once coverage is licensed. Third-party payors areincreasingly challenging the prices charged, examining the medical necessity and reviewing the cost-effectiveness of medical products andservices and imposing controls to manage costs. Third-party payors may limit coverage to specific products on a licensed list, also known as aformulary, which might not include all of the licensed products for a particular indication.In order to secure coverage and reimbursement for any product that might be licensed for sale, a company may need to conduct expensivepharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs requiredto obtain FDA or other comparable marketing licenses. Nonetheless, product candidates may not be considered medically necessary or costeffective. A decision by a third-party payor not to cover a product could reduce physician utilization once the product is licensed and have amaterial adverse effect on sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a productdoes not imply that an adequate reimbursement rate will be licensed. Further, one payor’s determination to provide coverage for a product does notassure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differsignificantly from payor to payor.The containment of health care costs also has become a priority of federal, state and foreign governments and the prices of products have been afocus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictionson reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoptionof more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale ofany licensed products. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage andreimbursement status is attained for one or more products for which a company or its collaborators receive marketing licenses, less favorablecoverage policies and reimbursement rates may be implemented in the future.There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceuticalproducts, limiting coverage and reimbursement for drugs and biologics and other medical products, government control and other changes to thehealth care system in the United States. In March 2010, the Affordable Care Act was enacted, which includes measures that have significantlychanged health care financing by both governmental and private insurers. The41provisions of the Affordable Care Act of importance to the pharmaceutical and biotechnology industry are, among others, the following:▪an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drug agents or biologic agents,which is apportioned among these entities according to their market share in certain government health care programs;▪an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the averagemanufacturer price for branded and generic drugs, respectively;▪a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts tonegotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’soutpatient drugs to be covered under Medicare Part D;▪extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managedcare organizations, unless the drug is subject to discounts under the 340B drug discount program;▪a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that areinhaled, infused, instilled, implanted or injected;▪expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additionalindividuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal povertylevel, thereby potentially increasing manufacturers’ Medicaid rebate liability;▪expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;▪new requirements under the federal Physician Payments Sunshine Act for drug manufacturers to report information related to paymentsand other transfers of value made to physicians and teaching hospitals as well as ownership or investment interests held by physiciansand their immediate family members;▪a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectivenessresearch, along with funding for such research;▪creation of the Independent Payment Advisory Board, which, if and when impaneled, will have authority to recommend certain changesto the Medicare program that could result in reduced payments for prescription drugs; and▪establishment of a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lowerMedicare and Medicaid spending, potentially including prescription drug spending.Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011,which, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and willstay in effect through 2024 unless additional Congressional action is taken, and the American Taxpayer Relief Act of 2012, which, among otherthings, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recoveroverpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare fundingand otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory licensing or the frequency withwhich any such product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries and proposed stateand federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing andmanufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drugproducts.These healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions inMedicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on theprice for any42licensed product and/or the level of reimbursement physicians receive for administering any licensed product. Reductions in reimbursement levelsmay negatively impact the prices or the frequency with which products are prescribed or administered. Any reduction in reimbursement fromMedicare or other government programs may result in a similar reduction in payments from private payors.Further, since enactment of the Affordable Care Act, there have been numerous legal challenges and Congressional actions to repeal and replaceprovisions of the law. In May 2017, the U.S. House of Representatives passed legislation known as the American Health Care Act of 2017.Thereafter, the Senate Republicans introduced and then updated a bill to replace the Affordable Care Act known as the Better Care ReconciliationAct of 2017. The Senate Republicans also introduced legislation to repeal the Affordable Care Act without companion legislation to replace it, anda “skinny” version of the Better Care Reconciliation Act of 2017. In addition, the Senate considered proposed healthcare reform legislation knownas the Graham-Cassidy Bill. None of these measures were passed by the U.S. Senate.The Trump Administration has also taken executive actions to undermine or delay implementation of the Affordable Care Act. In January 2017,President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive,defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatoryburden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In October 2017, thePresident signed a second Executive Order allowing for the use of association health plans and short-term health insurance, which may providefewer health benefits than the plans sold through the Affordable Care Act exchanges. At the same time, the Administration announced that it willdiscontinue the payment of cost-sharing reduction (CSR) payments to insurance companies until Congress approves the appropriation of funds forsuch CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans underthe Affordable Care Act. A bipartisan bill to appropriate funds for CSR payments was introduced in the Senate, but the future of that bill isuncertain. Further, in July 2018 following a federal district court decision form New Mexico, the Administration announced that it would be freezingpayments to insurers under the Affordable Care Act to cover sicker patients until it or Congress can address the appropriate methodology forcalculating and making such payments. It remains to be seen how this action will affect the implementation of the Affordable Care Act.More recently, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by the President on December 22, 2017, Congressrepealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, willbecome effective in 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewerAmericans to be insured in 2027 and premiums in insurance markets may rise. Additionally, on January 22, 2018, President Trump signed acontinuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees,including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insuranceproviders based on market share, and the medical device excise tax on non-exempt medical devices. The Congress will likely consider otherlegislation to replace elements of the Affordable Care Act, during the next Congressional session.Further, there have been several recent U.S. congressional inquiries and proposed federal and proposed and enacted state legislation designed to,among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reducethe costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, Congressand the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to controlpharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain productaccess and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countriesand bulk43purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine whatpharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures couldreduce the ultimate demand for our product candidates, once licensed, or put pressure on our product pricing.In addition, on May 11, 2018, the Administration issued a plan to lower drug prices. Under this blueprint for action, the Administration indicated thatHHS will: take steps to end the gaming of regulatory and patent processes by drug makers to unfairly protect monopolies; advance biosimilars andgenerics to boost price competition; evaluate the inclusion of prices in drug makers’ ads to enhance price competition; speed access to and lowerthe cost of new drugs by clarifying policies for sharing information between insurers and drug makers; avoid excessive pricing by relying more onvalue-based pricing by expanding outcome-based payments in Medicare and Medicaid; work to give Part D plan sponsors more negotiation powerwith drug makers; examine which Medicare Part B drugs could be negotiated for a lower price by Part D plans, and improving the design of thePart B Competitive Acquisition Program; update Medicare’s drug-pricing dashboard to increase transparency; prohibit Part D contracts that include“gag rules” that prevent pharmacists from informing patients when they could pay less out-of-pocket by not using insurance; and require that PartD plan members be provided with an annual statement of plan payments, out-of-pocket spending, and drug price increases.At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to controlpharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain productaccess and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countriesand bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determinewhat pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures couldreduce the ultimate demand for our product candidates, once licensed, or put pressure on our product pricing.Review and Approval of Medicinal Products in the EUIn order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements ofother countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization,commercial sales and distribution of products. Whether or not it obtains FDA licensing for a product, an applicant will need to obtain the necessaryapprovals by the comparable non-U.S. regulatory authorities before it can commence clinical trials or marketing of the product in those countries orjurisdictions. Specifically, the process governing approval of medicinal products in the EU generally follows the same lines as in the United States.It entails satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of theproduct for each proposed indication. It also requires the submission to the relevant competent authorities of a marketing authorization application(MAA), and granting of a marketing authorization by these authorities before the product can be marketed and sold in the EU.Clinical Trial ApprovalThe Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP and the related national implementing provisions of the individual EUMember States govern the system for the approval of clinical trials in the EU. Under this system, an applicant must obtain prior approval from thecompetent national authority of the EU Member States in which the clinical trial is to be conducted. Furthermore, the applicant may only start aclinical trial at a specific study site after the competent ethics committee has issued a favorable opinion. The clinical trial application must beaccompanied by, among other documents, an investigational medicinal product dossier (the Common Technical Document) with supportinginformation44prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual EU MemberStates and further detailed in applicable guidance documents.In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted. The Regulation was published onJune 16, 2014 but is not expected to apply until 2019. The Clinical Trials Regulation will be directly applicable in all the EU Member States,repealing the current Clinical Trials Directive 2001/20/EC and replacing any national legislation that was put in place to implement the Directive.Conduct of all clinical trials performed in the EU will continue to be bound by currently applicable provisions until the new Clinical Trials Regulationbecomes applicable. The extent to which on-going clinical trials will be governed by the Clinical Trials Regulation will depend on when the ClinicalTrials Regulation becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than three years fromthe day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that time begin to apply to the clinical trial.The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the EU. The main characteristics of theregulation include: a streamlined application procedure via a single entry point, the “EU Portal and Database”; a single set of documents to beprepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for theassessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the appointed reporting Member State, whoseassessment report is submitted for review by the sponsor and all other competent authorities of all EU Member States in which an application forauthorization of a clinical trial has been submitted (Concerned Member States). Part II is assessed separately by each Concerned Member State.Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in theassessment procedure will continue to be governed by the national law of the Concerned Member State. However, overall related timelines will bedefined by the Clinical Trials Regulation.PRIME Designation in the EUIn March 2016, the European Medicines Agency (EMA), launched an initiative to facilitate development of product candidates in indications, oftenrare, for which few or no therapies currently exist. The PRIority Medicines (PRIME), scheme is intended to encourage drug development in areasof unmet medical need and provides accelerated assessment of products representing substantial innovation reviewed under the centralizedprocedure. Products from small- and medium-sized enterprises may qualify for earlier entry into the PRIME scheme than larger companies. Manybenefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialoguewith the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorizationapplication assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur from the Committee forHuman Medicinal Products (CHMP) or Committee for Advanced Therapies are appointed early in PRIME scheme facilitating increasedunderstanding of the product at EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinaryexperts at the EMA to provide guidance on the overall development and regulatory strategies.Marketing AuthorizationTo obtain a marketing authorization for a product under EU regulatory systems, an applicant must submit an MAA, either under a centralizedprocedure administered by the EMA or one of the procedures administered by competent authorities in EU Member States (decentralizedprocedure, national procedure, or mutual recognition procedure). A marketing authorization may be granted only to an applicant established in theEU. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the EU, applicants must demonstrate compliancewith all measures included in an EMA-approved Pediatric Investigation Plan (PIP) covering all subsets of the pediatric population,45unless the EMA has granted a product-specific waiver, class waiver, or a deferral for one or more of the measures included in the PIP.The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid across the EuropeanEconomic Area. Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific products, including for medicinesproduced by certain biotechnological processes, products designated as orphan medicinal products, ATMPs and products with a new activesubstance indicated for the treatment of certain diseases, including products for the treatment of cancer. For products with a new active substanceindicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients,the centralized procedure may be optional. The centralized procedure may at the request of the applicant also be used in certain other cases. Weanticipate that the centralized procedure will be mandatory for the product candidates we are developing.Under the centralized procedure, the CHMP is also responsible for several post-authorization and maintenance activities, such as the assessmentof modifications or extensions to an existing marketing authorization. Under the centralized procedure in the EU, the maximum timeframe for theevaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by theapplicant in response to questions of the CHMP. Accelerated evaluation may be granted by the CHMP in exceptional cases, when a medicinalproduct is of major interest from the point of view of public health and, in particular, from the viewpoint of therapeutic innovation. If the CHMPaccepts such a request, the time limit of 210 days will be reduced to 150 days, but it is possible that the CHMP may revert to the standard timelimit for the centralized procedure if it determines that it is no longer appropriate to conduct an accelerated assessment. At the end of this period,the CHMP provides a scientific opinion on whether or not a marketing authorization should be granted in relation to a medicinal product. Within15 calendar days of receipt of a final opinion from the CHMP, the European Commission must prepare a draft decision concerning an applicationfor marketing authorization. This draft decision must take the opinion and any relevant provisions of EU law into account. Before arriving at a finaldecision on an application for centralized authorization of a medicinal product the European Commission must consult the Standing Committee onMedicinal Products for Human Use. The Standing Committee is composed of representatives of the EU Member States and chaired by a non-voting European Commission representative. The European Parliament also has a related “droit de regard”. The European Parliament’s role is toensure that the European Commission has not exceeded its powers in deciding to grant or refuse to grant a marketing authorization.The European Commission may grant a so-called “marketing authorization under exceptional circumstances”. Such authorization is intended forproducts for which the applicant can demonstrate that it is unable to provide comprehensive data on the efficacy and safety under normalconditions of use, because the indications for which the product in question is intended are encountered so rarely that the applicant cannotreasonably be expected to provide comprehensive evidence, or in the present state of scientific knowledge, comprehensive information cannot beprovided, or it would be contrary to generally accepted principles of medical ethics to collect such information. Consequently, marketingauthorization under exceptional circumstances may be granted subject to certain specific obligations, which may include the following:▪the applicant must complete an identified program of studies within a time period specified by the competent authority, the results ofwhich form the basis of a reassessment of the benefit/risk profile;▪the medicinal product in question may be supplied on medical prescription only and may in certain cases be administered only understrict medical supervision, possibly in a hospital and in the case of a radiopharmaceutical, by an authorized person; and▪the package leaflet and any medical information must draw the attention of the medical practitioner to the fact that the particularsavailable concerning the medicinal product in question are as yet inadequate in certain specified respects. 46A marketing authorization under exceptional circumstances is subject to annual review to reassess the risk-benefit balance in an annualreassessment procedure. Continuation of the authorization is linked to the annual reassessment and a negative assessment could potentiallyresult in the marketing authorization being suspended or revoked. The renewal of a marketing authorization of a medicinal product underexceptional circumstances, however, follows the same rules as a “normal” marketing authorization. Thus, a marketing authorization underexceptional circumstances is granted for an initial five years, after which the authorization will become valid indefinitely, unless the EMA decidesthat safety grounds merit one additional five-year renewal.The European Commission may also grant a so-called “conditional marketing authorization” prior to obtaining the comprehensive clinical datarequired for an application for a full marketing authorization. Such conditional marketing authorizations may be granted for product candidates(including medicines designated as orphan medicinal products), if (i) the risk-benefit balance of the product candidate is positive, (ii) it is likely thatthe applicant will be in a position to provide the required comprehensive clinical trial data, (iii) the product fulfills an unmet medical need and(iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in thefact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketingauthorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection ofpharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balanceremains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for thecentralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.The EU medicines rules expressly permit the EU Member States to adopt national legislation prohibiting or restricting the sale, supply or use ofany medicinal product containing, consisting of or derived from a specific type of human or animal cell, such as embryonic stem cells. While theproduct candidates we have in development do not make use of embryonic stem cells, it is possible that the national laws in certain EU MemberStates may prohibit or restrict us from commercializing our product candidates, even if they have been granted an EU marketing authorization.Unlike the centralized authorization procedure, the decentralized marketing authorization procedure requires a separate application to, and leads toseparate approval by, the competent authorities of each EU Member State in which the product is to be marketed. This application is identical tothe application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU Member State preparesa draft assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report issubmitted to the concerned EU Member States who, within 90 days of receipt, must decide whether to approve the assessment report and relatedmaterials. If a concerned EU Member State cannot approve the assessment report and related materials due to concerns relating to a potentialserious risk to public health, disputed elements may be referred to the European Commission, whose decision is binding on all EU Member States.The mutual recognition procedure similarly is based on the acceptance by the competent authorities of the EU Member States of the marketingauthorization of a medicinal product by the competent authorities of other EU Member States. The holder of a national marketing authorization maysubmit an application to the competent authority of an EU Member State requesting that this authority recognize the marketing authorizationdelivered by the competent authority of another EU Member State.Regulatory Data Protection in the EUIn the EU, innovative medicinal products approved on the basis of a complete independent data package qualify for eight years of data exclusivityupon marketing authorization and an additional two years of market exclusivity pursuant to Directive 2001/83/EC. Regulation (EC) No 726/2004repeats the47entitlement for medicinal products authorized in accordance with the centralized authorization procedure. Data exclusivity prevents applicants forauthorization of generics of these innovative products from referencing the innovator’s data to assess a generic (abridged) application for a periodof eight years. During the additional two-year period of market exclusivity, a generic marketing authorization application can be submitted andauthorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the EU market until the expiration ofthe market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, themarketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior totheir authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be anew chemical entity so that the innovator gains the prescribed period of data exclusivity, another company may market another version of theproduct if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests,non-clinical tests and clinical trials.Periods of Authorization and RenewalsA marketing authorization has an initial validity for five years in principle. The marketing authorization may be renewed after five years on the basisof a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the EU Member State. To this end, the marketingauthorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety, andefficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorizationceases to be valid.The European Commission or the competent authorities of the EU Member States may decide, on justified grounds relating to pharmacovigilance,to proceed with one further five-year period of marketing authorization. Once subsequently definitively renewed, the marketing authorization shallbe valid for an unlimited period. Any authorization which is not followed by the actual placing of the medicinal product on the EU market (in case ofcentralized procedure) or on the market of the authorizing EU Member State within three years after authorization ceases to be valid (the so-calledsunset clause).Orphan Drug Designation and ExclusivityRegulation (EC) No. 141/2000, as implemented by Regulation (EC) No. 847/2000 provides that a drug can be designated as an orphan drug by theEuropean Commission if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life-threatening orchronically debilitating condition affecting not more than five in ten thousand persons in the EU when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives it is unlikely that the marketing of the drugin the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate thatthere exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if suchmethod exists, the drug will be of significant benefit to those affected by that condition.Once authorized, orphan medicinal products are entitled to 10 years of market exclusivity in all EU Member States and in addition a range of otherbenefits during the development and regulatory review process including scientific assistance for study protocols, authorization through thecentralized marketing authorization procedure covering all member countries and a reduction or elimination of registration and marketingauthorization fees. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the 10-year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the originalorphan medicinal product is unable to supply sufficient quantities. Marketing authorization may also be granted to a similar medicinal product withthe same orphan indication if this product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. Theperiod of market exclusivity may, in addition, be reduced to six years if it can be demonstrated on the basis of available evidence that48the original orphan medicinal product is sufficiently profitable not to justify maintenance of market exclusivity. Regulatory Requirements after a Marketing Authorization has been ObtainedIn case an authorization for a medicinal product in the EU is obtained, the holder of the marketing authorization is required to comply with a rangeof requirements applicable to the manufacturing, marketing, promotion, and sale of the products. These include:Regulatory Requirements after a Marketing Authorization has been ObtainedIn case an authorization for a medicinal product in the EU is obtained, the holder of the marketing authorization is required to comply with a rangeof requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products. These include:▪Compliance with the European Union’s stringent pharmacovigilance or safety reporting rules must be ensured. These rules can imposepost-authorization studies and additional monitoring obligations.▪The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be conductedin strict compliance with the applicable EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC,Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements includecompliance with EU cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including themanufacture of active pharmaceutical ingredients outside of the EU with the intention to import the active pharmaceutical ingredients intothe EU.▪The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directedtoward the prescribers of drugs and/or the general public, are strictly regulated in the EU notably under Directive 2001/83EC, asamended, and EU Member State laws. Direct-to-consumer advertising of prescription medicines is prohibited across the EU.Brexit and the Regulatory Framework in the United KingdomOn June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the EU (commonly referred to as “Brexit”). Thereafter, onMarch 29, 2017, the country formally notified the EU of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. The withdrawal of theUnited Kingdom from the EU will take effect either on the effective date of the withdrawal agreement or, in the absence of agreement, two yearsafter the United Kingdom provides a notice of withdrawal pursuant to the EU Treaty. Since the regulatory framework for pharmaceutical products inthe United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales anddistribution of pharmaceutical products is derived from EU directives and regulations, Brexit could materially impact the future regulatory regimewhich applies to products and the approval of product candidates in the United Kingdom. It remains to be seen how, if at all, Brexit will impactregulatory requirements for product candidates and products in the United Kingdom. There is a risk of disrupted import and export processes dueto a lack of administrative processing capacity by the respective United Kingdom and EU customs agencies that may delay time-sensitiveshipments required for our GMP manufacturing operations at Catapult's facility.Pricing Decisions for Approved ProductsIn the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed onlyafter a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a49particular product candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement orpricing approval. For example, the EU provides options for its Member States to restrict the range of products for which their national healthinsurance systems provide reimbursement and to control the prices of medicinal products for human use. Member States may approve a specificprice for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on themarket. Other Member States allow companies to fix their own prices for products, but monitor and control prescription volumes and issueguidance to physicians to limit prescriptions. Recently, many countries in the EU have increased the amount of discounts required onpharmaceuticals and these efforts could continue as countries attempt to manage health care expenditures, especially in light of the severe fiscaland debt crises experienced by many countries in the EU. The downward pressure on health care costs in general, particularly prescriptionproducts, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic andregulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has beenobtained. Reference pricing used by various Member States, and parallel trade, or arbitrage, between low-priced and high-priced Member States,can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceuticalproducts will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries.EmployeesAs of March 15, 2019, we had 47 full-time employees and one part-time employee. Twenty two of our employees have Ph.D. or M.D. degrees and38 of our employees are engaged in research and development activities.Our Corporate InformationWe were incorporated under the laws of the State of Delaware on May 29, 2015 under the name TCR2, Inc. In November 2016, we changed ourname to TCR2 Therapeutics Inc. Our principal executive offices are located at 100 Binney Street, Suite 710, Cambridge, MA 02142, and ourtelephone number is (617) 949-5200. Our website address is www.tcr2.com. Our website and the information contained on, or that can beaccessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form10-K.In February 2019, we completed our initial public offering ("IPO") pursuant to which we issued and sold 5,750,000 shares of common stock at apublic offering price of $15.00 per share, resulting in net proceeds of $80.2 million, after deducting underwriting discounts and commissions andother offering expenses. Upon the closing of the IPO, our outstanding redeemable convertible preferred stock automatically converted into sharesof common stock.See Part II-Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the consolidatedfinancial statements included in Part II-Item 8 for more information about the above-mentioned transactions.We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growthcompany until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO, (b) in which we havetotal annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value ofour common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on which we have issued morethan $1.0 billion in non-convertible debt during the prior three-year period.Available Information50Our Internet address is www.tcr2.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d)of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available through the "Investors" portion of our website free ofcharge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information on our website is notpart of this Annual Report on Form 10-K or any of our other securities filings unless specifically incorporated herein by reference. In addition, ourfilings with the SEC may be accessed through the SEC’s Interactive Data Electronic Applications system at www.sec.gov. All statements made inany of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which thestatement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are requiredto do so by law.Our code of conduct, corporate governance guidelines and the charters of our Audit Committee, Compensation Committee and Nominating andCorporate Governance Committee are available through our website at www.tcr2.com.51Item 1A. Risk FactorsCareful consideration should be given to the following risk factors, in addition to the other information set forth in this Annual Report on Form 10‑Kand in other documents that we file with the Securities and Exchange Commission, or SEC, in evaluating the Company and our business.Investing in our common stock involves a high degree of risk. If any of the following risks and uncertainties actually occurs, our business,prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not intended tobe exhaustive and are not the only risks facing the Company. Additional risks and uncertainties not presently known to us or that we currentlydeem immaterial also may impact our business, prospects, financial condition and results of operations.Risks Related to Our Financial Condition and Capital RequirementsOur limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our futureviability.We are a clinical-stage immunotherapy company with a limited operating history. We commenced operations in May 2015, and our operations todate have been limited to organizing and staffing our company, business planning, raising capital, conducting discovery and research activities,filing patent applications, identifying potential product candidates, undertaking preclinical studies and establishing arrangements with third partiesfor the manufacture of initial quantities of our product candidates and component materials. Most of our product candidates are still in preclinicaldevelopment. We have not yet demonstrated our ability to successfully initiate, conduct or complete any clinical trials, obtain marketing approvals,manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activitiesnecessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be asaccurate as they could be if we had a longer operating history.In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknownfactors. We will need to transition at some point from a company with a research and development focus to a company capable of supportingcommercial activities. We may not be successful in such a transition.We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to avariety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods asindications of future operating performance.We have incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able toachieve or sustain revenues or profitability in the future.Investment in biopharmaceutical product development is a highly speculative undertaking and entails substantial upfront capital expenditures andsignificant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approvaland become commercially viable. We are still in the early stages of development of our product candidates. We have no products licensed forcommercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and developmentand other expenses related to our ongoing operations. We have financed our operations primarily through private placements of our preferred stockand our initial public offering.52We have incurred significant net losses in each period since our inception in May 2015. For the year ended December 31, 2018, we incurred a netloss of $24.3 million. As of December 31, 2018, we had an accumulated deficit of $85.6 million. We expect to continue to incur significant lossesfor the foreseeable future, and we expect these losses to increase substantially if and as we:•continue our research and development efforts and submit investigational new drug applications (INDs) for our lead product candidates;•conduct preclinical studies and clinical trials for our current and future product candidates based on our TRuC-T cell platform;•establish manufacturing capabilities for both clinical and commercial supplies of our product candidates;•seek marketing approvals for any product candidates that successfully complete clinical trials;•build commercial infrastructure to support sales and marketing for our product candidates;•expand, maintain and protect our intellectual property portfolio;•hire additional clinical, regulatory and scientific personnel; and•operate as a public company.Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict thetiming or amount of increased expenses we will incur or when, if ever, we will be able to achieve profitability. Even if we succeed incommercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures todevelop, seek regulatory approval for, and market additional product candidates. We may encounter unforeseen expenses, difficulties,complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, onthe rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and willcontinue to have an adverse effect on our stockholders’ equity and working capital.We have not generated any revenue from our product candidates and may never be profitable.Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from any of our productcandidates. We do not expect to generate significant revenue unless or until we successfully complete clinical development and obtain regulatoryapproval of, and then successfully commercialize, at least one of our product candidates. Other than TC-210, all of our product candidates are inthe preclinical stages of development and will require additional preclinical studies, clinical development, regulatory review and approval,substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate anyrevenue from product sales. TC-210, our most advanced mono TRuC-T cell product candidate targeting mesothelin-positive solid tumors, is in theearly stages of clinical development and has not yet been evaluated in clinical trials and will require additional regulatory review and approval,substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate anyrevenue from product sales. TC-110, our mono TRuC-T cell product candidate targeting CD19-positive B-cell hematological malignancies, and TC-220 have yet to complete IND-enabling studies. Our other TRuC-T cell product candidates are in early preclinical stages. We have not yetadministered any of our product candidates in humans and, as such, we face significant translational risk as our product candidates advance tothe clinical stage. Our ability to generate revenue depends on a number of factors, including, but not limited to:•timely completion of our preclinical studies and clinical trials, which may be significantly slower or cost more than we currently anticipateand will depend substantially upon the performance of third-party contractors;•our ability to complete IND-enabling studies and successfully submit INDs or comparable applications;•whether we are required by the U.S. Food and Drug Administration (FDA) or similar foreign regulatory authorities to conduct additionalclinical trials or other studies beyond those planned53to support the approval and commercialization of our product candidates or any future product candidates;•our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, potency, purity andacceptable risk to benefit profile of our product candidates or any future product candidates;•the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or futureproduct candidates, if any;•the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;•the willingness of physicians, operators of clinics and patients to utilize or adopt any of product candidates or future product candidatesto treat solid tumors and hematological malignancies;•our ability and the ability of third parties with whom we contract to manufacture adequate clinical and commercial supplies of our productcandidates or any future product candidates, remain in good standing with regulatory authorities and develop, validate and maintaincommercially viable manufacturing processes that are compliant with current good manufacturing practices (cGMP);•our ability to successfully develop a commercial strategy and thereafter commercialize our product candidates or any future productcandidates in the United States and internationally, if licensed for marketing, reimbursement, sale and distribution in such countries andterritories, whether alone or in collaboration with others;•patient demand for our product candidates and any future product candidates, if licensed; and•our ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates.Many of the factors listed above are beyond our control, and could cause us to experience significant delays or prevent us from obtainingregulatory approvals or commercialize our product candidates. Even if we are able to commercialize our product candidates, we may not achieveprofitability soon after generating product sales, if ever. If we are unable to generate sufficient revenue through the sale of our product candidatesor any future product candidates, we may be unable to continue operations without continued funding.If we fail to obtain additional financing, we may be unable to continue our research and product development programs.Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts (including thenet proceeds from our initial public offering, or IPO) to continue the clinical development of our product candidates, including our Phase 1/2 clinicaltrial of TC-210 and ongoing and planned IND-enabling studies for our other product candidates. If licensed, we will require significant additionalamounts in order to launch and commercialize our product candidates.We had cash, cash equivalents and short-term investments of approximately $123.2 million as of December 31, 2018. In February , we completedour initial public offering (IPO) raising approximately $80.2 million, inclusive of the exercise of the underwriters' overallotment option. Our existingcash, cash equivalents and short-term investments may not be sufficient to fund all of our efforts that we plan to undertake.We believe that our existing cash, cash equivalents and short-term investments, will be sufficient to fund our operations at least into 2022.However, we have based this estimate on assumptions that may prove to be wrong. Additionally, changing circumstances may cause us toconsume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because ofcircumstances beyond our control. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficientamounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue our research and54development initiatives. We could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirableor on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our productcandidates in markets where we otherwise would seek to pursue development or commercialization ourselves.Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of ourcommon stock to decline.Risks Related to the Development of Our Product CandidatesOur approach to the discovery and development of product candidates based on our TRuC-T cell platform represents a novel approachto cancer treatment, which creates significant challenges for us.Our future success depends on the successful development of our product candidates, which target solid tumors and hematologic malignanciesusing the complete T cell receptor (TCR) complex without the need for human leukocyte antigen (HLA) matching. Advancing our productcandidates based on our innovative TRuC-T cell platform creates significant challenges for us, including:•educating medical personnel about the administration of TRuC-T cell therapies on a stand-alone basis or in combination with built-inimmune and tumor modulators;•educating medical personnel regarding the potential side effect profile of our product candidates, such as the potential adverse sideeffects related to cytokine release syndrome (CRS), neurotoxicity or autoimmune or rheumatologic disorders;•administering chemotherapy to patients in advance of administering our product candidates, which may increase the risk of adverse sideeffects;•sourcing clinical and, if licensed, commercial, supplies for the materials used to manufacture and process our product candidates;•manufacturing viral vectors to deliver TRuC constructs to T cells;•developing a robust and reliable TRuC-T cell manufacturing process as well as a complete shipment lifecycle and supply chain, includingefficiently managing shipment of patient cells from and to clinical sites, minimizing potential contamination to the cell product andeffectively scaling manufacturing capacity to meet demand;•managing costs of inputs and other supplies while scaling production;•using medicines to manage adverse side effects of our product candidates, which may not adequately control the side effects and/ormay have a detrimental impact on the potency of the treatment;•obtaining and maintaining regulatory approval from the FDA for our product candidates; and•establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of a novel therapy.In developing our product candidates, we have not exhaustively explored different options in the design of the TRuC construct and in the methodfor manufacturing TRuC-T cells. We may find our existing TRuC-T cells and manufacturing process may be substantially improved with futuredesign or process changes, necessitating development of new or additional TRuC constructs and further clinical testing and delaying commerciallaunch of our first products. For example:•We have made several TRuC constructs and used preclinical studies to select product candidates to advance into clinical trials. Thepreclinical studies are limited in their ability to predict behavior in patients. As we gain experience working with TRuC constructs, we maydecide to select other TRuC constructs for clinical development.•We have used a lentiviral vector to deliver the TRuC construct to T cells. In the future, we may find that another viral vector or non-viraltransfer process offers advantages. Switching from55lentiviral to another delivery system would necessitate additional process development and clinical testing and delay the development ofexisting product candidates.•The process by which patient cells are converted into a TRuC-T cell has many steps that can influence quality and activity. We haveexplored a subset of variables and expect to continue to improve and optimize the manufacturing process. Depending upon the nature ofthe process changes, we may be compelled to perform bridging studies and/or to re-start clinical development, causing delays in time tomarket and potentially introducing a risk of failure if new processes do not perform as expected.We are very early in our development efforts. Most of our product candidates are still in preclinical development. If we are unable toadvance our product candidates through clinical development, obtain regulatory approval and ultimately commercialize our productcandidates, or experience significant delays in doing so, our business will be materially harmed.We are very early in our development efforts. Most of our product candidates are still in preclinical development, and TC-210, our most advancedproduct candidate, is still in the early stages of clinical development. Our ability to generate product revenues, which we do not expect will occurfor many years, if ever, will depend heavily on the successful development and eventual commercialization of one or more of our productcandidates. The success of our product candidates will depend on several factors, including the following:•successful completion of preclinical studies;•successful initiation of clinical trials;•successful patient enrollment in and completion of clinical trials;•receipt and related terms of marketing approvals and licensures from applicable regulatory authorities;•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;•making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial suppliesof our product candidates;•establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved,whether alone or in collaboration with others;•acceptance of our products, if and when approved, by patients, the medical community and third-party payors;•effectively competing with other cancer therapies;•obtaining and maintaining third-party coverage and adequate reimbursement;•maintaining a continued acceptable safety profile of our products following licensure; and•effectively competing with other therapies.If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or be unable to successfullycommercialize our product candidates, which would materially harm our business.We have no experience as a company in conducting clinical trials.We have no experience as a company in conducting clinical trials. In part because of this lack of experience, we cannot be certain that ourongoing preclinical studies will be completed on time or if the planned preclinical studies and clinical trials will begin or be completed on time, if atall. Large-scale clinical trials would require significant additional financial and management resources and reliance on third-party clinicalinvestigators, contract research organizations (CROs) and consultants. Relying on third-party clinical investigators, CROs and consultants mayforce us to encounter delays that are outside of our control.56Our business is highly dependent on our lead product candidates, TC-210 and TC-110, and we must complete IND-enabling studies andclinical testing before we can seek regulatory approval and begin commercialization of any of our product candidates.There is no guarantee that any of our product candidates will proceed in preclinical or clinical development or achieve regulatory approval. Theprocess for obtaining marketing approval for any product candidate is very long and risky and there will be significant challenges for us to addressin order to obtain marketing approval as planned or, if at all.There is no guarantee that the results obtained in current preclinical studies or our Phase 1/2 clinical trial of TC-210 or TC-110 will be sufficient toobtain regulatory approval or marketing authorization for such product candidates. Negative results in the development of our lead productcandidates may also impact our ability to obtain regulatory approval for our other product candidates, either at all or within anticipated timeframesbecause, although other product candidates may target different indications, the underlying technology platform, manufacturing process anddevelopment process is the same for all of our product candidates. Accordingly, a failure in any one program may affect the ability to obtainregulatory approval to continue or conduct clinical programs for other product candidates.In addition, because we have limited financial and personnel resources and are placing significant focus on the development of our lead productcandidates, we may forgo or delay pursuit of opportunities with other future product candidates that later prove to have greater commercialpotential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Ourspending on current and future research and development programs and other future product candidates for specific indications may not yield anycommercially viable future product candidates. If we do not accurately evaluate the commercial potential or target market for a particular futureproduct candidate, we may relinquish valuable rights to those future product candidates through collaboration, licensing or other royaltyarrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to suchfuture product candidates.Our preclinical studies and clinical trials may fail to demonstrate adequately the safety, potency and purity of any of our productcandidates, which would prevent or delay development, regulatory approval and commercialization.Before obtaining regulatory approvals for the commercial sale of our product candidates, including TC-210 and TC-110, we must demonstratethrough lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use ineach target indication. Preclinical and clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain.Failure can occur at any time during the preclinical study and clinical trial processes, and, because our product candidates are in an early stage ofdevelopment, there is a high risk of failure and we may never succeed in developing marketable products. The results of preclinical studies andearly clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. There is typically an extremely highrate of attrition from the failure of product candidates proceeding through preclinical studies and clinical trials. Product candidates in later stages ofclinical trials may fail to show the desired safety, potency and purity profile despite having progressed through preclinical studies and initial clinicaltrials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack ofpotency or efficacy, insufficient durability of potency or efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials.Most product candidates that commence preclinical studies and clinical trials are never approved as products.Any preclinical studies or clinical trials that we may conduct may not demonstrate the safety, potency and purity necessary to obtain regulatoryapproval to market our product candidates. If the results of our ongoing or future preclinical studies and clinical trials are inconclusive with respectto the safety, potency57and purity of our product candidates, if we do not meet the clinical endpoints with statistical and clinically meaningful significance, or if there aresafety concerns associated with our product candidates, we may be prevented or delayed in obtaining marketing approval for such productcandidates. In some instances, there can be significant variability in safety, potency or purity results between different preclinical studies andclinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in thesize and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trialparticipants. Additionally, our preclinical studies comparing our product candidates to chimeric antigen receptor T (CAR-T) cells utilized CAR-Tcells that we engineered, rather than the CAR-T cell therapies that are currently approved by the FDA. Although we believe, based on the resultswe observed in these preclinical studies, that our product candidates have the potential to improve upon the safety and efficacy of currentlyapproved CAR-T cell therapies, these results may not be predictive of the outcome of our future preclinical studies and clinical trials, including anypotential preclinical studies and clinical trials that may compare our product candidates to FDA-approved CAR-T cells.Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials maynot be predictive of future clinical trial results. If our preclinical studies and clinical trials are not sufficient to support regulatoryapproval of any of our product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable tocomplete, the development of such product candidate.We cannot be certain that our preclinical study and clinical trial results will be sufficient to support regulatory approval of our product candidates.Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Human clinical trials are expensiveand difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Failure or delay can occur at any timeduring the clinical trial process.We may experience delays in obtaining the FDA’s authorization to initiate clinical trials under future INDs, completing ongoing preclinical studies ofour other product candidates, and initiating our planned preclinical studies and clinical trials. Additionally, we cannot be certain that preclinicalstudies or clinical trials for our product candidates will begin on time, not require redesign, enroll an adequate number of subjects on time, or becompleted on schedule, if at all. Clinical trials can be delayed or terminated for a variety of reasons, including delays or failures related to:•the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials;•delays in obtaining regulatory approval to commence a clinical trial;•reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensivenegotiation and may vary significantly among different CROs and clinical trial sites;•obtaining institutional review board (IRB) approval at each clinical trial site;•recruiting an adequate number of suitable patients to participate in a clinical trial;•having subjects complete a clinical trial or return for post-treatment follow-up;•clinical trial sites deviating from clinical trial protocol or dropping out of a clinical trial;•addressing subject safety concerns that arise during the course of a clinical trial;•adding a sufficient number of clinical trial sites; or•obtaining sufficient product supply of product candidate for use in preclinical studies or clinical trials from third-party suppliers.For example, in February 2019, we received a request from the FDA’s Center for Devices and Radiological Health (CDRH) for the submission of aninvestigational device exemption (IDE) application regarding our use of a commercially available in vitro diagnostic assay for screening mesothelinexpression in tumors. The CDRH subsequently determined that we did not need to submit an IDE application, but such a requirement, or otherunexpected FDA requests, could lead to future delays of our58clinical trials. We may experience numerous adverse or unforeseen events during, or as a result of, preclinical studies and clinical trials that coulddelay or prevent our ability to receive marketing approval or commercialize our product candidates, including:•we may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials;•clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us,to conduct additional clinical trials or abandon our research efforts for our other product candidates;•the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinicaltrials may be slower than we anticipate or participants may drop out of our clinical trials at a higher rate than we anticipate;•our third-party contractors may fail to comply with regulatory requirements, fail to maintain adequate quality controls or be unable toprovide us with sufficient product supply to conduct and complete preclinical studies or clinical trials of our product candidates in atimely manner, or at all;•we or our investigators might have to suspend or terminate clinical trials of our product candidates for various reasons, including non-compliance with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpectedcharacteristics or a finding that the participants are being exposed to unacceptable health risks;•the cost of clinical trials of our product candidates may be greater than we anticipate;•the quality of our product candidates or other materials necessary to conduct preclinical studies or clinical trials of our productcandidates may be insufficient or inadequate;•regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate; and•future collaborators may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if weare unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive orare only moderately positive or if there are safety concerns, our business and results of operations may be adversely affected and we may incursignificant additional costs. In addition, costs to treat patients with relapsed or refractory cancer and to treat potential side effects that may resultfrom our product candidates can be significant. Accordingly, our clinical trial costs are likely to be significantly higher than those for moreconventional therapeutic technologies or drug product candidates.We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such clinical trials arebeing conducted, by the Data Safety Monitoring Board (DSMB) for such clinical trial or by the FDA or other regulatory authorities. Such authoritiesmay suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatoryrequirements or our clinical trial protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting inthe imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from the product candidates,changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.If we experience delays in the completion, or termination, of any preclinical study or clinical trial of our product candidates, the commercialprospects of our product candidates may be harmed, and our ability to generate revenues from any of these product candidates will be delayed ornot realized at all. In addition, any delays in completing our preclinical studies or clinical trials may increase our costs, slow down our productcandidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of theseoccurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delayin the59commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. If one ormore of our product candidates generally prove to be ineffective, unsafe or commercially unviable, our entire pipeline and TRuC-T cell platformwould have little, if any, value, which would have a material and adverse effect on our business, financial condition, results of operations andprospects.We may rely on third parties to manufacture our clinical product supplies, and we may rely on third parties to produce and process ourproduct candidates, if licensed.We do not currently own any facility that may be used as our clinical scale manufacturing and processing facility and expect to rely on outsidevendors to manufacture supplies and process our product candidates. We have not yet caused any product candidates to be manufactured orprocessed on a commercial scale and may not be able to do so for any of our product candidates. We plan to make changes as we work tooptimize the manufacturing process. For example, we may switch or be required to switch from research-grade materials to commercial-gradematerials in order to get regulatory approval of our product candidates. We cannot be sure that even minor changes in the process will result intherapies that are safe and effective and licensed for commercial sale.The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or other foreign regulatoryauthorities following inspections that will be conducted after we submit an application to the FDA or other foreign regulatory authorities. We maynot control the manufacturing process of, and may be completely dependent on, our contract manufacturing partners for compliance with cGMPsand any other regulatory requirements of the FDA or other regulatory authorities for the manufacture of our product candidates. We have no controlover the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or acomparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws anyapproval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtainregulatory approval for or market our product candidates, if licensed.We cannot guarantee that our product candidates will show any functionality in the solid tumor microenvironment.There are no approved CAR-T or engineered TCR-T cell immunotherapies for solid tumors. We believe our TruC-T cell product candidates will beeffective against solid tumors. While we plan to develop product candidates for use in solid tumors, including TC-210, we cannot guarantee thatour product candidates will show any functionality in the solid tumor microenvironment. The cellular environment in which solid tumor cells thrive isgenerally hostile to T cells due to factors such as the presence of immunosuppressive cells, humoral factors and limited access to nutrients. OurTRuC-T cell-based product candidates may not be able to access the solid tumor, and even if they do, they may not be able to exert anti-tumoreffects in a hostile tumor microenvironment. In addition, the safety profile of our product candidates may differ in a solid tumor setting. As a result,our product candidates may not demonstrate potency in solid tumors. If we are unable to make our product candidates function in solid tumors, ourdevelopment plans and business may be significantly harmed.Since the number of patients that we plan to dose in our Phase 1/2 clinical trial of TC-210 is small, the results from such clinical trial,once completed, may be less reliable than results achieved in larger clinical trials, which may hinder our efforts to obtain regulatoryapproval for our product candidates.In our Phase 1/2 clinical trial of TC-210, we plan to evaluate the safety profile of TC-210 and establish the recommended Phase 2 dose inapproximately 50 patients with non-small cell lung cancer (NSCLC), ovarian cancer, malignant pleural/peritoneal mesothelioma andcholangiocarcinoma. The preliminary results of clinical trials with smaller sample sizes, such as our Phase 1/2 clinical trial of TC-210, can be60disproportionately influenced by various biases associated with the conduct of small clinical trials, such as the potential failure of the smallersample size to accurately depict the features of the broader patient population, which limits the ability to generalize the results across a broadercommunity, thus making the clinical trial results less reliable than clinical trials with a larger number of patients. As a result, there may be lesscertainty that such product candidates would achieve a statistically significant effect in any future clinical trials. If we conduct any future clinicaltrials of TC-210, we may not achieve a statistically significant result or the same level of statistical significance, if any, that we might haveanticipated based on the results observed in our initial Phase 1/2 clinical trial.We may not be able to file INDs or IND amendments to commence additional clinical trials on the timelines we expect, and even if we areable to, the FDA may not permit us to proceed.We expect to submit an IND for TC-110 in the second half of 2019 and for TC-220 in the first half of 2020. However, we may not be able to filesuch INDs on the timelines we expect. For example, we may experience manufacturing delays or other delays with IND-enabling studies. In July2018, for example, a power failure that occurred during a manufacturing run to produce virus for our Phase 1/2 clinical trial of TC-210 caused us toabandon that manufacturing run and resulted in a month-long delay in the process of manufacturing the requisite virus to support our IND filing forTC-210 and consequently a delay in the IND filing itself. Moreover, we cannot be sure that submission of an IND will result in the FDA allowingfurther clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate clinical trials. Additionally, even if such regulatoryauthorities agree with the design and implementation of the clinical trials set forth in an IND, we cannot guarantee that such regulatory authoritieswill not change their requirements in the future. These considerations also apply to new clinical trials we may submit as amendments to existingINDs.Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, preventtheir regulatory approval, require expansion of the trial size, limit their commercial potential, or result in significant negativeconsequences.Undesirable side effects caused by our product candidates could cause us or regulatory authorities, including IRBs, to interrupt, delay, or haltclinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreignregulatory authorities. Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of subjectsand limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger numberof patients exposed to the drug. Because of our planned dose escalation design for our clinical trials, undesirable side effects could also result inan expansion in the size of our clinical trials, increasing the expected costs and timeline of our clinical trials. Additionally, results of our clinicaltrials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics, which may stem from ourtherapies specifically or may be due to an illness from which the clinical trial subject is suffering.Autoimmunity may occur after TRuC-T cell treatment. TRuC-T cells are generated from a patient’s own T cells isolated from their peripheral blood.There is a theoretical risk that this process will expand a patient’s own T cell that has autoreactivity, or that may recognize healthy cells, and uponre-infusion may trigger an autoimmune reaction resulting in damage to normal tissues and potentially even death.Autoimmune reaction triggered by an interaction between a patient’s naturally occurring antibodies and engineered T cells is a theoretical safetyrisk of product candidates we develop using our TRuC-T cell platform. If a patient’s self-generated antibodies were directed to a target expressedon the surface of cells in normal tissue (autoantibodies), engineered T cells would be directed to attack these same tissues, potentially resulting inoff-tumor effects. These autoantibodies may be present whether or not the patient has an active autoimmune disease. In our clinical testing, weplan to take steps to minimize the likelihood that this occurs, for example by excluding patients with a history of severe autoimmune disease fromour61trials. There is no guarantee, however, that we will not observe autoimmune reactions in the future and no guarantee that if we do, that we will beable to implement interventions to address the risk.Immunogenicity, which is the reaction between a patient’s immune system and a foreign protein outside of the autoimmune context, is anadditional theoretical safety risk of product candidates we develop using our TRuC-T cell platform. Patients’ immune systems may recognize theTRuC construct on the TRuC-T cell as a foreign protein and fight against it, potentially rendering it ineffective, or even provoking anallergic/anaphylactoid response or other adverse side effects. The immunogenic potential of novel therapeutics like TRuC-T cells is difficult topredict. There is no guarantee that we will not observe immunogenic reactions in the future and no guarantee that if we do, that we will be able toimplement interventions to address the risk.If unacceptable toxicities arise in the development of our product candidates, we could suspend or terminate our clinical trials or the FDA orcomparable foreign regulatory authorities, or local regulatory authorities such as IRBs, could order us to cease clinical trials. Competent nationalhealth authorities, such as the FDA, could also deny approval of our product candidates for any or all targeted indications. Treatment-related sideeffects could also affect patient recruitment or the ability of enrolled patients to complete the clinical trial or result in potential product liabilityclaims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from Tcell therapy are not normally encountered in the general patient population and by medical personnel. We expect to have to train medical personnelusing our product candidates to understand the side effect profile of our product candidates for both our planned clinical trials and upon anycommercialization of any product candidates, if licensed. Inadequate training in recognizing or managing the potential side effects of our productcandidates could result in patient deaths. Any of these occurrences may significantly harm our business, financial condition and prospects.Our product candidates may target healthy cells expressing target antigens leading to potentially fatal adverse effects.Our product candidates target specific antigens that are also expressed on healthy cells. For example, our lead product candidate, TC-210, targetsmesothelin, an antigen commonly found on mesotheliomas, ovarian cancers, and NSCLC, as well in healthy cells that line the pleura, pericardiumand peritoneum. TC-110 targets CD19, which is overexpressed in several cancers including B-cell leukemias and lymphomas, but is alsoexpressed by normal B-cells. Our product candidates may target healthy cells, leading to serious and potentially fatal adverse effects. In ourPhase 1/2 clinical trial of TC-210, we plan to use a dose escalation model to closely monitor the effect of TC-210 on vital organs and otherpotential side effects. In clinical testing of TC-110, we also plan to closely monitor the effect of TC-110 on normal B-cells that express CD19 andfor other side effects. Even though we intend to closely monitor the side effects of our product candidates in both preclinical studies and clinicaltrials, we cannot guarantee that products will not target and kill healthy cells.Our product candidates may have serious and potentially fatal cross-reactivity to other peptides or protein sequences within the body.Our product candidates may recognize and bind to a peptide unrelated to the target antigen to which it is designed to bind. If this peptide isexpressed within normal tissues, our product candidates may target and kill the normal tissue in a patient, leading to serious and potentially fataladverse effects. Detection of any cross-reactivity may halt or delay any ongoing clinical trials for any TRuC-T cell based product candidate andprevent or delay regulatory approval. Unknown cross-reactivity of the TRuC-T cell binding domain to related proteins could also occur. We havealso developed a preclinical screening process to identify cross-reactivity of the TRuC-T cell binders. Any cross-reactivity that impacts patientsafety could materially impact our ability to advance our product candidates into clinical trials or to proceed to marketing approval andcommercialization.62The viral vectors used to manufacture our TRuC-T cells may incorrectly modify the genetic material of a patient’s T cells, potentiallytriggering the development of a new cancer or other adverse events.Our TRuC-T cells are manufactured by using a viral vector to insert genetic information encoding the TRuC construct into the patient’s T cells. TheTRuC construct is then integrated into the natural TCR complex and transported to the surface of the patient’s T cells. Because the viral vectormodifies the genetic information of the T cell, there is a theoretical risk that modification will occur in the wrong place in the T cell’s genetic code,leading to vector-related insertional oncogenesis, and causing the T cell to become cancerous. If the cancerous T cell is then administered to thepatient with the TRuC-T cells, the cancerous T cell could trigger the development of a new cancer in the patient. We use lentiviral vectors to insertgenetic information into T cells, which we believe have a lower risk of insertional oncogenesis as opposed to other types of viral vectors. However,the risk of insertional oncogenesis remains a concern for gene therapy and we cannot assure that it will not occur in any of our ongoing or plannedpreclinical studies or clinical trials. There is also the potential risk of delayed adverse events following exposure to gene therapy products due topersistent biological activity of the genetic material or other components of vectors used to carry the genetic material. The FDA has stated thatlentiviral vectors possess characteristics that may pose high risks of delayed adverse events. If any such adverse events occur, furtheradvancement of our preclinical studies or clinical trials could be halted or delayed, which would have a material adverse effect on our business andoperations. If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwiseadversely affected.We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials inaccordance with their protocols depends on, among other things, our ability to enroll a sufficient number of patients who remain in the clinical trialuntil its conclusion. The enrollment of patients depends on many factors, including:•the patient eligibility criteria defined in the clinical trial protocol;•the size of the patient population required for analysis of the clinical trial’s primary endpoints;•the proximity of patients to clinical trial sites;•the design of the clinical trial;•our ability to recruit clinical trial investigators with the appropriate competencies and experience;•our ability to obtain and maintain patient consents;•reporting of the preliminary results of any of our clinical trials; and•the risk that patients enrolled in clinical trials will drop out of the clinical trials before the manufacturing and infusion of our productcandidates or clinical trial completion.In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our productcandidates, and this competition will reduce the number and types of patients available to us because some patients who might have opted toenroll in our clinical trials may instead opt to enroll in a clinical trial being conducted by one of our competitors. Since the number of qualifiedclinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use,which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover, because our productcandidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined touse conventional therapies, such as chemotherapy and hematopoietic stem cell transplantation, rather than enroll patients in any future clinicaltrial. Additionally, because some of our clinical trials are in patients with relapsed/refractory cancer, the patients are typically in the late stages oftheir disease and may experience disease progression independent from our product candidates, making them unevaluable for purposes of theclinical trial and requiring additional patient enrollment.63Delays in completing patient enrollment may result in increased costs or may affect the timing or outcome of our ongoing and planned clinicaltrials, which could prevent completion or commencement of these clinical trials and adversely affect our ability to advance the development of ourproduct candidates.Manufacturing and administering our product candidates is complex and we may encounter difficulties in production, particularly withrespect to process development or scaling up of our manufacturing capabilities. If we encounter such difficulties, our ability to providesupply of our TRuC-T cells for clinical trials or for commercial purposes could be delayed or stopped.The process of manufacturing and administering our product candidates is complex and highly regulated. The manufacture of our productcandidates involves complex processes, including the manufacture of a lentiviral delivery vector containing the genetic information for our TRuCconstruct and manufacturing T cells containing the TRuC construct for the final product candidates. More specifically, the manufacture of ourproduct candidates includes harvesting white blood cells from the patient, isolating certain T cells from the white blood cells, combining patientT cells with our lentiviral delivery vector through a process known as transduction, expanding the transduced T cells to obtain the desired dose,and ultimately infusing the modified T cells back into the patient’s body. As a result of the complexities entailed in this process, our manufacturingand supply costs are likely to be higher than those at more traditional manufacturing processes and the manufacturing process is less reliable andmore difficult to reproduce. Additionally, the number of facilities that are capable of harvesting patients’ cells for the manufacture of our productcandidates and other autologous cell therapy products and product candidates is limited. As the number of autologous cell therapy products andproduct candidates increases, the limited number of facilities capable of harvesting patients’ cells could result in delays in the manufacture andadministration of our product candidates.We rely on third parties for the manufacture of our lentiviral vectors and our product candidates. These third-party manufacturers may incorporatetheir own proprietary processes into our lentiviral vector and product candidate manufacturing processes. We have limited control and oversight ofa third party’s proprietary process, and a third party may elect to modify its process without our consent or knowledge. These modifications couldnegatively impact our manufacturing, including product loss or failure that requires additional manufacturing runs or a change in manufacturer, bothof which could significantly increase the cost of and significantly delay the manufacture of our product candidates.Our manufacturing process is and will be susceptible to product loss or failure due to logistical issues, including manufacturing issues associatedwith the differences in patients’ white blood cells, interruptions in the manufacturing process, contamination, equipment or reagent failure, powerfailures, supplier error and variability in patient characteristics. For example, in July 2018, a power failure that occurred during a manufacturing runto produce virus for our Phase 1/2 clinical trial of TC-210 caused us to abandon that run, and resulted in a month-long delay in the process ofmanufacturing the requisite virus to support our IND filing for TC-210 and consequently a delay in the IND filing itself. Even minor deviations fromnormal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If for any reason we losea patient’s white blood cells, or such material gets contaminated or processing steps fail at any point, the manufacturing process of the TRuC-Tcells for that patient will need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral or othercontaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made oradministered, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.As our product candidates progress through preclinical studies and clinical trials towards licensure and commercialization, it is expected thatvarious aspects of the manufacturing and administration process will be altered in an effort to optimize processes and results. We have alreadyidentified some improvements to our manufacturing and administration processes, but these changes may not achieve the intended objectives,and could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials. Inaddition, such changes may require64amendments to be made to regulatory applications which may further delay the timeframes under which modified manufacturing processes can beused for any of our product candidates.Developing a commercially viable process is a difficult and uncertain task, and there are risks associated with scaling to the level required foradvanced clinical trials or commercialization, including, among others, increased costs, potential problems with process scale-out, processreproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials. In addition, changes to our manufacturingprocess may also require further review and approval by the FDA, leading to delays in our clinical trials. Competitors have had difficulty reliablyproducing T-cell therapies in the commercial setting. If we experience similar challenges manufacturing product candidates to approvedspecifications, this may limit our product candidates’ utilization and our ability to receive payment for these product candidates once approved. Wemay ultimately be unable to reduce the expenses associated with our product candidates to levels that will allow us to achieve a profitable returnon investment.We do not have our own clinical-scale manufacturing facility and are currently reliant on a limited number of manufacturers for our lentiviral vectorand a single manufacturer to provide our needs for producing our TRuC-T cell product candidates. We are in the process of adding manufacturingcapacity to support larger clinical trials for our product candidates and have contracted with Cell Therapy Catapult Limited (Catapult) to occupy asuite in their GMP manufacturing center in Stevenage, United Kingdom, which we expect to be operational in the second half of 2019. We plan topursue additional manufacturing capacity in the United States and in Europe to meet our future demands and may build our own manufacturingcapabilities to meet the patient demand for our product candidates. These third-party manufacturing providers may not be able to provide adequateresources or capacity to meet our needs.We plan to establish our own manufacturing facility and infrastructure in addition to or in lieu of relying on third parties for themanufacture of our product candidates and the use of third-party manufacturing suites, which will be costly, time-consuming, and whichmay not be successful.We are in the process of adding manufacturing capacity within Catapult’s GMP manufacturing center for our larger clinical trials and we mayestablish our own commercial manufacturing facility to mitigate our reliance on third-party vendors and ensure we can manage the supply chain,change control and reduction of costs and other benefits. The establishment of our own commercial manufacturing facility would be a costly andtime-consuming process that we expect to require additional capital to fund and take several years before becoming operational.We have no experience as a company in setting up, building or managing a manufacturing facility or manufacturing suite, and may never besuccessful in developing our own manufacturing suite, manufacturing facility or manufacturing capability. We will need to hire additional personnelto manage our operations and facilities and develop the necessary infrastructure to continue the research and development, and eventualcommercialization, if approved, of our product candidates. If we fail to recruit the required personnel and generally manage our growth effectively orfail to select the correct location, the development and production of our product candidates could be curtailed or delayed. Even if we aresuccessful in establishing a manufacturing suite or manufacturing facility, our manufacturing capabilities could be affected by cost-overruns,unexpected delays, equipment failures, labor shortages, natural disasters, power failures and numerous other factors that could prevent us fromrealizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.In addition, the FDA, the European Medicines Agency (EMA) and other foreign regulatory authorities may require us to submit samples of any lotof any licensed product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, theEMA or other foreign regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release. Slight deviationsin the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product thatcould result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which65could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Problems in our manufacturingprocess could restrict our ability to meet market demand for our products.We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to operate ourmanufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatoryrequirements.Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including largerpharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs.We may have difficulty validating our manufacturing process as we manufacture TRuC-T cells from an increasingly diverse patientpopulation for our clinical trials.During our development of the manufacturing process, our TRuC-T cells have demonstrated consistency from lot to lot and from donor to donor.However, our sample size is small and the starting material is from healthy donors. Once we have experience with working with white blood cellstaken from our patient population, we may encounter unforeseen difficulties due to starting with material from donors who are not healthy, includingchallenges inherent in harvesting white blood cells from unhealthy patients.Although we believe our current manufacturing process is scalable for commercialization, we may encounter challenges in validating our processdue to the heterogeneity of the product starting material. However, we anticipate that during the early phases of our clinical trials we will be able toadapt our process to account for these differences resulting in a more robust process. We cannot guarantee that any other issues relating to theheterogeneity of the starting material will not impact our ability to commercially manufacturing our product candidates.The market opportunities for our product candidates may be relatively small as it will be limited to those patients who are ineligible foror have failed prior treatments and our estimates of the prevalence of our target patient populations may be inaccurate.Cancer therapies are sometimes characterized as first line, second line, or third line, and the FDA often approves new therapies initially only for aparticular line of use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without acure. Whenever first line therapy, usually chemotherapy, antibody drugs, tumor-targeted small molecules, hormone therapy, radiation therapy,surgery, or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of morechemotherapy, radiation, antibody drugs, tumor-targeted small molecules, or a combination of these. Third line therapies can include hematopoieticstem cell transplantation in certain cancers, chemotherapy, antibody drugs and small molecule tumor-targeted therapies, more invasive forms ofsurgery and new technologies. We expect to initially seek approval of our product candidates in most instances at least as a second or third linetherapy, for use in patients with relapsed or refractory metastatic cancer. Subsequently, for those product candidates that prove to be sufficientlysafe and beneficial, if any, we would expect to seek approval as a second line therapy and potentially as a first line therapy, but there is noguarantee that our product candidates, even if licensed as a second or third or subsequent line of therapy, would be licensed for an earlier line oftherapy, and, prior to any such approvals, we may have to conduct additional clinical trials. Consequently, the potentially addressable patientpopulation for our product candidates may be extremely limited or may not be amenable to treatment with our product candidates.Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these cancers in aposition to receive a particular line of therapy and who have the potential to benefit from treatment with our product candidates, are based on ourbeliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patientfoundations or market research, and may prove to be incorrect. Further, new therapies66may change the estimated incidence or prevalence of the cancers that we are targeting. Consequently, even if our product candidates areapproved for a second or third line of therapy, the number of patients that may be eligible for treatment with our product candidates may turn out tobe much lower than expected.Our product candidates rely on the use of protein binding domains, or binders, to target specific cancers, which we may develop orwhich may be developed by third parties. We are limited in our ability to apply our product candidates to a wider range of potentialtarget cancers by our ability to develop, partner for or acquire these binders on commercially reasonable terms.TRuC-T cell therapies require the use of antigen-specific protein binding domains, or binders, which guide the TRuC-T cells and bind to theantigens on the surface of a tumor to target specific types of cancers. Our ability to develop and commercialize our product candidates will dependon our ability to develop these binders or partner for such binders on commercially reasonable terms for use in clinical trials as well as theavailability of such binders for use in commercialized products, if licensed. For example, we have a non-exclusive license for the mesothelinbinder incorporated into the TRuC construct for TC-210 from Harpoon Therapeutics, Inc. (Harpoon). However, we cannot be certain that ourHarpoon license or potential future collaborations will provide us with a steady supply of binders that we can utilize in combination with the TRuCconstruct to develop future product candidates. If we are unable to enter into such collaborations on commercially reasonable terms or fail torealize the benefits of any such collaboration, we may be limited to using antibody fragments that we are able to independently develop which maylimit the ability of our product candidates to target and kill cancer cells.The failure to enter into a successful collaboration or to develop our own binders may delay our development timelines, increase our costs andjeopardize our ability to develop future product candidates as a commercially viable drug, which could result in delays in product development andharm our business.We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establishmarketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if licensed, wemay not be able to generate product revenue.We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. We intend to develop an in-housemarketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have tocompete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangementsregarding the sales and marketing of our products, if licensed. However, there can be no assurance that we will be able to establish or maintainsuch collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon theefforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such thirdparties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also facecompetition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships withthird-party collaborators to commercialize any product in the United States or overseas.67A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business.We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we will be subject toadditional risks related to operating in foreign countries if we obtain the necessary approvals, including:•differing regulatory requirements in foreign countries;•unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;•economic weakness, including inflation, or political instability in particular foreign economies and markets;•compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;•foreign taxes, including withholding of payroll taxes;•foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident todoing business in another country;•difficulties staffing and managing foreign operations;•workforce uncertainty in countries where labor unrest is more common than in the United States;•potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;•challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protectintellectual property rights to the same extent as the United States;•production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and•business interruptions resulting from geo-political actions, including war and terrorism.These and other risks associated with international operations may materially adversely affect our ability to attain or maintain profitable operations.We face significant competition, and our operating results will suffer if we fail to compete effectively.The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop otherproducts or drugs that are able to achieve similar or better results. Our potential competitors include larger biotechnology and pharmaceuticalcompanies with greater resources than us, academic institutions, governmental agencies, public and private research institutions and early stageor smaller companies. Many of our competitors have substantially greater financial, technical and other resources, such as larger research anddevelopment staff, experienced marketing and manufacturing organizations and well-established sales forces. In addition, many of thesecompetitors are active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology that theyhave developed. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources beingconcentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies andgreater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed indeveloping, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized orless costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the developmentof our technologies and products. We believe the key competitive factors that will affect the development and commercial success of our productcandidates are safety, potency, purity, tolerability, reliability, convenience of use, price and reimbursement.68Specifically, we face significant competition from companies developing chimeric antigen receptor, TCR, and T cell directed bispecific antibodytechnologies, including Novartis AG, Gilead Sciences, Inc., Celgene Corporation, Amgen Inc., F. Hoffmann-La Roche Ltd, bluebird bio, Inc., BayerAG, Selecta Biosciences, Inc., Adaptimmune Therapeutics PLC, Regeneron Pharmaceuticals, Inc., Allogene Therapeutics, Inc., AutolusTherapeutics plc, Eureka Therapeutics, Inc., Atara Biotherapeutics Inc., Crispr Therapeutics AG, Precision BioSciences, Inc., Pfizer Inc.,Novimmune SA, and Triumvira Immunologics Inc. Even if we obtain regulatory approval of our product candidates, the availability and price of ourcompetitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement ourbusiness plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existingmethods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our productcandidates for use in limited circumstances. For additional information regarding our competition, see “Business—Competition.”Risks Related to Government RegulationThe FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinicaldevelopment and regulatory approval of our product candidates.We have not previously submitted a Biologics License Application (BLA) to the FDA or similar licensure applications to comparable foreignregulatory authorities. A BLA must include extensive preclinical and clinical data and supporting information to establish the product candidate’ssafety, purity and potency for each desired indication. The BLA must also include significant information regarding the manufacturing controls forthe product. We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. Accordingly, theregulatory approval pathway for our product candidates may be uncertain, complex, expensive and lengthy, and licensure may not be obtained.We may also experience delays in completing planned clinical trials for a variety of reasons, including delays related to:•the availability of financial resources to commence and complete the planned trials;•reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensivenegotiation and may vary significantly among different CROs and clinical trial sites;•obtaining approval at each clinical trial site by an IRB or ethics committee;•recruiting suitable patients to participate in a clinical trial;•having patients complete a clinical trial or return for post-treatment follow-up;•clinical trial sites deviating from trial protocol or dropping out of a trial;•adding new clinical trial sites; or•manufacturing sufficient quantities of qualified materials under cGMPs, including current Good Tissue Practices (cGTPs), and applyingthem on a subject by subject basis for use in clinical trials.We could also experience delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our productcandidates in lieu of prescribing existing treatments that have established safety, efficacy, potency and purity profiles. Further, a clinical trial maybe suspended or terminated by us, the IRBs for the institutions in which such trials are being conducted, the Data Monitoring Committee for suchtrial, or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance withregulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authoritiesresulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a productcandidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experiencetermination of, or delays in the completion of, any clinical trial of our product candidates, the commercial69prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays incompleting our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability tocommence product sales and generate revenue.Securing regulatory approval also requires the submission of information about the biologic manufacturing process and inspection of manufacturingfacilities by the relevant regulatory authority. The FDA or comparable foreign regulatory authorities may fail to approve our manufacturingprocesses or facilities, whether run by us or our commercial manufacturing organizations (CMOs). In addition, if we make manufacturing changesto our product candidates in the future, we may need to conduct additional preclinical studies to bridge our modified product candidates to earlierversions.Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may ultimately lead to the denial ofregulatory approval of our product candidates.We may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements. The denial ordelay of any such approval would delay commercialization of our product candidates and adversely impact our potential to generaterevenue, our business and our results of operations.The research, testing, manufacturing, labeling, licensure, sale, marketing and distribution of biologic products are subject to extensive regulationby the FDA and other regulatory authorities in the United States and other countries, and such regulations differ from country to country. We arenot permitted to market our product candidates in the United States or in any foreign countries until they receive the requisite licensure from theapplicable regulatory authorities of such jurisdictions.The FDA or any foreign regulatory authorities can delay, limit or deny licensure of our product candidates for many reasons, including:•our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory authority that any of our product candidatesare safe, potent and pure;•the FDA’s or the applicable foreign regulatory agency’s disagreement with our trial protocol or the interpretation of data from preclinicalstudies or clinical trials;•our inability to demonstrate that the clinical and other benefits of any of our product candidates outweigh any safety or other perceivedrisks;•the FDA’s or the applicable foreign regulatory agency’s requirement for additional preclinical studies or clinical trials;•the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatoryauthorities for licensure;•the FDA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or facilities of third-partymanufacturers upon which we rely;•the potential for approval policies or regulations of the FDA or the applicable foreign regulatory authorities to significantly change in amanner rendering our clinical data insufficient for licensure;•the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreignregulatory authorities to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain licensure ofour product candidates in the United States or elsewhere; or•the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a mannerrendering our clinical data insufficient for approval.Any of these factors, many of which are beyond our control, may result in our failing to obtain regulatory approval to market any of our productcandidates, which would significantly harm our business, results of operations, and prospects. Of the large number of biological products indevelopment, only a small70percentage successfully complete the FDA or other regulatory approval processes and are commercialized. Even if we eventually completeclinical testing and receive licensure from the FDA or applicable foreign regulatory authorities for any of our product candidates, the FDA or theapplicable foreign regulatory agency may grant licensure contingent on the performance of costly additional clinical trials which may be requiredafter licensure. The FDA or the applicable foreign regulatory agency also may license our product candidates for a more limited indication or anarrower patient population than we originally requested, and the FDA, or applicable foreign regulatory agency, may not license our productcandidates with the labeling that we believe is necessary or desirable for the successful commercialization of such product candidates.In addition, even if the trials are successfully completed, preclinical and clinical data are often susceptible to varying interpretations and analyses,and we cannot guarantee that the FDA or comparable foreign regulatory authorities will interpret the results as we do, and more clinical trials couldbe required before we submit our product candidates for approval. To the extent that the results of the clinical trials are not satisfactory to the FDAor comparable foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed,or we may be required to expend significant additional resources, which may not be available to us, to conduct additional clinical trials in support ofpotential approval of our product candidates. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of our product candidates andwould materially adversely impact our business and prospects.We may seek orphan drug status for TC-210, TC-110 and some of our other future product candidates, but we may be unable to obtainsuch designations or to maintain the benefits associated with orphan drug status, including market exclusivity, which may cause ourrevenue, if any, to be reduced.Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as adisease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the UnitedStates when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will berecovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. In theUnited States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs,tax advantages and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan useare disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory reviewand approval process.If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease forwhich it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any otherapplications, including a BLA, to market the same biologic for the same indication for seven years, except in limited circumstances such as ashowing of clinical superiority to the product with orphan drug exclusivity or if FDA finds that the holder of the orphan drug exclusivity has notshown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition forwhich the drug was designated. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve otherdrugs that have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivityif we are unable to manufacture sufficient supply of our product.We have applied for orphan drug designation for the treatment of malignant mesothelioma with TC-210 and we may seek orphan drug designationfor TC-210, TC-110 and some or all of our other future product candidates in additional orphan indications in which there is a medically plausiblebasis for the use of71these products, including cholangiocarcinoma. Even when we obtain orphan drug designation, exclusive marketing rights in the United States maybe limited if we seek licensure for an indication broader than the orphan designated indication and may be lost if the FDA later determines that therequest for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs ofpatients with the rare disease or condition. In addition, although we intend to seek orphan drug designation for other product candidates, we maynever receive such designations.On August 3, 2017, the Congress passed the FDA Reauthorization Act of 2017 (FDARA). FDARA, among other things, codified the FDA’s pre-existing regulatory interpretation, to require that a drug sponsor demonstrate the clinical superiority of an orphan drug that is otherwise the same asa previously approved drug for the same rare disease in order to receive orphan drug exclusivity. The new legislation reverses prior precedentholding that the Orphan Drug Act unambiguously requires that the FDA recognize the orphan exclusivity period regardless of a showing of clinicalsuperiority. The FDA may further reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA maychange the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on whatchanges the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.A Breakthrough Therapy designation by the FDA, even if granted for any of our product candidates, may not lead to a faster developmentor regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketingapproval.We plan to seek a Breakthrough Therapy designation for TC-210 and TC-110 and may seek Breakthrough Therapy designation for some or all ofour future product candidates. A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or moreother drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug, orbiologic, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantialtreatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interactionand communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development whileminimizing the number of patients placed in ineffective control regimens. Biologics designated as breakthrough therapies by the FDA may also beeligible for other expedited approval programs, including Accelerated Approval.Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets thecriteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, thereceipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development process, review or licensurecompared to candidate products considered for licensure under non-expedited FDA review procedures and does not assure ultimate approval bythe FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the productno longer meets the conditions for qualification. Thus, even though we intend to seek Breakthrough Therapy designation for TC-210 and some orall of our future product candidates for the treatment of various cancers, there can be no assurance that we will receive breakthrough therapydesignation.A Fast Track designation by the FDA, even if granted for TC-210, TC-110 or any other future product candidate(s), may not lead to a fasterdevelopment or regulatory review or approval process, and does not increase the likelihood that our product candidates will receivemarketing approval.If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medicalneeds for this condition, the drug sponsor may apply for FDA Fast Track designation for a particular indication. We plan to seek Fast Trackdesignation for TC-210 and TC-110 and may seek Fast Track designation for certain of our future product candidates, but there is no72assurance that the FDA will grant this status to any of our proposed product candidates. Marketing applications filed by sponsors of products inFast Track development may qualify for priority review under the policies and procedures offered by the FDA, but the Fast Track designation doesnot assure any such qualification or ultimate marketing approval by the FDA. The FDA has broad discretion whether or not to grant Fast Trackdesignation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA woulddecide to grant it. Even if we do receive Fast Track designation, we may not experience a faster development process, review or licensurecompared to conventional FDA procedures, and receiving a Fast Track designation does not provide assurance of ultimate FDA approval. Inaddition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinicaldevelopment program. In addition, the FDA may withdraw any Fast Track designation at any time.Accelerated approval by the FDA, even if granted for TC-210 and TC-110 or any other future product candidates, may not lead to a fasterdevelopment or regulatory review or approval process and it does not increase the likelihood that our product candidates will receivemarketing approval.We plan to seek approval of TC-210 and TC-110, and may seek approval of future product candidates using FDA’s accelerated approval pathway.A product may be eligible for accelerated approval if it treats a serious or life-threatening condition and generally provides a meaningful advantageover available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or ona clinical endpoint that can be measured earlier than irreversible morbidity or mortality (IMM) that is reasonably likely to predict an effect on IMM orother clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug or biologic receiving accelerated approval performadequate and well-controlled post-marketing clinical trials. These confirmatory trials must be completed with due diligence. In addition, the FDAcurrently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of thecommercial launch of the product. Even if we do receive accelerated approval, we may not experience a faster development or regulatory review orapproval process, and receiving accelerated approval does not provide assurance of ultimate FDA approval.Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful inobtaining regulatory approval of our product candidates in other jurisdictions.Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain ormaintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have anegative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate,comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate inthose countries. Approval and licensure procedures vary among jurisdictions and can involve requirements and administrative review periodsdifferent from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical trials conducted inone jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a productcandidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend tocharge for our products is also subject to approval.We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States haverequirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatoryapprovals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay orprevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/orreceive applicable marketing approvals, our target73market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continuedregulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply withregulatory requirements or experience unanticipated problems with our product candidates.Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety, potency and purity of theproduct candidate. The FDA may also require a risk evaluation and mitigation strategy in order to license our product candidates, which couldentail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricteddistribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authorityapproves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising,promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. Theserequirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance withcGMPs, cGTPs and good clinical practices (GCPs) for any clinical trials that we conduct post-licensure. Later discovery of previously unknownproblems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers ormanufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:•restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market or voluntary ormandatory product recalls;•revisions to the labeling, including limitation on approved uses or the addition of additional warnings, contraindications or other safetyinformation, including boxed warnings;•imposition of a Risk Evaluation and Mitigation Strategy (REMS), which may include distribution or use restrictions;•requirements to conduct additional post-market clinical trials to assess the safety of the product;•fines, warning letters or holds on clinical trials;•refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation oflicense approvals;•product seizure or detention, or refusal to permit the import or export of our product candidates; and•injunctions or the imposition of civil or criminal penalties.The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit ordelay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arisefrom future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existingrequirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketingapproval that we may have obtained and we may not achieve or sustain profitability. Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make itdifficult for us to sell our product candidates, if licensed, profitably.In both domestic and foreign markets, successful sales of our product candidates, if licensed, will depend on the availability of adequate coverageand reimbursement from third-party payors. In addition, because our product candidates represent new approaches to the treatment of cancer, wecannot accurately estimate the potential revenue from our product candidates.74Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associatedwith their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, andcommercial payors is critical to new product acceptance.Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs andtreatments they will cover and the amount of reimbursement. Reimbursement by a third-party payor may depend upon a number of factors,including, but not limited to, the third-party payor’s determination that use of a product is:•a covered benefit under its health plan;•safe, effective and medically necessary;•appropriate for the specific patient;•cost-effective; and•neither experimental nor investigational.Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly processthat could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtaincoverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or mayrequire co-payments that patients find unacceptably high. Patients are unlikely to use our product candidates unless coverage is provided andreimbursement is adequate to cover a significant portion of the cost of our product candidates.In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage andreimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consumingand costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, withno assurance that coverage and adequate reimbursement will be obtained.We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions. If we obtain licensurein one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreigncountries, particularly those in the European Union (EU), the pricing of biologics is subject to governmental control. In these countries, pricingnegotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition,market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement fromthird-party payors for our product candidates and may be affected by existing and future healthcare reform measures.Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controllinghealthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to thehealthcare system that could impact our ability to sell our products profitably. In particular, in 2010, Patient Protection and Affordable Care Act asamended by the Health Care and Education Reconciliation Act of 2010 (collectively, the Affordable Care Act) was enacted. The Affordable CareAct and its implementing regulations, among other things, revised the methodology by which rebates owed by manufacturers to the state andfederal government for covered outpatient drugs and certain biologics, including our product candidates, under the Medicaid Drug Rebate Programare calculated, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended theMedicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjectedmanufacturers to new annual fees and taxes for certain branded prescription drugs and provided incentives to programs that increase the federalgovernment’s comparative effectiveness research.75Members of the U.S. Congress and the Trump administration have expressed an intent to pass legislation or adopt executive orders tofundamentally change or repeal parts of the Affordable Care Act. While Congress has not passed repeal legislation to date, the Tax Cuts and JobsAct of 2017 (TCJA) repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act oncertain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.”On December 14, 2018, a federal district court in Texas ruled that upon the repeal of the shared responsibility payment, the ACA’s individualmandate will become unconstitutional. The court further ruled that the individual mandate is not severable from the remaining provisions of theAffordable Care Act, and that the remaining provisions are therefore invalid. The court, however, did not grant an injunction against enforcement ofthe Affordable Care Act. An appeal of the decision is expected.Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under theAffordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that wouldimpose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, ormanufacturers of pharmaceuticals or medical devices. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the Affordable Care Act. Several state Attorneys General filed suit to stop the administration fromterminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, theCenters for Medicare & Medicaid Services (CMS) within the U.S. Department of Health and Human Services (HHS) has recently proposedregulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which mayhave the effect of relaxing the essential health benefits required under the Affordable Care Act for plans sold through such marketplaces. Theremay be further changes to the Affordable Care Act as a result of new legislation or further executive, administrative or judicial action.Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In August 2011, theBudget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on DeficitReduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reachrequired goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions ofMedicare payments to providers up to 2% per fiscal year. In January 2013, President Obama signed into law the American Taxpayer Relief Act of2012 (ATRA), which delayed for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of2011. In March 2013, President Obama signed an executive order implementing sequestration, and in April 2013, the 2% Medicare paymentreductions went into effect. ATRA also, among other things, reduced Medicare payments to several providers, including hospitals, imaging centersand cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from threeto five years.In addition, on May 11, 2018, the Trump administration issued a plan to lower drug prices. Under this blueprint for action, the Trump administrationindicated that HHS will: take steps to end the use of regulatory and patent processes by drug makers to protect their products from competition;advance biosimilars and generics to boost price competition; evaluate the inclusion of prices in drug makers’ ads to enhance price competition;speed access to and lower the cost of new drugs by clarifying policies for sharing information between insurers and drug makers; avoid excessivepricing by relying more on value-based pricing by expanding outcome-based payments in Medicare and Medicaid; work to give Part D plansponsors more negotiation power with drug makers; examine which Medicare Part B drugs could be negotiated for a lower price by Part D plans,and improving the design of the Part B Competitive Acquisition Program; update Medicare’s drug-pricing dashboard to increase transparency;prohibit Part D contracts that include “gag rules” that prevent pharmacists from informing patients when they could pay76less out-of-pocket by not using insurance; and require that Part D plan members be provided with an annual statement of plan payments, out-of-pocket spending, and drug price increases.At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to controlpharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain productaccess and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countriesand bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determinewhat pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures couldreduce the ultimate demand for our products, once licensed, or put pressure on our product pricing.We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts thatfederal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates oradditional pricing pressures.The impact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending on us iscurrently unknown, and may adversely affect our business model.Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highlyregulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related tohealthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operationsand financial condition.There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadeningthe availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future,including repeal, replacement or significant revisions to the Affordable Care Act. The continuing efforts of the government, insurance companies,managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls mayadversely affect:•the demand for our product candidates, if we obtain regulatory approval;•our ability to set a price that we believe is fair for our products;•our ability to obtain coverage and reimbursement approval for a product;•our ability to generate revenue and achieve or maintain profitability;•the level of taxes that we are required to pay; and•the availability of capital.Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors,which may adversely affect our future profitability.Regulatory requirements in the United States and abroad governing cell therapy products have changed frequently and may continue tochange in the future, which could negatively impact our ability to complete clinical trials and commercialize our product candidates in atimely manner, if at all.Regulatory requirements in the United States and abroad governing cell therapy products have changed frequently and may continue to change inthe future. The FDA has established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research toconsolidate the review of gene therapy and related products, and has established the Cellular, Tissue and Gene Therapies Advisory Committee,among others, to advise this review. Recently, the National Institutes of Health77proposed to revise its guidelines for overseeing gene therapy research, including deleting the protocol registration and reporting requirements forcertain therapies and eliminating Recombinant DNA Advisory Committee review and reporting requirements for human gene transfer research.Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership andother personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise preventthose agencies from performing normal business functions on which the operation of our business may rely, which could negativelyimpact our business.The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and fundinglevels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average reviewtimes at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies onwhich our operations may rely, including those that fund research and development activities is subject to the political process, which is inherentlyfluid and unpredictable.Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessarygovernment agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut downseveral times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other governmentemployees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timelyreview and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a publiccompany, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properlycapitalize and continue our operations.Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improperactivities, including noncompliance with regulatory standards and requirements.We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants, commercial partnersand vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the regulations ofthe FDA and other similar foreign regulatory authorities, provide true, complete and accurate information to the FDA and other similar foreignregulatory authorities, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws in the UnitedStates and similar foreign fraudulent misconduct laws or report financial information or data accurately or to disclose unauthorized activities to us.If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United States, our potential exposureunder such laws and regulations will increase significantly, and our costs associated with compliance with such laws and regulations are also likelyto increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well asproposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services,as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing andpromotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject tothese laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. The laws that may affect ourability to operate include, but are not limited to:•the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying anyremuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in returnfor,78either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for whichpayment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs;•federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entitiesfrom knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other third-partypayors that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to paymoney to the federal government;•the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibitknowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means offalse or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of,any healthcare benefit program, regardless of the payor (for example, public or private) and knowingly and willfully falsifying, concealingor covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, orpayment for, healthcare benefits, items or services relating to healthcare matters;•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), and their respectiveimplementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcareclearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of,individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health informationwithout appropriate authorization;•the federal Physician Payment Sunshine Act, created under the Affordable Care Act and its implementing regulations, which requiremanufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or theChildren’s Health Insurance Program (with certain exceptions) to report annually to HHS information related to payments or othertransfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teachinghospitals, as well as ownership and investment interests held by physicians and their immediate family members; and•federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentiallyharm consumers.Additionally, we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may bebroader in scope and may apply regardless of the payor.We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and theprecautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or inprotecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orregulations.Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involvesubstantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possiblethat some of our business activities could be subject to challenge under one or more of such laws. It is possible that governmental authorities willconclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuseor other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulationsthat may apply to us, we may be subject to significant criminal, civil and administrative sanctions including monetary penalties, damages, fines,disgorgement, individual imprisonment, and exclusion from participation in government funded healthcare programs, such as Medicare andMedicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement79or similar agreement to resolve allegations of non-compliance with these laws, reputational harm, and we may be required to curtail or restructureour operations, any of which could adversely affect our ability to operate our business and our results of operations.The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatoryauthorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if wesuccessfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of ourbusiness. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiplejurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one ormore of the requirements.The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply,order or use of medicinal products is also prohibited in the EU. The provision of benefits or advantages to physicians is governed by the nationalanti-bribery laws of EU Member States, such as the U.K. Bribery Act 2010, or the Bribery Act. Infringement of these laws could result insubstantial fines and imprisonment. Payments made to physicians in certain EU Member States must be publicly disclosed. Moreover,agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competentprofessional organization and/or the regulatory authorities of the individual EU Member States. These requirements are provided in the nationallaws, industry codes or professional codes of conduct, applicable in the EU Member States. Failure to comply with these requirements could resultin reputational risk, public reprimands, administrative penalties, fines or imprisonment.The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including personal health data, issubject to the EU General Data Protection Regulation (GDPR), which became effective on May 25, 2018. The GDPR is wide-ranging in scope andimposes numerous requirements on companies that process personal data, including requirements relating to processing health and othersensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding dataprocessing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches,and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data tocountries outside the EU, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR,including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of actionon data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation fordamages resulting from violations of the GDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase ourcost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to finesand penalties, litigation, and reputational harm in connection with our European activities.If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incurcosts that could have a material adverse effect on the success of our business.We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and thehandling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammablematerials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products. We generallycontract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from thesematerials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages,80and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employeesresulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintaininsurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological,hazardous or radioactive materials.Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations,third-party reimbursement practices or healthcare reform initiatives, which would harm our business.The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country.Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays inobtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing reviewperiod begins after marketing or product licensing approval is granted. To obtain reimbursement or pricing approval in some countries, we may berequired to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In some foreignmarkets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result,we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay ourcommercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues, if any, we are able to generate from thesale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates,even if our product candidates obtain marketing approval.Our ability to commercialize any product candidates successfully also will depend in part on the extent to which coverage and adequatereimbursement for these products and related treatments will be available from government healthcare programs, private health insurers and otherorganizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide whichmedications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is costcontainment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount ofreimbursement for particular medications. Increasingly, government authorities and third-party payors are requiring that drug companies providethem with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage and reimbursement maynot be available for any product that we commercialize and, even if these are available, the level of reimbursement may not be satisfactory.Reimbursement may affect the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining andmaintaining adequate reimbursement for our products may be difficult. We may be required to conduct expensive pharmacoeconomic studies tojustify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are notavailable or reimbursement is available only to limited levels, we may not be able to successfully commercialize any product candidate for whichwe obtain marketing approval.There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than thepurposes for which the drug is approved by the FDA or similar regulatory authorities outside of the United States. Moreover, eligibility for coverageand reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development,intellectual property, manufacture, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also not besufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinicalsetting in which it is used, may be based on reimbursement levels already set for lower cost drugs and81may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required bygovernment healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countrieswhere they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and paymentlimitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequate reimbursement rates from bothgovernment-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results,our ability to raise capital needed to commercialize products and our overall financial condition.The expected withdrawal of the United Kingdom from the European Union, commonly referred to as "Brexit," may disrupt import andexport processes between the United Kingdom and the European Union, potentially delaying time-sensitive shipments and adverselyaffecting our GMP manufacturing operations at Catapult.In June 2016, a majority of the eligible members of the electorate in the United Kingdom voted to withdraw from the European Union in a nationalreferendum, commonly referred to as "Brexit." The withdrawal of the United Kingdom from the European Union was set to take place on March 29,2019; however, the United Kingdom and the European Union are currently negotiating the terms of the United Kingdom's relationship with theEuropean Union, and United Kingdom has not withdrawn from the European Union. There is the potential that the United Kingdom and theEuropean Union may not agree to a withdrawal arrangement before the date the United Kingdom leaves the European Union. We have contractedwith the Cell Therapy Catapult Limited (Catapult) to occupy a suite with our own personnel in their GMP manufacturing center in Stevenage, UnitedKingdom. There is a risk that Brexit may disrupt import and export processes due to a lack of administrative processing capacity by the respectiveUnited Kingdom and European Union customs agencies that may delay time-sensitive shipments of equipment and materials from the EuropeanUnion that are required for GMP manufacturing in our Catapult suite. It is also possible that Brexit may negatively affect our ability to attract andretain employees for our operations at Catapult, particularly those from the European Union.Risks Related to Our Intellectual PropertyIf we are unable to obtain and maintain patent protection for any products we develop and for our technology, or if the scope of thepatent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similaror identical to ours, and our ability to commercialize any product candidates we may develop, and our technology may be adverselyaffected.Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect toour product candidates, their respective components, formulations, combination therapies, methods used to manufacture them and methods oftreatment and development that are important to our business. If we do not adequately protect our intellectual property rights, competitors may beable to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect ourproprietary position, we file patent applications in the United States and abroad related to our novel product candidates that are important to ourbusiness; we may in the future also license or purchase patent applications filed by others. If we are unable to secure or maintain patent protectionwith respect to our antibody technology and any proprietary products and technology we develop, our business, financial condition, results ofoperations, and prospects could be materially harmed.If the scope of the patent protection we or our potential licensors obtain is not sufficiently broad, we may not be able to prevent others fromdeveloping and commercializing technology and products similar or identical to ours. The degree of patent protection we require to successfullycompete in the marketplace may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gainor keep any competitive advantage. We cannot provide any assurances that any of our patents82have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect ourcurrent and future product candidates or otherwise provide any competitive advantage. In addition, to the extent that we license intellectualproperty in the future, we cannot assure you that those licenses will remain in force. In addition, the laws of foreign countries may not protect ourrights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the naturalexpiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection itaffords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patentsprotecting such candidates might expire before or shortly after such candidates are commercialized.Even if they are unchallenged, our patents and pending patent applications, if issued, may not provide us with any meaningful protection or preventcompetitors from designing around our patent claims to circumvent our patents by developing similar or alternative technologies or therapeutics ina non-infringing manner. For example, a third party may develop a competitive therapy that provides benefits similar to one or more of our productcandidates but that uses a formulation and/or a device that falls outside the scope of our patent protection. If the patent protection provided by thepatents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, ourability to successfully commercialize our product candidates could be negatively affected, which would harm our business. Although we currentlyown all of our patents and our patent applications, similar risks would apply to any patents or patent applications that we may in-license in thefuture.Patent positions of life sciences companies can be uncertain and involve complex factual and legal questions. No consistent policy governing thescope of claims allowable in the field of antibodies has emerged in the United States. The scope of patent protection in jurisdictions outside of theUnited States is also uncertain. Changes in either the patent laws or their interpretation in any jurisdiction that we seek patent protection maydiminish our ability to protect our inventions, maintain and enforce our intellectual property rights; and, more generally, may affect the value of ourintellectual property, including the narrowing of the scope of our patents and any that we may license.The patent prosecution process is complex, expensive, time-consuming and inconsistent across jurisdictions. We may not be able to file,prosecute, maintain, enforce, or license all necessary or desirable patent rights at a commercially reasonable cost or in a timely manner. Inaddition, we may not pursue or obtain patent protection in all relevant markets. It is possible that we will fail to identify important patentableaspects of our research and development efforts in time to obtain appropriate or any patent protection. While we enter into non-disclosure andconfidentiality agreements with parties who have access to confidential or patentable aspects of our research and development efforts, includingfor example, our employees, corporate collaborators, external academic scientific collaborators, CROs, contract manufacturers, consultants,advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed,thereby endangering our ability to seek patent protection. In addition, publications of discoveries in the scientific and scholarly literature often lagbehind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months afterfiling, or in some cases not at all. Consequently, we cannot be certain that we were the first to file for patent protection on the inventions claimedin our patents or pending patent applications.The issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Further, the scope of the inventionclaimed in a patent application can be significantly reduced before the patent is issued, and this scope can be reinterpreted after issuance. Evenwhere patent applications we currently own or that we may license in the future issue as patents, they may not issue in a form that will provide uswith adequate protection to prevent competitors or other third parties from competing with us, or otherwise provide us with a competitiveadvantage. Any patents that eventually issue may be challenged, narrowed or invalidated by third parties. Consequently, we do not know whether83any of our product candidates will be protectable or remain protected by valid and enforceable patent rights. Our competitors or other third partiesmay be able to evade our patent rights by developing new antibodies, biosimilar antibodies, or alternative technologies or products in a non-infringing manner.The issuance or grant of a patent is not irrefutable as to its inventorship, scope, validity or enforceability, and our patents may be challenged in thecourts or patent offices in the United States and abroad. There may be prior art of which we are not aware that may affect the validity orenforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceabilityof a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. We may in the future, become subject toa third-party pre-issuance submission of prior art or opposition, derivation, revocation, re-examination, post-grant and inter partes review, orinterference proceeding and other similar proceedings challenging our patent rights or the patent rights of others in the U.S. Patent and TrademarkOffice (USPTO) or other foreign patent office. An unfavorable determination in any such submission, proceeding or litigation could reduce thescope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, withoutpayment to us, or extinguish our ability to manufacture or commercialize products without infringing third-party patent rights.In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protectingsuch candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide uswith sufficient rights to exclude others from commercializing products similar or identical to ours. Moreover, some of our owned and in-licensedpatents and patent applications are, and may in the future be, co-owned with third parties. If we are unable to obtain an exclusive license to anysuch third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties,including our competitors, and our competitors could market competing products and technology. In addition, we or our licensors may need thecooperation of any such co-owners of our owned and in-licensed patents in order to enforce such patents against third parties, and suchcooperation may not be provided to us or our licensors. Any of the foregoing could have a material adverse effect on our competitive position,business, financial conditions, results of operations and prospects.We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss ofsignificant rights, which would harm our business.We are dependent on patents, know-how and proprietary technology, both our own and licensed from others. For example, we have a non-exclusive license for the mesothelin binder incorporated into the TRuC construct for TC-210 from Harpoon. Harpoon has the ability to terminate ourlicense in the event we materially breach our agreement with Harpoon and fail to cure this breach within sixty days. If the license with Harpoon isterminated, we would need to partner for another mesothelin binder or independently develop our own mesothelin binder. In addition, we cannotprevent Harpoon from also licensing the mesothelin binder we use in TC-210 to a third-party. If Harpoon licenses the mesothelin binder to anotherimmuno-oncology company, that company could develop a competitive product to TC-210.We are currently, and expect in the future to be, party to material license or collaboration agreements. These agreements typically imposenumerous obligations, such as diligence and payment obligations. Any termination of these licenses could result in the loss of significant rightsand could harm our ability to commercialize our product candidates. These licenses do and future licenses may include provisions that imposeobligations and restrictions on us. This could delay or otherwise negatively impact a transaction that we may wish to enter into.84Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including:•the scope of rights granted under the license agreement and other interpretation-related issues;•whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to thelicensing agreement;•our right to sublicense patent and other rights to third parties under collaborative development relationships;•our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of ourproduct candidates, and what activities satisfy those diligence obligations; and•the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and ourpartners.If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements onacceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.We are generally also subject to all of the same risks with respect to protection of intellectual property that we license, as we are for intellectualproperty that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability tocommercialize products could suffer.If we fail to comply with our obligations under our patent licenses with third parties, we could lose license rights that are important toour business.We are a party to a license agreement with Harpoon, pursuant to which we in-license key patent and patent applications for use in one or more ofour product candidates. This existing license imposes various diligence, milestone payment, royalty, insurance and other obligations on us. If wefail to comply with these obligations, Harpoon may have the right to terminate the license, in which event we would not be able to develop ormarket the products covered by such licensed intellectual property.We rely on certain of our licensors to file and prosecute patent applications and maintain patents and otherwise protect the intellectual property welicense from them and may continue to do so in the future. We have limited control over these activities or any other intellectual property that maybe related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors have been or will beconducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.We have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer of the intellectualproperty rights, or defend certain of the intellectual property that is licensed to us. It is possible that any licensors’ infringement proceeding ordefense activities may be less vigorous than had we conducted them ourselves.Our proprietary position depends upon patents that are manufacturing, formulation or method-of-use patents, which may not prevent acompetitor or other third party from using the same product candidate for another use.Composition-of-matter patents on the active pharmaceutical ingredient (API) in prescription drug products are generally considered to be thestrongest form of intellectual property protection for drug products because such patents provide protection without regard to any particular methodof use or manufacture or formulation of the API used. We do not currently have any claims in our owned or in-licensed issued U.S. patents thatcover the composition-of-matter of our other product candidates. We are pursuing claims in our pending owned or in-licensed patent applicationsthat cover the composition-of-matter of our product candidates. We cannot be certain that claims in any future patents issuing from our pendingowned or in-85licensed patent applications or our future owned or in-licensed patent applications will cover the composition-of-matter of our current or futureproduct candidates.If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be ableto compete effectively in our market.Biotechnology and pharmaceutical companies generally, and we in particular, compete in a crowded competitive space characterized by rapidlyevolving technologies and aggressive defense of intellectual property. The USPTO and various foreign governmental patent agencies requirecompliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in whichnoncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in therelevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.We rely upon a combination of patents, confidentiality agreements, trade secret protection and license agreements to protect the intellectualproperty related to our technologies. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enablecompetitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market. We, or any futurepartners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of development andcommercialization activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthenour patent position.It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for examplewith respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If we or our partners, collaborators,licensees or licensors fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced oreliminated. If our partners, collaborators, licensees or licensors are not fully cooperative or disagree with us as to the prosecution, maintenance orenforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, orenforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result invalid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverseimpact on our business.Currently, our patents and patent applications are directed to our TRuC-T cells and accompanying technologies. We seek or plan to seek patentprotection for our TRuC-T cell platform and product candidates by filing and prosecuting patent applications in the United States and othercountries as appropriate. As of March 15, 2019, our patent portfolio included one issued U.S. patent, at least 15 pending U.S. provisional or non-provisional patent applications, at least five pending Patent Cooperation Treaty (PCT) international applications, and at least 31 pending foreignpatent applications, which patent applications we owned or in-licensed. The claims of these patent applications are directed toward variousaspects of our product candidates and research programs including compositions of matter, methods of use, and processes. These patentapplications, if issued, are expected to expire on various dates from 2036 through 2039, in each case without taking into account any possiblepatent term adjustments or extensions.We anticipate additional patent applications will be filed both in the United States and in other countries, as appropriate. However, we cannotpredict:•if and when patents will issue;•the degree and range of protection any issued patents will afford us against competitors including whether third parties will find ways toinvalidate or otherwise circumvent our patents;•whether any of our intellectual property will provide any competitive advantage;86•whether any of our patents that may be issued may be challenged, invalidated, modified, revoked, circumvented, found to beunenforceable or otherwise may not provide any competitive advantage;•whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; or•whether we will need to initiate or defend litigation or administrative proceedings which may be costly regardless of whether we win orlose.Additionally, we cannot be certain that the claims in our pending patent applications covering composition of matter of our product candidates willbe considered patentable by the USPTO, or by patent offices in foreign countries, or that the claims in any of our issued patents will be consideredpatentable by courts in the United States or foreign countries.Method of use patents protect the use of a product for the specified method. These types of patents do not prevent a competitor from making andmarketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even ifcompetitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may induce or contribute to the infringement of method of use patents, the practice is common and such infringement is difficultto prevent or prosecute.The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. Thepatent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses thereof inthe United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability orscope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, ourpatents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If thebreadth or strength of protection provided by the patent applications we hold with respect to our product candidates is threatened, it could dissuadecompanies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. Further, if we encounter delaysin our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. Sincepatent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we werethe first to file any patent application related to our product candidates. Furthermore, for U.S. applications in which all claims are entitled to apriority date before March 16, 2013, an interference proceeding can be provoked by a third-party or instituted by the USPTO to determine who wasthe first to invent any of the subject matter covered by the patent claims of our applications. We cannot be certain that we are the first to inventthe inventions covered by pending patent applications and, if we are not, we may be subject to priority disputes. We may be required to disclaimpart or all of the term of certain patents or all of the term of certain patent applications. Various post grant review proceedings, such as inter partesreview and post grant review, are available for any interested third party to challenge the patentability of claims issued in patents to us. Whilethese post grant review proceedings have been used less frequently to invalidate biotech patents, they have been successful regarding othertechnologies, and these relatively new procedures are still changing, and those changes might affect future results. No assurance can be giventhat if challenged, our patents would be declared by a court to be valid or enforceable or that even if found valid and enforceable, a competitor’stechnology or product would be found by a court to infringe our patents. We may analyze patents or patent applications of our competitors that webelieve are relevant to our activities, and consider that we are free to operate in relation to our product candidates, but our competitors mayachieve issued claims, including in patents we consider to be unrelated, which block our efforts or may potentially result in our product candidatesor our activities infringing such claims. The possibility exists that others will develop products which have the same effect as our products on anindependent basis which do not infringe our patents or other intellectual property rights, or will design around the claims of patents that we havehad issued that cover our products.87Recent or future patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and theenforcement or defense of our issued patents. In March 2013, under the recently enacted Leahy-Smith America Invents Act, or America InventsAct, the United States moved from a “first to invent” to a “first-to-file” system. Under a “first-to-file” system, assuming the other requirements forpatentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whetheranother inventor had made the invention earlier. The America Invents Act includes a number of other significant changes to U.S. patent law,including provisions that affect the way patent applications are prosecuted, redefine prior art and establish a new post-grant review system. Theeffects of these changes are currently unclear as the USPTO only recently developed new regulations and procedures in connection with theAmerica Invents Act and many of the substantive changes to patent law, including the “first-to-file” provisions, only became effective in March2013. In addition, the courts have yet to address many of these provisions and the applicability of the act and new regulations on specific patentsdiscussed herein have not been determined and would need to be reviewed. However, the America Invents Act and its implementation couldincrease the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents,all of which could have a material adverse effect on our business and financial condition.The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequatelyprotect our rights or permit us to gain or keep our competitive advantage. For example:•others may be able to make or use compounds or cells that are similar to the biological compositions of our product candidates but thatare not covered by the claims of our patents;•the active biological ingredients in our current product candidates will eventually become commercially available in biosimilar drugproducts, and no patent protection may be available with regard to formulation or method of use;•we or our licensors, as the case may be, may fail to meet our obligations to the U.S. government in regards to any in-licensed patentsand patent applications funded by U.S. government grants, leading to the loss of patent rights;•we or our licensors, as the case may be, might not have been the first to file patent applications for these inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies;•it is possible that our pending patent applications will not result in issued patents;•it is possible that there are prior public disclosures that could invalidate our or our licensors’ patents, as the case may be, or parts of ouror their patents;•it is possible that others may circumvent our owned or in-licensed patents;•it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claimscovering our products or technology similar to ours;•the laws of foreign countries may not protect our or our licensors’, as the case may be, proprietary rights to the same extent as the lawsof the United States;•the claims of our owned or in-licensed issued patents or patent applications, if and when issued, may not cover our product candidates;•our owned or in-licensed issued patents may not provide us with any competitive advantages, may be narrowed in scope, or be heldinvalid or unenforceable as a result of legal challenges by third parties;•the inventors of our owned or in-licensed patents or patent applications may become involved with competitors, develop products orprocesses which design around our patents, or become hostile to us or the patents or patent applications on which they are named asinventors;•it is possible that our owned or in-licensed patents or patent applications omit individual(s) that should be listed as inventor(s) or includeindividual(s) that should not be listed as inventor(s), which may cause these patents or patents issuing from these patent applications tobe held invalid or unenforceable;88•we have engaged in scientific collaborations in the past and will continue to do so in the future, and such collaborators may developadjacent or competing products to ours that are outside the scope of our patents;•we may not develop additional proprietary technologies for which we can obtain patent protection;•it is possible that product candidates or diagnostic tests we develop may be covered by third parties’ patents or other exclusive rights; or•the patents of others may have an adverse effect on our business.If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.In addition to the protection afforded by patents, we seek to rely on trade secret protection, confidentiality agreements, and license agreements toprotect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our productdiscovery and development processes that involve proprietary know-how, information, or technology that is not covered by patents. Although werequire all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who haveaccess to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot be certain that our trade secretsand other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets orindependently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protectproprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problemsin protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized materialdisclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, whichcould materially adversely affect our business, operating results and financial condition.Courts outside the United States are sometimes less willing to protect trade secrets. If we choose to go to court to stop a third party from usingany of our trade secrets, we may incur substantial costs. These lawsuits may consume our time and other resources even if we are successful.For example, significant elements of our products, including aspects of sample preparation, methods of manufacturing, cell culturing conditions,computational-biological algorithms, and related processes and software, are based on unpatented trade secrets that are not publicly disclosed.Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees andconsultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access toour trade secrets or disclose our technology.Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientificcollaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment orconsulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developedor made known to the individual or entity during the course of the party’s relationship with us is to be kept confidential and not disclosed to thirdparties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, andwhich are related to our current or planned business or research and development or made during normal working hours, on our premises or usingour equipment or proprietary information, are our exclusive property. In addition, we take other appropriate precautions, such as physical andtechnological security measures, to guard against misappropriation of our proprietary technology by third parties. We have also adopted policiesand conduct training that provides guidance on our expectations, and our advice for best practices, in protecting our trade secrets.89Third-party claims of intellectual property infringement may prevent or delay our product discovery and development efforts.Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantialamount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well asadministrative proceedings for challenging patents, including interference, reexamination, and post grant review proceedings before the USPTO oroppositions and other comparable proceedings in foreign jurisdictions. We may be exposed to, or threatened with, future litigation by third partieshaving patent or other intellectual property rights alleging that our product candidates and/or proprietary technologies infringe their intellectualproperty rights. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields inwhich we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the riskincreases that our product candidates may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear toindustry participants, including us, which patents cover various types of drugs, products or their methods of use or manufacture. Thus, because ofthe large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patentrights encompassing our product candidates, technologies or methods.If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including, but not limited to:•infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and maydivert our management’s attention from our core business;•substantial damages for infringement, which we may have to pay if a court decides that the product candidate or technology at issueinfringes on or violates the third-party’s rights, and, if the court finds that the infringement was willful, we could be ordered to pay trebledamages and the patent owner’s attorneys’ fees;•a court prohibiting us from developing, manufacturing, marketing or selling our product candidates, or from using our proprietarytechnologies, unless the third-party licenses its product rights to us, which it is not required to do;•if a license is available from a third-party, we may have to pay substantial royalties, upfront fees and other amounts, and/or grant cross-licenses to intellectual property rights for our products; and•redesigning our product candidates or processes so they do not infringe third-party intellectual property rights, which may not be possibleor may require substantial monetary expenditures and time.Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they havesubstantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a materialadverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on ourbusiness, results of operations, financial condition and prospects.Third parties may assert that we are employing their proprietary technology without authorization. Generally, conducting preclinical and clinicaltrials and other development activities in the United States is not considered an act of infringement. If TC-210, TC-110 or another productcandidate is licensed by the FDA, a third party may then seek to enforce its patent by filing a patent infringement lawsuit against us. While we donot believe that any claims that could otherwise have a materially adverse effect on the commercialization of our product candidates, if licensed,are valid and enforceable, we may be incorrect in this belief, or we may not be able to prove it in litigation. In this regard, patents issued in theUnited States by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standardof proof. There may be issued third-party patents of which we are90currently unaware with claims to compositions, formulations, methods of manufacture or methods for treatment related to the use or manufactureof our product candidates. Patent applications can take many years to issue. There may be currently pending patent applications which may laterresult in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use ofour technologies infringes upon these patents. Moreover, we may fail to identify relevant patents or incorrectly conclude that a patent is invalid, notenforceable, exhausted, or not infringed by our activities. If any third-party patents were held by a court of competent jurisdiction to cover themanufacturing process of our product candidates, constructs or molecules used in or formed during the manufacturing process, or any finalproduct itself, the holders of any such patents may be able to block our ability to commercialize the product candidate unless we obtained alicense under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if anythird-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods ofuse, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop andcommercialize the product candidate unless we obtained a license or until such patent expires or is finally determined to be held invalid orunenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain anecessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates may beimpaired or delayed, which could in turn significantly harm our business. Even if we obtain a license, it may be non-exclusive, thereby giving ourcompetitors access to the same technologies licensed to us. In addition, if the breadth or strength of protection provided by our patents and patentapplications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future productcandidates.Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to furtherdevelop and commercialize our product candidates. Defense of these claims, regardless of their merit, could involve substantial litigation expenseand would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, wemay have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from thirdparties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. Wecannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore,even in the absence of litigation, we may need or may choose to obtain licenses from third parties to advance our research or allowcommercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. Inthat event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly.We may not be successful in obtaining or maintaining necessary rights to product components and processes for our developmentpipeline through acquisitions and in-licenses.Presently we have rights to certain intellectual property, through licenses from third parties and under patent applications that we own or will own,related to TC-210, TC-110 and certain other product candidates. Because additional product candidates may require the use of proprietary rightsheld by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights. Inaddition, while we have patent rights directed to certain TRuC constructs we may not be able to obtain intellectual property to broad TRuC-T cell orengineered TCR-T cell constructs.Our product candidates may also require specific formulations to work effectively and efficiently and these rights may be held by others. Similarly,efficient production or delivery of our product candidates may also require specific compositions or methods, and the rights to these may be ownedby third parties. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual propertyrights from third parties that we identify as necessary or important to our business operations. We may fail to obtain any of these licenses at areasonable cost or on reasonable terms, if at91all, which would harm our business. We may need to cease use of the compositions or methods covered by such third-party intellectual propertyrights, and may need to seek to develop alternative approaches that do not infringe on such intellectual property rights which may entail additionalcosts and development delays, even if we were able to develop such alternatives, which may not be feasible. Even if we are able to obtain alicense, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may berequired to expend significant time and resources to develop or license replacement technology. Moreover, the specific antibodies that will be usedwith our product candidates may be covered by the intellectual property rights of others.Additionally, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreementswith these institutions. In certain cases, these institutions provide us with an option to negotiate a license to any of the institution’s rights intechnology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe orunder terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to others, potentiallyblocking our ability to pursue our program. If we are unable to successfully obtain rights to required third-party intellectual property or to maintainthe existing intellectual property rights we have, we may have to abandon development of such program and our business and financial conditioncould suffer.The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies, which may be more established, orhave greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we mayconsider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitiveadvantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to fileinfringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or moreof our patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that ourpatents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents atrisk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of theseclaims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from ourbusiness. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages andattorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which maybe impossible or require substantial time and monetary expenditure.92Post-grant proceedings provoked by third parties or brought by the USPTO may be necessary to determine the validity or priority of inventions withrespect to our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our current patent rightsand could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could beharmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation or post-grant proceedings may result in adecision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and otheremployees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information,particularly in countries where the laws may not protect those rights as fully as in the United States.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some ofour confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements ofthe results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to benegative, it could have a substantial adverse effect on the price of our common stock.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee paymentand other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.Some of our patent applications have been allowed or may be allowed in the future. We cannot be certain that an allowed patent application willbecome an issued patent. There may be events that cause withdrawal of the allowance of a patent application. For example, after a patentapplication has been allowed, but prior to being issued, material that could be relevant to patentability may be identified. In such circumstances,the applicant may pull the application from allowance in order for the USPTO to review the application in view of the new material. We cannot becertain that the USPTO will re-allow the application in view of the new material. Further, periodic maintenance fees on any issued patent are due tobe paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmentalpatent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patentapplication process and following the issuance of a patent. While an inadvertent lapse can in many cases be cured by payment of a late fee or byother means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patentor patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result inabandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed timelimits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enterthe market, which would have a material adverse effect on our business.Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or the USPTO.If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, thedefendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation inthe United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds uponwhich a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies inthe United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, inter partes review, post grant reviewand equivalent proceedings in foreign jurisdictions (such as opposition proceedings). Such proceedings could result in revocation or amendment toour patents in such a way that they no longer93cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validityquestion, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner wereunaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise unable toadequately protect our rights, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss ofpatent protection could have a material adverse impact on our business and our ability to commercialize or license our technology and productcandidates.Changes to patent law in the United States and in foreign jurisdictions could diminish the value of patents in general, thereby impairingour ability to protect our products.As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtainingand enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consumingand inherently uncertain. In addition, the United States continues to adapt to wide-ranging patent reform legislation that became effective startingin 2012. Moreover, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances andweakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in thefuture, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S.Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weakenour ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. For example, in the case Assoc.for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to DNA molecules are not patentable. While wedo not believe that any of the patents owned or licensed by us will be found invalid based on this decision, we cannot predict how future decisionsby the courts, Congress or the USPTO may impact the value of our patents. Similarly, any adverse changes in the patent laws of otherjurisdictions could have a material adverse effect on our business and financial condition. Changes in the laws and regulations governing patentsin other jurisdictions could similarly have an adverse effect on our ability to obtain and effectively enforce our patent rights.We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world.Certain of our key patent families have been filed in the United States, however, we have less robust intellectual property rights outside the UnitedStates, and, in particular, we may not be able to pursue generic coverage of the TRuC-T cell platform outside of the United States. Filing,prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectualproperty rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of someforeign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, wemay not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importingproducts made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictionswhere we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territorieswhere we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our productsand our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Most of our patent portfoliois at the very early stage. We will need to decide whether and in which jurisdictions to pursue protection for the various inventions in our portfolioprior to applicable deadlines.Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legalsystems of certain countries, particularly certain developing94countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating tobiopharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products inviolation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs anddivert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and ourpatent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that weinitiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce ourintellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that wedevelop or license.We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants, and contractors. Theseagreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property.However, those agreements may not be honored and may not effectively assign intellectual property rights to us. Moreover, there may be somecircumstances, where we are unable to negotiate for such ownership rights. Disputes regarding ownership or inventorship of intellectual propertycan also arise in other contexts, such as collaborations and sponsored research. If we are subject to a dispute challenging our rights in or topatents or other intellectual property, such a dispute could be expensive and time consuming. If we were unsuccessful, we could lose valuablerights in intellectual property that we regard as our own.The intellectual property landscape around adoptive cell therapy is crowded, and third parties may initiate legal proceedings alleging that we areinfringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have amaterial adverse effect on the success of our business. We are aware of certain third-party patents and third-party patent applications in thislandscape that may, if issued as patents, be asserted to encompass our technology.We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidentialinformation of third parties.We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed atother biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractorshave inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers or ourconsultants’ or contractors’ current or former clients or customers. Litigation may be necessary to defend against these claims. Even if we aresuccessful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees. Ifwe are not successful, we could lose access or exclusive access to valuable intellectual property.We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secretsof our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.Many of our employees were previously employed at other pharmaceutical companies, including our competitors or potential competitors, in somecases until recently. We may be subject to claims that we or our employees have inadvertently or otherwise used or disclosed trade secrets orother proprietary information of these former employers or competitors. In addition, we have been and may in the future be subject to claims thatwe caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defendagainst these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a95distraction to management. If our defense to those claims fails, in addition to paying monetary damages, we may lose valuable intellectualproperty rights or personnel. Any litigation or the threat thereof may adversely affect our ability to hire employees. A loss of key personnel or theirwork product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business,results of operations and financial condition.If we do not obtain patent term extension and data exclusivity for any of our current or future product candidates, our business may bematerially harmed.Depending upon the timing, duration and specifics of any FDA marketing approval of any of our current or future product candidates, one or moreof our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, orthe Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patentterm lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for usingit, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercisedue diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration ofrelevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protectionafforded could be less than we request. If we are unable to obtain patent term extension or term of any such extension is less than we request, ourcompetitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations,and prospects could be materially harmed.If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our marks ofinterest and our business may be adversely affected.Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. Werely on both registration and common law protection for our trademarks. We may not be able to protect our rights to these trademarks and tradenames or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets ofinterest. During the trademark registration process, we may receive Office Actions from the USPTO objecting to the registration of our trademark.Although we would be given an opportunity to respond to those objections, we may be unable to overcome such rejections. In addition, in theUSPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applicationsand/or to seek the cancellation of registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and ourtrademarks may not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we maynot be able to compete effectively and our business may be adversely affected.The U.S. government may exercise its march-in rights with regards to certain patents.Pursuant to the Bayh-Dole Act, the U.S. government has march-in rights with regards to government-funded technology. The U.S. government canexercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-fundedtechnology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference toU.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying suchinventions in the United States. Any exercise by the government of any of the foregoing rights could harm our competitive position, business,financial condition, results of operations, and prospects.96Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.The degree of future protection afforded by our intellectual property rights, whether owned or in-licensed, is uncertain because intellectual propertyrights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, orpermit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology,we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:•pending patent applications that we own or license may not lead to issued patents;•patents, should they issue, that we own or license, may not provide us with any competitive advantages, or may be challenged and heldinvalid or unenforceable;•others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology but that is notcovered by the claims of any of our owned or in-licensed patents, should any such patents issue;•third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;•we (or our licensors) might not have been the first to make the inventions covered by a pending patent application that we own orlicense;•we (or our licensors) might not have been the first to file patent applications covering a particular invention;•others may independently develop similar or alternative technologies without infringing our intellectual property rights;•we may not be able to obtain and/or maintain necessary licenses on reasonable terms or at all;•third parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us fromexercising exclusive rights, or any rights at all, over that intellectual property;•we may not be able to maintain the confidentiality of our trade secrets or other proprietary information;•we may not develop or in-license additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.Should any of these events occur, they could significantly harm our business and results of operation.Risks Related to Our Reliance On Third PartiesWe plan to rely on third parties to conduct our clinical trials. If these third parties do not properly and successfully carry out theircontractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our productcandidates.We plan to utilize and depend upon independent investigators and collaborators, such as medical institutions, CROs, CMOs and strategic partnersto conduct our preclinical studies and clinical trials under agreements with us. We expect to have to negotiate budgets and contracts with CROs,trial sites and CMOs which may result in delays to our development timelines and increased costs. We will rely heavily on these third parties overthe course of our clinical trials, and we control only certain aspects of their activities. As a result, we will have less direct control over the conduct,timing and completion of these clinical trials and the management of data developed through clinical trials than would be the case if we wererelying entirely upon our own staff. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance withapplicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of ourregulatory responsibilities. We and these third parties are required to comply with GCPs, which are regulations and guidelines enforced by the FDAand comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCPs throughperiodic inspections of trial sponsors,97principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generatedin our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additionalclinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determinethat any of our clinical trials comply with the GCP regulations. In addition, our clinical trials must be conducted with biologic product producedunder cGMP regulations, including cGTP regulations, and will require a large number of test patients. Our failure or any failure by these thirdparties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay theregulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse orfalse claims laws and regulations or healthcare privacy and security laws.Any third parties conducting our clinical trials are not and will not be our employees and, except for remedies available to us under our agreementswith such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing, clinical and non-clinical productcandidates. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also beconducting clinical trials or other drug development activities, which could affect their performance on our behalf. If these third parties do notsuccessfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy ofthe clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, ourclinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of orsuccessfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidateswould be harmed, our costs could increase and our ability to generate revenue could be delayed.Switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive management time and focus. Inaddition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact ourability to meet our desired clinical development timelines.We may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may notrealize the benefits of such collaborations, alliances or licensing arrangements.We may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third partiesthat we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any futureproduct candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near andlong-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business.In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex.Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidatesbecause they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our productcandidates as having the requisite potential to demonstrate safety, potency and purity and obtain marketing approval.Further, collaborations involving our product candidates are subject to numerous risks, which may include the following:•collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration;98•collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renewdevelopment or commercialization of our product candidates based on clinical trial results, changes in their strategic focus due to theacquisition of competitive products, availability of funding or other external factors, such as a business combination that divertsresources or creates competing priorities;•collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate,repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;•collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our productcandidates;•a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing anddistribution;•collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietaryinformation in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property orproprietary information or expose us to potential liability;•disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercializationof our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;•collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development orcommercialization of the applicable product candidates; and•collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in suchcases, we would not have the exclusive right to commercialize such intellectual property.As a result, if we enter into additional collaboration agreements and strategic partnerships or license our product candidates, we may not be able torealize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, whichcould delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license,we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategicpartnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certaingeographies for certain indications, which would harm our business prospects, financial condition and results of operations.If or until we develop our own manufacturing facility, we expect to rely on the use of manufacturing suites in third-party GMP facilities orthird parties to manufacture our product candidates. Our business could be harmed if we are unable to use third-party manufacturingsuites or if the third-party manufacturers fail to provide us with sufficient quantities of our product candidates or fail to do so atacceptable quality levels or prices.We do not currently own any facility that may be used as our clinical-scale manufacturing and processing facility and must currently rely onoutside vendors to manufacture and process our product candidates, which is and will need to be done on a patient-by-patient basis. We are in theprocess of adding manufacturing capacity at a suite in Catapult’s GMP manufacturing center, which we expect to be operational in the second halfof 2019, but the build-out and staffing of the manufacturing suite may be delayed and the suite may never become operational. We have not yetcaused our product candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of our productcandidates.99Although in the future we plan to build our own manufacturing facility, we also intend to use the manufacturing suite at Catapult and other thirdparties as part of our manufacturing process and may, in any event, never be successful in developing our own manufacturing facility. Ouranticipated reliance on a limited number of third-party manufacturers exposes us to the following risks:•we may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited andthe FDA must inspect any manufacturers for current cGMP and cGTP compliance as part of our marketing application;•a new manufacturer would have to be educated in, or develop substantially equivalent processes for, the production of our productcandidates;•our manufacturers may have little or no experience with autologous cell products, which are products made from a patient’s own cells,and therefore may require a significant amount of support from us in order to implement and maintain the infrastructure and processesrequired to manufacture our product candidates;•our third-party manufacturers might be unable to timely manufacture our product candidates or produce the quantity and quality requiredto meet our clinical and commercial needs, if any;•our third-party suppliers or collaborators from whom we receive our antibodies used in combination with our product candidates may beunable to timely manufacture or provide the applicable antibody or produce the quantity and quality required to meet our clinical andcommercial needs;•contract manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements appropriately;•our future contract manufacturers may not perform as agreed, may not devote sufficient resources to our product candidates or may notremain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store, anddistribute our products, if any;•manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strictcompliance with cGMP, cGTP and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards;•we may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in themanufacturing process for our product candidates;•our third-party manufacturers could breach or terminate their agreements with us;•raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier, maynot be available or may not be suitable or acceptable for use due to material or component defects;•our contract manufacturers and critical reagent suppliers may be subject to inclement weather, as well as natural or man-made disasters;and•our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields, and we have no directcontrol over our contract manufacturers’ ability to maintain adequate quality control, quality assurance and qualified personnel.Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our product candidates by the FDA, resultin higher costs or adversely impact commercialization of our product candidates. In addition, we will rely on third parties to perform certainspecification tests on our product candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable,patients could be put at risk of serious harm and the FDA could place significant restrictions on our company until deficiencies are remedied.The manufacture of biological drug products is complex and requires significant expertise and capital investment, including the development ofadvanced manufacturing techniques and process controls. Manufacturers of biologic products often encounter difficulties in production, particularlyin scaling up or out, validating the production process and assuring high reliability of the manufacturing process (including the absence ofcontamination). These problems include logistics and shipping, difficulties with production100costs and yields, quality control, including stability of the product, product testing, operator error and availability of qualified personnel, as well ascompliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in our supply of our productcandidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate andremedy the contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our product candidateswill not occur in the future.We may fail to manage the logistics of collecting and shipping patient material to the manufacturing site and shipping the product candidate backto the patient. Logistical and shipment delays and problems caused by us, our vendors or other factors not in our control, such as weather, couldprevent or delay the delivery of product candidates to patients. Additionally, we have to maintain a complex chain of identity and chain of custodywith respect to patient material as it moves to the manufacturing facility, through the manufacturing process and back to the patient. Failure tomaintain chain of identity and chain of custody could result in patient death, loss of product or regulatory action.Our product candidates rely on the availability of specialty raw materials, which may not be available to us on acceptable terms or at all.Our product candidates require many specialty raw materials, some of which are manufactured by small companies with limited resources andexperience to support a commercial product. In addition, those suppliers normally support blood-based hospital businesses and generally do nothave the capacity to support commercial products manufactured under cGMP by biopharmaceutical firms. The suppliers may be ill-equipped tosupport our needs, especially in non-routine circumstances like an FDA inspection or medical crisis, such as widespread contamination. We alsodo not have contracts with many of these suppliers and may not be able to contract with them on acceptable terms or at all. Accordingly, we mayexperience delays in receiving key raw materials to support clinical or commercial manufacturing.In addition, some of our raw materials are currently available from a single supplier, or a small number of suppliers. The type of cell culture mediaand cryopreservation buffer that we currently use in our manufacturing process for the TRuC-T cells for TC-210 and TC-110 are each only availablefrom a single supplier. In addition, the cell processing equipment and tubing that we use in our current manufacturing process is only availablefrom a single supplier. We also use certain biologic materials, including certain activating antibodies, that are available from multiple suppliers, buteach version may perform differently, requiring us to characterize them and potentially modify some of our protocols if we change suppliers. Wecannot be sure that these suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that isnot interested in continuing to produce these materials for our intended purpose. Accordingly, if we no longer have access to these suppliers, wemay experience delays in our clinical or commercial manufacturing which could harm our business or results of operations.Our manufacturing process needs to comply with FDA regulations relating to the quality and reliability of such processes. Any failure tocomply with relevant regulations could result in delays in or termination of our clinical programs and suspension or withdrawal of anyregulatory approvals.In order to commercially produce our products either at our own facility or at a third party’s facility, we will need to comply with the FDA’s cGMPregulations and guidelines, including cGTPs. We may encounter difficulties in achieving quality control and quality assurance and may experienceshortages in qualified personnel. We are subject to inspections by the FDA and comparable foreign regulatory authorities to confirm compliancewith applicable regulatory requirements. Any failure to follow cGMP, cGTP or other regulatory requirements or delay, interruption or other issuesthat arise in the manufacture, fill-finish, packaging, or storage of our TRuC-T cells as a result of a failure of our facilities or the facilities oroperations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability todevelop and commercialize our TRuC-T cell programs, including leading to significant delays in the availability of our TRuC-T cells for our clinicaltrials or the101termination of or suspension of a clinical trial, or the delay or prevention of a filing or approval of marketing applications for our TRuC-T cell productcandidates. Significant non-compliance could also result in the imposition of sanctions, including warning or untitled letters, fines, injunctions, civilpenalties, failure of regulatory authorities to grant marketing approvals for our TRuC-T cell product candidates, delays, suspension or withdrawal ofapprovals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could damage ourreputation and our business.If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, wemay be liable for damages.Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biologicalmaterials, by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United Statesgoverning the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers’procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminatethe risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incurliability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of anaccident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurancefor liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and currentor future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects,financial condition or results of operations.Risks Related to Employee Matters and Managing GrowthWe are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, wemay not be able to successfully implement our business strategy.Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highlyqualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, includingour Chief Executive Officer and President, our Chief Financial Officer, our Chief Scientific Officer and our Chief Medical Officer. The loss of theservices of any of our executive officers, other key employees and other scientific and medical advisors, and an inability to find suitablereplacements could result in delays in product development and harm our business.We conduct our operations at our facility in Cambridge, Massachusetts. This region is headquarters to many other biopharmaceutical companiesand many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retainhighly qualified personnel on acceptable terms or at all. Changes to U.S. immigration and work authorization laws and regulations, including thosethat restrain the flow of scientific and professional talent, can be significantly affected by political forces and levels of economic activity. Ourbusiness may be materially adversely affected if legislative or administrative changes to immigration or visa laws and regulations impair our hiringprocesses and goals or projects involving personnel who are not U.S. citizens.To encourage valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vestover time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that arebeyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retainvaluable employees, members of our management, scientific and development teams may terminate their employment with us on short notice.Although we have employment agreements with our102key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave ouremployment at any time, with or without notice. Our success also depends on our ability to continue to attract, retain and motivate highly skilledjunior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.We will need to grow the size of our organization, and we may experience difficulties in managing this growth.As of March 15, 2019, we had 47 full-time employees and one part-time employee. As our development and commercialization plans andstrategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales,marketing, financial and other personnel, as well as additional facilities to expand our operations. Future growth would impose significant addedresponsibilities on members of management, including:•identifying, recruiting, integrating, maintaining and motivating additional employees;•managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates, whilecomplying with our contractual obligations to contractors and other third parties; and•improving our operational, financial and management controls, reporting systems and procedures.Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manageany future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in orderto devote a substantial amount of time to managing these growth activities.We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors andconsultants to provide certain services, including substantially all aspects of regulatory approval, clinical trial management and manufacturing.There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timelybasis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if thequality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed orterminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be noassurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economicallyreasonable terms, or at all. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, or weare not able to effectively build out new facilities to accommodate this expansion, we may not be able to successfully implement the tasksnecessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development andcommercialization goals.Our internal computer systems, or those used by our third-party CROs or other contractors or consultants, may fail or suffer securitybreaches, which could result in a material disruption of the development programs of our product candidates.Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractorsand consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, and telecommunication and electricalfailures. While we have not experienced any such material system failure or security breach to date, if such an event were to occur and causeinterruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, theloss of data from completed or future preclinical103studies and clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce thedata. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating totheir computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were toresult in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incurliability and the further development and commercialization of our product candidates could be delayed.Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.Our operations, and those of our CROs, CMOs and other contractors and consultants, could be subject to earthquakes, power shortages,telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and othernatural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these businessdisruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturersto produce and process our product candidates on a patient-by-patient basis. Our ability to obtain clinical supplies of our product candidates couldbe disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians,patients, hospitals, cancer treatment centers and others in the medical community.The use of engineered T cells as a potential cancer treatment is a recent development and may not become broadly accepted by physicians,patients, hospitals, cancer treatment centers and others in the medical community. Various factors will influence whether our product candidatesare accepted in the market, including:•the clinical indications for which our product candidates are licensed;•physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe and effective treatment;•the potential and perceived advantages of our product candidates over alternative treatments;•our ability to demonstrate the advantages of our product candidates over other engineered TCR-T cell and CAR-T cell therapies;•the prevalence and severity of any side effects;•the prevalence and severity of any side effects for other adoptive cell therapies, engineered TCR-T cell and CAR-T cell products andpublic perception of other adoptive cell therapies, engineered TCR-T cell and CAR-T cell products;•product labeling or product insert requirements of the FDA or other regulatory authorities;•limitations or warnings contained in the labeling approved by the FDA;•the timing of market introduction of our product candidates as well as competitive products;•the cost of treatment in relation to alternative treatments;•the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;•the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors and government authorities;•relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and•the effectiveness of our sales and marketing efforts.In addition, although we are not utilizing embryonic stem cells or replication competent vectors, adverse publicity due to the ethical and socialcontroversies surrounding the therapeutic use of such technologies,104and reported side effects from any clinical trials using these technologies or the failure of such clinical trials to demonstrate that these therapiesare safe and effective may limit market acceptance of our product candidates. If our product candidates are licensed but fail to achieve marketacceptance among physicians, patients, hospitals, cancer treatment centers or others in the medical community, we will not be able to generatesignificant revenue.In addition, although our product candidates differ in certain ways from other engineered TCR-T cell and CAR-T cell approaches, serious adverseevents or deaths in other clinical trials involving engineered TCR, CAR-T or other T cell products or with our use of licensed engineered TCR-T cellor CAR-T cell products, even if not ultimately attributable to our product or product candidates, could result in increased government regulation,unfavorable public perception and publicity, potential regulatory delays in the testing or licensing of our product candidates, stricter labelingrequirements for those product candidates that are licensed, and a decrease in demand for any such product candidates.Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products ortechnologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization ofour product candidates.We face an inherent risk of product liability as a result of the planned clinical testing of our product candidates and will face an even greater risk ifwe commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to beotherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defectsin manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claimscould also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we mayincur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significantfinancial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:•decreased demand for our product candidates or products that we may develop;•injury to our reputation;•withdrawal of clinical trial participants;•initiation of investigations by regulators;•costs to defend the related litigation;•a diversion of management’s time and our resources;•substantial monetary awards to trial participants or patients;•product recalls, withdrawals or labeling, marketing or promotional restrictions;•loss of revenue;•exhaustion of any available insurance and our capital resources;•the inability to commercialize any product candidate; and•a decline in our share price.105Failure to obtain or retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims couldprevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Although we have clinical trial insurance, ourinsurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may haveto pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by ourinsurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporatecollaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.Comprehensive tax reform legislation could adversely affect our business and financial condition.On December 22, 2017, President Trump signed into law the TCJA, which significantly reformed the Internal Revenue Code of 1986, as amended.The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginalrate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense, limitation of the deduction for net operating losses andelimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any suchtax losses may be carried forward indefinitely), and modifying or repealing many business deductions and credits, including reducing the businesstax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphandrugs”. We continue to examine the impact this tax reform legislation may have on our business. However, the effect of the TCJA on us and ouraffiliates, whether adverse or favorable, is uncertain and may not become evident for some period of time. You are urged to consult your taxadviser regarding the implications of the TCJA on an investment in our common stock.Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generallydefined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change netoperating loss carryforwards and other pre-change tax attributes to offset its post-change taxable income may be limited. As a result of our mostrecent private placements and other transactions that have occurred over the past three years, we may have experienced, and, may experience,an “ownership change.” We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. AtDecember 31, 2018, we have cumulative net operating loss carryforwards of approximately $19.2 million and $18.3 million available to reducefederal and state taxable income, respectively, of which $17.4 million of federal net operating losses will carryforward indefinitely, with theremaining federal and state losses beginning to expire in 2035. In addition, we have cumulative federal and state tax credit carryforwards of $1.2million and $0.8 million, respectively, available to reduce federal and state income taxes which will begin to expire in 2035 and 2031, respectively.Our net operating loss carryforwards and tax credit carryforwards may be limited as a result of certain ownership changes, as defined underSections 382 and 383 of the Internal Revenue Code. This limits the annual amount of these tax attributes that can be utilized to offset futuretaxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to an ownership change.Subsequent ownership changes may affect the limitation in future years. The reduction of the corporate tax rate under the TCJA may cause areduction in the economic benefit of our net operating loss carryforwards and other deferred tax assets available to us. Under the TCJA, federal netoperating losses generated after December 31, 2017 will not be subject to expiration.106Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stockprice.As widely reported, global credit and financial markets have experienced extreme volatility and disruptions in the past several years, includingseverely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemploymentrates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidencein economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile businessenvironment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, itmay make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in atimely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price andcould require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers,manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operatinggoals on schedule and on budget.As of December 31, 2018, we had cash, cash equivalents and short-term investments of $123.2 million. In addition, in February 2019, we raisedapproximately $80.2 million in our IPO. While we are not aware of any downgrades, material losses, or other significant deterioration in the fairvalue of our cash equivalents and short-term investments since December 31, 2018, no assurance can be given that further deterioration of theglobal credit and financial markets would not negatively impact our current portfolio of cash equivalents or our ability to meet our financingobjectives. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establishmarketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if licensed, wemay not be able to generate product revenue.We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. We intend to develop an in-housemarketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have tocompete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangementsregarding the sales and marketing of our products, if licensed. However, there can be no assurance that we will be able to establish or maintainsuch collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon theefforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such thirdparties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also facecompetition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships withthird-party collaborators to commercialize any product in the United States or overseas.107Risks Related to our Common StockAn active, liquid and orderly trading market may not be sustained.In February 2019, we closed our IPO. Prior to our IPO, there was no public trading market for shares of our common stock. Although wecompleted our IPO and our common stock is listed and trading on The Nasdaq Global Select Market, an active trading market for our shares maynot be sustained. If an active market for our common stock does not continue, it may be difficult for our stockholders to sell their shares withoutdepressing the market price for the shares or sell their shares at or above the prices at which they acquired their shares or sell their shares at thetime they would like to sell. Further, any inactive trading market for our common stock may also impair our ability to raise capital by selling sharesof our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares ofcommon stock as consideration.The trading price of our stock may be volatile. Securities class action or other litigation involving our company or members of ourmanagement team could also substantially harm our business, financial condition and results of operations.The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, someof which are beyond our control, including limited trading volume. The market price of our common stock may be influenced by many factors,including:•the results of our ongoing, planned or any future preclinical studies, clinical trials or clinical development programs;•the commencement, enrollment, or results of clinical trials of our product candidates or any future clinical trials we may conduct, orchanges in the development status of our product candidates;•adverse results or delays in preclinical studies and clinical trials;•our decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial;•any delay in our regulatory filings or any adverse regulatory decisions, including failure to receive regulatory approval of our productcandidates;•changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;•adverse developments concerning our manufacturers or our manufacturing plans;•our inability to obtain adequate product supply for any licensed product or inability to do so at acceptable prices;•our inability to establish collaborations if needed;•our failure to commercialize our product candidates;•additions or departures of key scientific or management personnel;•unanticipated serious safety concerns related to the use of our product candidates;•introduction of new products or services offered by us or our competitors;•announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;•our ability to effectively manage our growth;•the size and growth of our initial cancer target markets;•our ability to successfully treat additional types of cancers or at different stages;•actual or anticipated variations in quarterly operating results;•our cash position;•our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;108•publication of research reports about us or our industry, or immunotherapy in particular, or positive or negative recommendations orwithdrawal of research coverage by securities analysts;•changes in the market valuations of similar companies;•overall performance of the equity markets;•sales of our common stock by us or our stockholders in the future;•trading volume of our common stock;•changes in accounting practices;•ineffectiveness of our internal controls;•disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patentprotection for our technologies;•significant lawsuits, including patent or stockholder litigation;•general political and economic conditions; and•other events or factors, many of which are beyond our control.In addition, the stock market in general, and The Nasdaq Global Select Market and biopharmaceutical companies in particular, have experiencedextreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broadmarket and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. If themarket price of our common stock does not exceed your purchase price, you may not realize any return on your investment in us and may losesome or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods ofvolatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion ofmanagement’s attention and resources, which would harm our business, operating results, or financial condition.Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights toour technologies or product candidates.We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliancesand licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownershipinterest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Theincurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitationson our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions thatcould adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensingarrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on termsunfavorable to us.We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipatedeclaring or paying any cash dividends for the foreseeable future. In addition, we may enter into agreements that prohibit us from paying cashdividends without prior written consent from our contracting parties, or which other terms prohibiting or limiting the amount of dividends that may bedeclared or paid on our common stock. Any return to stockholders will therefore be limited to the appreciation of their stock, which may neveroccur.109Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant influence overmatters subject to stockholder approval.As of March 1, 2019, our executive officers, directors, and 5% stockholders beneficially owned approximately 68% of our voting stock. Therefore,these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all mattersrequiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizationaldocuments, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisitionproposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growthcompanies will make our common stock less attractive to investors.We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (JOBS Act) enacted in April 2012. For as long as wecontinue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable toother public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements ofSection 404 of the Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act), reduced disclosure obligations regarding executivecompensation in this Annual Report, our other periodic reports and proxy statements, and exemptions from the requirements of holding nonbindingadvisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be anemerging growth company for up to five years following our IPO, although circumstances could cause us to lose that status earlier. We will remainan emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of our IPO, (b) inwhich we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires themarket value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (2) the date on which we haveissued more than $1 billion in non-convertible debt during the prior three-year period.Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standardsapply to private companies. 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.Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us totake advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestationrequirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this AnnualReport, our other periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we mayrely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for ourcommon stock and our stock price may be more volatile.We will incur significant increased costs as a result of operating as a public company, and our management will be required to devotesubstantial time to new compliance initiatives.As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We will be subjectto the reporting requirements of the Securities Exchange Act of 1934, as amended, which will require, among other things, that we file with theSecurities and Exchange Commission (SEC), annual, quarterly, and current reports with respect to our business and financial110condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The Nasdaq Global Select Market toimplement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment andmaintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-FrankWall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was enacted. There are significant corporate governance and executivecompensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas, such as “sayon pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer periodand up to five years from the pricing of our IPO. We intend to take advantage of this new legislation but cannot guarantee that we will not berequired to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, thecurrent political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulationsand disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways wecannot currently anticipate.We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to makesome activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other businessconcerns, they could have a material adverse effect on our business, financial condition, and results of operations. The increased costs willdecrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of ourproducts or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director andofficer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict orestimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could alsomake it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as executiveofficers.Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stockprice to fall.In connection with our IPO, our officers, directors and substantially all of our stockholders have agreed to be subject to a contractual lock-up withthe underwriters, which will expire 180 days after the date of the IPO. Jefferies LLC, SVB Leerink LLC and BMO Capital Markets Corp., however,may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares priorto the expiration of the lock-up agreements.If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-upand other legal restrictions on resale lapse, the trading price of our common stock could decline. As of March 25, 2019, we have a total of23,939,901 shares of common stock outstanding. Of these shares, only the shares of common stock sold in our initial public offering and anyshares sold following the underwriters’ exercise of their option to purchase additional shares, are freely tradable without restriction in the publicmarket, unless purchased by our affiliates.In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our 2018 Plan and our2018 Employee Stock Purchase Plan adopted in connection with the IPO will become eligible for sale in the public market to the extent permittedby the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act of 1933, as amended(the Securities Act). If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the tradingprice of our common stock could decline.111The holders of 17,276,913 shares of our common stock are entitled to rights with respect to the registration of their shares under the SecuritiesAct, subject to the 180-day lock-up agreements described above. Registration of these shares under the Securities Act would result in the sharesbecoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under theSecurities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control, which could limitthe market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our currentmanagement.Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change ofcontrol of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:•a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be electedat one time;•a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of ourstockholders;•a requirement that special meetings of stockholders be called only by the chairperson of the board of directors, the chief executiveofficer, or by a majority of the total number of authorized directors;•advance notice requirements for stockholder proposals and nominations for election to our board of directors;•a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, inaddition to any other vote required by law, upon the approval of not less than two-thirds of all outstanding shares of our voting stock thenentitled to vote in the election of directors;•a requirement of approval of not less than two-thirds of all outstanding shares of our voting stock to amend any bylaws by stockholderaction or to amend specific provisions of our certificate of incorporation; and•the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approvaland which preferred stock may include rights superior to the rights of the holders of common stock.In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law,which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeoverprovisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it moredifficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-currentboard of directors and could also delay or impede a merger, tender offer, or proxy contest involving our company. These provisions could alsodiscourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take othercorporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause themarket price of our common stock to decline.Our bylaws designate certain courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated byour stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,officers, or employees.Our bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole andexclusive forum for (i) any derivative action or proceeding112brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, and employees to us orour stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended andrestated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim that is governed by the internal affairsdoctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.This exclusive forum provision will not apply to any causes of action arising under the Exchange Act. In addition, our amended and restatedbylaws will provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to havenotice of and consented to the foregoing provisions. We recognize that the forum selection clause in our bylaws may impose additional litigationcosts on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware. Additionally, theforum selection clauses in our amended and restated bylaws may limit our stockholders’ ability to bring a claim in a forum that they find favorablefor disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers andemployees even though an action, if successful, might benefit our stockholders. The Court of Chancery of the State of Delaware may also reachdifferent judgments or results than would other courts, including courts where a stockholder considering an action may be located or wouldotherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability tooperate our business could be harmed.Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financialstatements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financialreporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements in accordance with generally accepted accounting principles. We have begun the process of documenting, reviewing, and improvingour internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which will require annual managementassessment of the effectiveness of our internal control over financial reporting. We have begun recruiting additional finance and accountingpersonnel with certain skill sets that we will need as a public company.Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify ourexisting processes, and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of ourinternal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis,could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that weare unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectivelymarket and sell our service to new and existing customers.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stockprice and trading volume could decline.The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us orour business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industryanalysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities orindustry analysts initiate coverage, if one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorableresearch about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publishreports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.113Item 1B. Unresolved Staff CommentsNot Applicable.Item 2. Properties.Our headquarters are located at 100 Binney Street, Cambridge, Massachusetts 02142, where we occupy approximately 23,000 square feet. Ourlease expires in June of 2025. We believe that our office and laboratory space is sufficient to meet our needs for the foreseeable future.Item 3. Legal ProceedingsFrom time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any suchproceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition orresults of operations.Item 4. Mine Safety DisclosureNot Applicable.114Part IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.Certain Information Regarding the Trading of Our Common StockOur common stock trades under the symbol “TCRR” on the Nasdaq Global Select Market and has been publicly traded since February 14, 2019.Prior to this time, there was no public market for our common stock.Holders of Our Common StockAs of March 15, 2019, there were approximately 62 holders of record of shares of our common stock. This number does not include stockholdersfor whom shares are held in “nominee” or “street” name.Dividend PolicyWe have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the developmentand expansion of our business, and therefore we do not anticipate paying cash dividends on our common stock in the foreseeable future. Anyfuture determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financialcondition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors.Recent sales of unregistered securitiesSet forth below is information regarding shares of our common stock, shares of our preferred stock issued, and stock options granted by us duringthe period covered by this Annual Report on Form 10-K that were not registered under the Securities Act. Included is the consideration, if any, wereceived for such shares and options and information relating to the section of the Securities Act, or rule of the Securities and ExchangeCommission, under which exemption from registration was claimed.Issuances of Capital StockIn February 2018, with subsequent offerings in March 2018 and April 2018, investors purchased an aggregate of 62,500,000 shares of Series Bpreferred stock for approximately $125,000,000 at $2.00 per share.No underwriters were involved in the foregoing sales of securities. The sales of securities described above were deemed to be exempt fromregistration pursuant to Section 4(a)(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, as transactions by anissuer not involving a public offering. All of the purchasers in these transactions represented to us in connection with their purchase that they wereacquiring the securities for investment and not distribution, that they could bear the risks of the investment and could hold the securities for anindefinite period of time. Such purchasers received written disclosures that the securities had not been registered under the Securities Act and thatany resale must be made pursuant to a registration or an available exemption from such registration. All of the foregoing securities are deemedrestricted securities for the purposes of the Securities Act.Grants and Exercises of Stock Options Under Equity PlansDuring the period covered by this Annual Report on Form 10-K, we granted stock options to purchase an aggregate of 1,185,119 shares of ourcommon stock, with exercise prices ranging from $5.88 to $8.05 per share, to employees, directors and consultants pursuant to the 2015 StockOption and Grant Plan, as amended (the 2015 Plan). In 2018, 145,618 shares of common stock were issued upon the exercise of stock optionspursuant to the 2015 Plan.The issuances of the securities described above were deemed to be exempt from registration pursuant to Section 4(a)(2) of the Securities Act orRule 701 promulgated under the Securities Act as transactions115pursuant to compensatory benefit plans. The shares of common stock issued upon the exercise of options are deemed to be restricted securitiesfor purposes of the Securities Act.Use of Proceeds from Initial Public OfferingIn February 2019, we completed the initial public offering of our common stock (the IPO) pursuant to which we issued and sold 5,750,000 sharesof our common stock at a price to the public of $15.00 per share.All of the shares issued and sold in the IPO were registered under the Securities Act pursuant to a Registration Statement on Form S‑1 (File No.333- 229066), which was declared effective by the SEC on February 13, 2019. Following the sale of all shares, including shares sold pursuant tothe underwriters' option to purchase an additional 750,000 shares exercised in February 2019, in connection with the closing of our IPO, theoffering terminated. Jefferies, SVB Leerink and BMO Capital Markets acted as joint book-running managers and Wedbush PacGrow and ChinaRenaissance acted as lead manager of our initial public offering.We received aggregate gross proceeds from our IPO of approximately $86.3 million, or aggregate net cash proceeds of approximately $80.2 millionafter deducting underwriting discounts and commissions and offering expenses. None of the underwriting discounts and commissions or offeringexpenses were incurred or paid to directors or officers of ours or their associates or to persons owning 10% or more of our common stock or to anyof our affiliates.Information related to use of proceeds from registered securities is incorporated herein by reference to the “Use of Proceeds” section of our finalprospectus related to the IPO. There has been no material change in the planned use of proceeds from our IPO as described in our finalprospectus.Issuer Purchases of Equity SecuritiesNone.116Item 6. Selected Financial DataYou should read the following selected financial data together with our consolidated financial statements and the related notes appearing at the endof this Annual Report on Form 10-K and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.We have derived the consolidated statements of operations data for the years ended December 31, 2018 and 2017 and the consolidated balancesheet data as of December 31, 2018 and 2017 from our audited consolidated financial statements appearing elsewhere in this Annual Report. Theconsolidated statement of operations for the year ended December 31, 2016 and consolidated balance sheet data as of December 31, 2016 isderived from our audited consolidated financial statements not included in this Annual Report. Our historical results are not necessarily indicativeof the results that may be expected in any future period. Years Ended December 31, 2018 2017 2016 (in thousands, except share and per share data)Consolidated Statements of Operations Operating expenses Research and development$19,673 $9,569 $7,670General and Administrative6,780 3,611 2,260Total operating expenses26,453 13,180 9,930 Net loss(24,251) (13,070) (9,915)Accretion of redeemable convertible preferred stock to redemption value(37,298) (1,794) (787)Net loss attributable to common stockholders$(61,549) $(14,864) $(10,702) Net loss per share attributable to common stockholders – basic and diluted (1)$(98.53) $(39.94) $(38.64)Weighted average shares of common stock outstanding – basic and diluted624,659 372,116 276,976(1) All potentially dilutive securities, on an as converted basis have been excluded from thecomputation of diluted weighted-average shares outstanding as they would be antidilutive Years Ended December 31, 2018 2017 2016 (in thousands)Consolidated Balance Sheet data Cash and cash equivalents$47,674 $19,811 $7,992Investments75,493 — 8,348Working capital (2)120,028 19,472 16,349Total assets129,433 22,039 18,251Redeemable convertible preferred stock209,230 47,102 29,169Accumulated deficit(85,590) (26,324) (11,882)Total stockholders’ equity (deficit)(85,696) (26,324) (11,884)(2) Working capital is calculated as current assets less current liabilities. 117Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidatedfinancial statements and related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in thisdiscussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy forour business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors setforth in the ‘‘Risk Factors’’ section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, orimplied by, the forward-looking statements contained in the following discussion and analysis.OverviewWe are a clinical-stage immunotherapy company developing the next generation of novel T cell therapies for patients suffering from cancer. Ourproprietary TCR Fusion Construct T cells (TRuC-T cells) specifically recognize and kill cancer cells by harnessing the entire T cell receptor (TCR)signaling complex, which we believe is essential for T cell therapies to be effective in patients with solid tumors. We have also designed ourTRuC-T cells so that tumor cell recognition does not require human leukocyte antigens (HLA), which provides two important additional benefits.First, in contrast to current engineered T cell therapies that use the full TCR (TCR-T cells), our technology is designed so that it can be applied toall patients that express the cancer surface antigen irrespective of HLA subtype, which we believe will allow us to address a significantly largerpatient population. Second, HLA is downregulated or lost in many tumors which can prevent their recognition by T cells and lead to diminishedresponse rates and higher relapse rates. We therefore believe our approach will allow us to deliver the first HLA-independent TCR-T cell therapy forpatients with solid tumors. We also believe that our product candidates have the potential to improve upon the efficacy and safety of currentlyapproved chimeric antigen receptor T (CAR-T) cell therapies in CD19-positive B-cell hematological malignancies. This belief is based on preclinicalstudies comparing our product candidates to CAR-T cells that we engineered.Since our inception in May 2015, we have focused significant efforts and financial resources on developing our TRuC platform, establishing andprotecting our intellectual property portfolio, conducting research and development of our product candidates, manufacturing drug product materialfor use in preclinical studies, staffing our company and raising capital. We do not have any products approved for sale and have not generated anyrevenue from product sales. To date, we have funded our operations with proceeds from the sale of our preferred stock. Through December 31,2018 we have received gross proceeds of $169.8 million from the sale of our preferred stock, stock option exercises and warrant exercises.Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability willdepend heavily on the successful development and eventual commercialization of one or more of our product candidates. As of December 31,2018, we had an accumulated deficit of $85.6 million. We expect to continue to incur significant expenses and increasing operating losses for atleast the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoingactivities, particularly if and as we:•conduct additional preclinical studies for our product candidates;•initiate and conduct clinical trials for our product candidates;•continue to discover and develop additional product candidates;•acquire or in-license other product candidates and technologies;•maintain, expand, and protect our intellectual property portfolio;•hire additional clinical and scientific personnel;•expand our manufacturing capabilities with third parties and establish manufacturing capabilities in-house;118•seek regulatory approvals for any product candidates that successfully complete clinical trials; and•add operational, financial, and management information systems and personnel, including personnel to support our product developmentand planned future commercialization efforts, as well as to support our transition to a public reporting company.We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval forour 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 anddistribution. Additionally, we expect to incur significant expenses if we acquire and establish our own commercial manufacturing facility, which willbe a costly and time-consuming process, and in our operations as a public company.As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as wecan generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debtfinancings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements. We may be unable to raise additional funds orenter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into suchagreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of oneor more of our product candidates.Components of Our Results of OperationsOperating ExpensesResearch and Development ExpensesResearch and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and thedevelopment of our product candidates, which include:•employee-related expenses, including salaries, benefits and stock-based compensation;•expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements withthird parties, such as consultants, contractors and contract research organizations (CROs);•the cost of acquiring and manufacturing preclinical and clinical trial materials, including under agreements with third parties, such asconsultants, contractors and contract manufacturing organizations (CMOs);•consultant fees and expenses associated with outsourced professional scientific development services;•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities andinsurance; and•payments made under third-party licensing agreements.We expense research and development costs as incurred. Any nonrefundable advance payments that we make for goods or services to bereceived in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as therelated goods are delivered or the services are performed.We typically use our employee, consultant and infrastructure resources across our development programs. We track certain outsourceddevelopment costs by product candidate, but we do not allocate personnel costs or other internal costs to specific product candidates.119Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinicaldevelopment, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenseswill increase substantially in connection with our planned preclinical and clinical development and manufacturing activities in the near term and inthe future. At this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete thepreclinical and clinical development of any of our product candidates. The successful development and commercialization of our productcandidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization,including the following:•the timing and progress of our preclinical studies and clinical trials, which may be significantly slower or cost more than we currentlyanticipate and will depend substantially upon the performance of third-party contractors;•the number and scope of preclinical and clinical programs we decide to pursue;•the progress of the development efforts of parties with whom we may enter into collaboration arrangements;•our ability to maintain our current research and development programs and to establish new ones;•our ability to establish licensing or collaboration arrangements;•our ability to complete investigational new drug application (IND)-enabling studies and successfully submit IND or comparableapplications;•whether we are required by the U.S. Food and Drug Administration (FDA) or similar foreign regulatory authorities to conduct additionalclinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates or anyfuture product candidates;•the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;•our ability and the ability of third parties with whom we contract to manufacture adequate clinical and commercial supplies of our productcandidates or any future product candidates, remain in good standing with regulatory agencies and develop, validate and maintaincommercially viable manufacturing processes that are compliant with current good manufacturing practices (cGMP);•our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, potency, purity andacceptable risk to benefit profile of our product candidates or any future product candidates;•the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or futureproduct candidates, if any;•our ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates;•our ability to successfully develop a commercial strategy and thereafter commercialize our product candidates or any future productcandidates in the United States and internationally, if licensed for marketing, reimbursement, sale and distribution in such countries andterritories, whether alone or in collaboration with others;•the willingness of physicians, operators of clinics and patients to utilize or adopt any of our product candidates or future productcandidates to treat solid and hematologic cancers;•patient demand for our product candidates and any future product candidates, if licensed;•competition with other products; and•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 thecosts and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of ourproduct candidates.120General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel inexecutive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs aswell as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We anticipate that our generaland administrative expenses will increase in the future as we increase our headcount to support our continued research activities and developmentof our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, and director and officerinsurance costs as well as investor and public relations expenses associated with operating as a public company.Other Income, netOther income, net consists of interest earned on our cash equivalents and investment balances, net of investment chargesConsolidated Statements of Operations Years Ended December 31, 2018 2017 (in thousands)Operating expenses Research and development$19,673 $9,569General and administrative6,780 3,611Total operating expenses(26,453) (13,180)Loss from operations(26,453) (13,180) Other income, net2,202 110Net loss(24,251) (13,070) Accretion of redeemable convertible preferred stock to redemption value(37,298) (1,794)Net loss attributable to common stockholders$(61,549) $(14,864)Comparison of the years ended December 31, 2018 and 2017Research and development expensesResearch and development expenses were $19.7 million for the year ended December 31, 2018 compared to $9.6 million for the year endedDecember 31, 2017. The following table summarizes our research and development expenses for the years ended December 31, 2018 and 2017.121 Years Ended December 31, 2018 2017 change (in thousands)TC-210 preclinical expenses$5,821 $929 $4,892Platform development (preclinical)1,951 2,197 (246)Personnel expenses8,753 4,769 3,984Allocated facilities costs2,696 1,422 1,274Other expenses452 252 200Total research and development expenses$19,673 $9,569$$10,104The $10.1 million increase in expense is primarily attributable to the $4.9 million increase in expenses to third parties progressing the preclinicaldevelopment of our lead solid tumor product candidate, TC-210. During 2018, there was an increase in personnel expenses of $4.0 million due toour increase in headcount, an increase in allocated facilities costs of $1.3 million and an increase in other research and development expenses of$0.2 million, primarily attributable to an increase in scientific advisory board fees and equipment maintenance contracts. These increases wereoffset by a decrease of $0.2 million in preclinical expenses related to our platform development. The decrease in platform development costs isthe result of us shifting our focus and resources to the advancement of our lead product candidate, TC-210.General and Administrative ExpensesGeneral and administrative expenses were $6.8 million for the year ended December 31, 2018, compared to $3.6 million for the year endedDecember 31, 2017. The increase in general and administrative expenses was primarily due to an increase in personnel costs of $2.3 million dueto our increase in headcount, an increase in professional service expenses of $0.6 million and an increase in facility and other expenses of $0.3million.Other Income, netInterest income, net was $2.2 million for the year ended December 31, 2018, compared to $0.1 million for the year ended December 31, 2017. Theincrease was due to interest income as a result of a higher average cash balance in our commercial and investment accounts in 2018.Liquidity and Capital ResourcesSince our inception, we have incurred net losses and generated negative cash flows from operations. Since inception, we have funded ouroperations with proceeds from the sale of our Series A and Series B preferred stock. We have received aggregate gross cash proceeds ofapproximately $44.5 million in connection with the sale of our Series A preferred stock and $125.0 million in connection with the sale of ourSeries B preferred stock. As of December 31, 2018, we had cash, cash equivalents and investments of $123.2 million.In February 2019, we completed our initial public stock offering which provided net cash proceeds of $80.2 million.122Cash flowsThe following table summarizes our sources and uses of cash for each of the periods presented: Years Ended December 31,(in thousands)2018 2017Operating activities$(18,778) $(12,015)Investing activities(76,339) 7,672Financing activities122,980 16,163Operating ActivitiesDuring the year ended December 31, 2018, we used $18.8 million of cash in operating activities, resulting primarily from our net loss of $24.3million offset by non-cash charges of $2.3 million, which related to depreciation and amortization, stock-based compensation, interest receivable,and a net decrease in operating assets and liabilities of $3.2 million. The net decreases in operating assets and liabilities were primarily attributableto the timing in which we paid our vendors.During the year ended December 31, 2017, we used $12.0 million of cash in operating activities, primarily resulting from our net loss of$13.1 million offset by non-cash charges of $0.7 million, which primarily consisted of depreciation and stock-based compensation, and a netdecrease in operating assets and liabilities of $0.3 million.Investing ActivitiesDuring the year ended December 31, 2018, cash used in investing activities was $76.3 million, consisting primarily of purchases of investmentsnet of maturities of $75.3 million and purchases of property and equipment of $1.0 million.During the year ended December 31, 2017, cash provided by investing activities was $7.7 million, consisting primarily of maturities of investmentsof $14.8 million, offset by related purchases of short-term investments of $6.5 million, purchases of property and equipment of $0.4 million and anincrease in restricted cash of $0.3 million.Financing ActivitiesDuring the year ended December 31, 2018 and 2017, net cash provided by financing activities was $123.0 and $16.1 million, respectively, in eachcase consisting primarily of net cash proceeds from the sale and issuance of our Series A and Series B preferred stock. We also receivedproceeds of $0.1 million and $44 during the years ended December 31, 2018 and 2017, respectively, in connection with the exercise of stockoptions, including options that were unvested and remain subject to repurchase until vesting.Funding RequirementsWe expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical studies andclinical trials of our product candidates in development and we will incur additional costs associated with operating as a public reporting company.In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related toestablishing sales, marketing, distribution and other commercial infrastructure to commercialize such products.123In addition, our expenses will increase as we:•commence enrollment of clinical trials for our product candidates;•seek regulatory approval for any product candidates that successfully complete preclinical and clinical trials;•establish manufacturing capabilities in-house for the production of preclinical and clinical supply;•hire additional clinical, medical, research and operational personnel; and•maintain, expand, and protect our intellectual property portfolio.As of December 31, 2018, we had cash, cash equivalents and short-term investments of $123.2 million. In February 2019, we completed our IPOwhich generated net cash proceeds of $80.2 million. We believe that the net proceeds from the IPO, together with our existing cash, cashequivalents and investments, will enable us to fund our operating expenses and capital expenditure requirements at least into 2022. We havebased this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.Additionally, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need tospend more money than currently expected because of circumstances beyond our control. Accordingly, we will need to obtain substantialadditional funding in connection with our continuing operations.Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equityofferings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. To the extent that we raiseadditional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securitiesmay include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equityfinancing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurringadditional debt, making acquisitions or capital expenditures, or declaring dividends. If we raise additional funds through collaborations, strategicalliances, 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 toraise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce, orterminate our research, product development, or future commercialization efforts, or grant rights to develop and market drug candidates that wewould otherwise prefer to develop and market ourselves.Critical Accounting Policies and Significant Judgments and EstimatesOur consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (GAAP). Thepreparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reportedamounts of assets, liabilities, and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. Webase our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under thecircumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimatesunder different assumptions or conditions.While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements appearing elsewhere in thisAnnual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation ofour consolidated financial statements.124Research and Development ExpensesResearch and development expenses consist primarily of costs incurred in connection with the development of our product candidates. Weexpense 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 developmentexpenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify servicesthat have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when wehave 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 ouraccrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at thattime. We periodically confirm the accuracy of the estimates with the service providers and make adjustments, if necessary. Examples ofestimated accrued research and development expenses include fees paid to:•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 toquotes and contracts with multiple CMOs and CROs that supply, conduct, and manage preclinical studies on our behalf. The financial terms ofthese agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances inwhich payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing servicefees, 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 ofthe performance of services or the level of effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. Although we donot expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of servicesperformed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too lowin any particular period.Stock-Based CompensationWe measure stock options and other stock-based awards granted to employees based on their fair value on the date of the grant and recognizecompensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. We applythe 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 bysuch non-employees until completed. At the end of each financial reporting period prior to the completion of the service, the fair value of theseawards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricingmodel for options and warrants.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 theBlack-Scholes option-pricing model, which requires subjective assumptions, including the fair value of our common stock, volatility, the expectedterm of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, andour expected dividend yield. The assumptions used in our Black-Scholes option-pricing model represent management’s best estimates and involvea number of variables, uncertainties and125assumptions and the application of management’s judgment, as they are inherently subjective. If any assumptions change, our stock-basedcompensation 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:•Fair Market Value of Common Stock. As our common stock has not historically been publicly traded, we have periodically estimated thefair market value of common stock. See “—Common and Preferred Stock Valuation Methodology”•Volatility. The expected volatility was based on the historical stock volatility of several comparable publicly traded companies over aperiod of time equal to the expected term of the options, as we do not have any trading history to use the volatility of our own commonstock.•Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We calculated theexpected term using the simplified method based on the average of each option’s vesting term and the contractual period during whichthe 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 of U.S. Treasury securities with maturities commensuratewith 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.Common and Preferred Stock Valuation MethodologyOur common and preferred stock valuations were prepared using a hybrid between the option pricing method (OPM) and the probability-weightedexpected return method (PWERM), both of which used market approaches to estimate our enterprise value. The OPM treats common stock andpreferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocationamong the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available fordistribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategicsale, a merger or initial public offering. The common stock has a claim on the equity value at an exercise price equal to the remaining valueimmediately after the preferred stock is liquidated. The OPM is appropriate to use when the range of possible future outcomes is so difficult topredict that forecasts would be highly speculative. The OPM commonly uses the Black-Scholes option pricing model to determine the price of thecall option.In the OPM, the backsolve method can be used to infer the total equity value implied by the pricing and terms of our Series A and Series Bpreferred stock financing transactions by making assumptions regarding the expected time to liquidity, expected volatility and risk-free interestrate, and then solve for the value of equity such that the implied value for the most recent financing equals the amount paid. At certain valuationdates, the equity value inferred from the OPM backsolve method was adjusted for company and market specific events that occurred between thefinancing date and the valuation date.The PWERM involves a forward-looking analysis of the possible future outcomes, estimation of ranges of future and present value under eachoutcome and application of a probability factor to each outcome as of the valuation date. Under this method, discrete future outcomes, includingan IPO, and non-IPO scenarios, are weighted based on the estimated probability of each scenario.The hybrid method is generally appropriate to use when the time to a liquidity event is short, making the range of possible future outcomesrelatively easy to predict. In the IPO scenario, all shares of preferred stock were assumed to convert to common stock. Accordingly, theestimated equity value was allocated pro rata among our preferred stock and common stock on an as converted basis, which caused the commonstock to have a higher relative value per share than under the scenarios captured by the OPM.126The weighting between the PWERM and OPM employed in the hybrid method was based on our board of directors’ estimate of the probability ofeach scenario as of each valuation date. These third-party valuations were performed at various dates, which resulted in valuations of our commonstock of $0.74 per share as of September 30, 2016, $1.73 per share as of December 31, 2017, $5.88 per share as of February 28, 2018, $8.05 pershare as of August 31, 2018 and $9.23 per share as of December 31, 2018. The fair value of our Series A preferred stock was $1.50 per share asof August 31, 2018 and $1.64 per share as of December 31, 2018. The fair value of our Series B preferred stock was $2.22 per share as ofAugust 31, 2018 and $2.18 per share as of December 31, 2018.The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the applicationof management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock andour stock-based compensation expense could have been materially different.Upon the closing of the IPO, all of our outstanding preferred stock converted to common stock and it is no longer necessary for our board ofdirectors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards wemay grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.Royalty transfer agreementIn connection with the sale of Series A redeemable convertible preferred stock (see Note 9), certain investors are entitled to receive, in theaggregate, a royalty from the Company equal to one percent of (i) all global net sales of any Company products and (ii) any license income onintellectual property that was in existence at the time of the Series A preferred stock financing. The Company has elected to account for thisliability at fair value with changes recognized in earnings. Given the early stage nature of the underlying technology and inherent risks associatedwith obtaining regulatory approval and achieving commercialization, the Company ascribed no value to the royalty agreement at inception and atDecember 31, 2018 and 2017. The Company continues to evaluate our scientific progress to assess our obligations under this agreement. There issubstantial judgment involved in our assessment.Off-Balance Sheet ArrangementsWe did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules andregulations of the SEC.Recently Issued and Adopted Accounting PronouncementsA description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations isdisclosed in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report.Emerging Growth Company StatusWe are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act), and are eligible to takeadvantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growthcompanies. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition periodprovided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards issued subsequent to theenactment of the JOBS Act until such time as those standards apply to private companies. Section 107 of the JOBS Act provides that we canelect to opt out of the extended transition period at any time, which election is irrevocable. We have elected to avail ourselves of this exemptionfrom complying with new or revised accounting standards and, therefore, will127not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subjectto certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation (i) providing anauditor’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 Public Company Accounting Oversight Board regarding mandatory audit firmrotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements, known asthe auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which wehave total annual gross revenue of $1.07 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of thecompletion of our initial public offering; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous threeyears; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.Item 7A. Quantitative and Qualitative Disclosures About Market RiskNot Applicable.128Item 8. Financial StatementsTCR2 THERAPEUTICS INC.Audited Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm 130Consolidated Balance Sheets as of December 31, 2018 and 2017 131Consolidated Statements of Operations for the Years Ended December 31, 2018 and 2017 132Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2018 and 2017 133Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years Ended December 31, 2018and 2017 134Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 135Notes to the Consolidated Financial Statements 136129REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and Board of DirectorsTCR2 Therapeutics Inc.:Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of TCR2 Therapeutics Inc. and subsidiary (the Company) as of December 31,2018 and 2017, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’equity (deficit), and cash flows for each of the years then ended, and the related notes (collectively, the consolidated financial statements). In ouropinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,2018 and 2017, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally acceptedaccounting principles.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting OversightBoard (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securitieslaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Ouraudits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to erroror fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding theamounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used andsignificant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believethat our audits provide a reasonable basis for our opinion./s/ KPMG LLPWe have served as the Company’s auditor since 2017.Cambridge, MassachusettsMarch 29, 2019130TCR2 THERAPEUTICS INC.CONSOLIDATED BALANCE SHEETS(amounts in thousands, except share data) December 31, 2018 2017Assets Current assets Cash and cash equivalents$47,674 $19,811Investments75,493 —Prepaid expenses and other current assets2,326 892Total current assets125,493 20,703 Property and equipment, net1,638 1,026Restricted cash290 290Deferred offering costs2,012 20Total assets$129,433 $22,039 Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) Accounts payable$2,663 $427Accrued expenses and other current liabilities2,802 804Total current liabilities5,465 1,231 Other liabilities434 30Total liabilities5,899 1,261 Commitments and contingencies (Note 7) Redeemable convertible preferred stock, $0.0001 par value Series A preferred stock shares 45,000,000 authorized; 44,500,001 shares issued and outstanding at December 31,2018 and 2017 (liquidation preference of $49.8 million at December 31, 2018)72,980 47,102Series B preferred stock: 62,500,000 and no shares authorized at December 31, 2018 and 2017, respectively;62,500,000 shares and no shares authorized and outstanding as of December 31, 2018 and 2017,respectively (liquidation value of $130.9 million at December 31, 2018).136,250 —Total redeemable convertible preferred stock209,230 47,102 Stockholders’ equity (deficit) Common stock, $0.0001 par value; 20,988,730 and 13,239,045 shares authorized at December 31, 2018 and 2017,respectively; 914,602 and 612,962 shares issued at December 31, 2018 and 2017, respectively; 726,994 and435,630 shares outstanding at December 31, 2018 and 2017, respectively.— —Additional paid-in capital— —Accumulated other comprehensive loss(106) —Accumulated deficit(85,590) (26,324)Total stockholders’ equity (deficit)(85,696) (26,324)Total liabilities, redeemable preferred stock and stockholders’ equity (deficit)$129,433 $22,039 See accompanying notes to consolidated financial statements131TCR2 THERAPEUTICS INC.CONSOLIDATED STATEMENTS OF OPERATIONS(amounts in thousands, except share and per share data) Years EndedDecember 31, 2018 2017Operating expenses Research and development$19,673 $9,569General and administrative6,780 3,611Total operating expenses26,453 13,180Loss from operations(26,453) (13,180) Other income, net2,202 110Net loss(24,251) (13,070) Accretion of redeemable convertible preferred stock to redemption value(37,298) (1,794)Net loss attributable to common stockholders$(61,549) $(14,864) Per share information Net loss per share of common stock, basic and diluted$(98.53) $(39.94) Weighted average shares outstanding, basic and diluted624,659 372,116 See accompanying notes to consolidated financial statements132TCR2 THERAPEUTICS INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(amounts in thousands) Years EndedDecember 31, 2018 2017Net loss $(24,251) $(13,070) Unrealized (loss) gain on investments (106) 2Comprehensive loss $(24,357) $(13,068) See accompanying notes to consolidated financial statements133TCR2 THERAPEUTICS INC.CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)(amounts in thousands, except share data) Redeemable Convertible Preferred Stock Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (Deficit) Series A Series B Common Stock Additional Paid-In Capital DescriptionShares Amount Shares Amount Shares Amount Balance at December 31, 201628,333,334 $29,169 — $— 326,870 $— $— $(11,882) $(2) $(11,884)Sale of Series A preferredstock, net of issuancecosts of $2416,166,667 16,139 — — — — — — — —Reclassification of sharesissued and previouslysubject to repurchase— — — — 89,645 — — — — —Exercise of stock options— — — — 19,115 — 14 — — 14Stock-based compensation— — — — — — 408 — — 408Unrealized gain oninvestments— — — — — — — — 2 2Accretion of Series Apreferred stock toredemption value— 1,794 — — — — (422) (1,372) — (1,794)Net loss— — — — — — — (13,070) — (13,070)Balance at December 31, 201744,500,001 $47,102 — $— 435,630 $— $— $(26,324) $— $(26,324)Sale of Series B preferredstock, net of issuancecosts of $170— — 62,500,000 124,830 — — — — — —Reclassification of sharesissued and previouslysubject to repurchase— — — — 89,284 — — — — —Exercise of stock options andwarrants— — — — 202,080 — 150 — — 150Stock-based compensationexpense— — — — — — 2,133 — — 2,133Unrealized loss oninvestments— — — — — — — — (106) (106)Accretion of redeemablepreferred stock toredemption value— 25,878 — 11,420 — — (2,283) (35,015) — (37,298)Net loss— — — — — — — (24,251) — (24,251)Balance at December 31, 201844,500,001 $72,980 62,500,000 $136,250 726,994 $— $— $(85,590) $(106) $(85,696) See accompanying notes to consolidated financial statements134TCR2 THERAPEUTICS INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in thousands) YEARS ENDED DECEMBER 31, 2018 2017Operating activities: Net loss$(24,251) $(13,070)Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization419 298Stock-based compensation expense2,133 408Loss on fixed asset disposal2 —Accretion on investments(280) —Changes in operating assets and liabilities: Interest receivable on investments(390) —Prepaid expenses and other current assets(1,043) 103Accounts payable2,224 (101)Accrued expenses and other liabilities2,408 347Cash used in operating activities(18,778) (12,015) Investing activities: Purchase of investments(97,810) (6,480)Proceeds from maturity of investments22,490 14,830Change in restricted cash— (290)Purchases of equipment(1,019) (388)Cash (used in) provided by investing activities(76,339) 7,672 Financing activities: Proceeds from the sale of Series A preferred stock— 16,167Proceeds from the sale of Series B preferred stock125,000 —Proceeds from the exercise of stock options140 44Deferred offering costs(1,990) (20)Payment of issuance costs(170) (28)Cash provided by financing activities122,980 16,163 Net increase in cash and cash equivalents27,863 11,820Cash and cash equivalents at beginning of year19,811 7,991Cash and cash equivalents at end of year$47,674 $19,811 Supplemental disclosure of noncash financing activities: Accretion of redeemable convertible preferred stock to redemption value$37,298 $1,794Deferred offering costs included in accounts payable558 20Property and equipment additions in accounts payable14 —Reclassification of early exercise liability upon vesting of options10 — See accompanying notes to consolidated financial statements135TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)1. Organization and Description of BusinessTCR2 Therapeutics Inc. (the Company) is a clinical-stage immunotherapy company developing the next generation of novel T cell therapies forpatients 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.2. LiquidityThe Company’s operations to date have focused on organization and staffing, business planning, raising capital, acquiring technology and assets,manufacturing and conducting preclinical studies. The Company does not have any product candidates approved for sale and has not generatedany revenue from product sales. The Company’s product candidates are subject to long development cycles and the Company may beunsuccessful 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 andplanned clinical development of its product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical productsand development, the Company is unable to accurately predict the timing or amount of funds required to complete development of its productcandidates, 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 obtainmarketing approval for its product candidates, the development of new technological innovations by competitors, the need to successfullycommercialize and gain market acceptance of any of the Company’s products that are approved and uncertainty around intellectual propertymatters. If the Company does not successfully commercialize any of its products, it will be unable to generate product revenue or achieveprofitability.In February 2019, the Company completed its initial public offering (IPO) pursuant to which it issued and sold 5,750,000 shares of its commonstock (inclusive of 750,000 shares of common stock sold by the Company pursuant to the full exercise of an overallotment option granted to theunderwriters in connection with the offering) at a price of $15.00 per share. The shares began trading on The Nasdaq Global Select Market onFebruary 14, 2019. The aggregate net proceeds received by the Company from the offering were approximately $80.2 million, after deductingunderwriting discounts and commissions and other offering expenses payable by the Company. As of December 31, 2018, the Company hadincurred $2.0 million of costs related to the IPO which have been deferred. Upon the closing of the IPO, all outstanding shares of redeemableconvertible preferred stock converted into shares of common stock.Prior to its IPO, the Company had funded its operations primarily with proceeds from the sales of redeemable convertible preferred stock.TheCompany has incurred net losses from operations since inception, including net losses of $24.3 million and $13.1 million, respectively, for theyears ended December 31, 2018 and 2017. As of December 31, 2018, the Company had an accumulated deficit of $85.6 million. The Companyexpects to continue to generate losses for the foreseeable future. The Company expects that its cash, cash equivalents and investments as ofDecember 31, 2018 of $123.2 million along with the aggregate net proceeds of $80.2 million from its IPO will be sufficient to fund its operatingexpenses and capital expenditure requirements through at least twelve months from the date of issuance of these consolidated financialstatements.136TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)3. Summary of Significant Accounting PoliciesPrinciples of Consolidation and Basis of PresentationThe accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles(GAAP). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC)and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).Use of estimatesThe preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates andassumptions reflected in these consolidated financial statements include, but are not limited to, the fair value of the royalty transfer agreementobligations, the valuation of preferred and common stock prior to the IPO, and the fair value of stock-based compensation awards granted underthe Company’s equity-based compensation plans. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparationof the consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodicallyreviewed 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 riskFinancial 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 timesexceed federally insured limits. Management believes that the financial institution is financially sound, and accordingly, minimal credit risk existswith respect to the financial institution.As of December 31, 2018, the Company had manufacturing arrangements with vendors for the supply of materials for use in preclinical and clinicalstudies. If the Company were to experience any disruptions in either 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 alternativesources of manufacturing.Fair value of financial instrumentsAt December 31, 2018 and 2017, the Company’s financial instruments consist of money market funds, commercial paper, agency and corporatebonds are included in investments. The carrying value of investments is the estimated fair value. Fair value is defined as the exchange price thatwould 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 orderlytransaction between market participants on the measurement date.Cash equivalentsThe Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As ofDecember 31, 2018 and 2017, cash equivalents consisted of U.S treasuries, corporate bonds and government-backed money market funds.137TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)InvestmentsAs of December 31, 2018, all investments were classified as available-for-sale and were carried at their estimated fair value. Unrealized gains andlosses are recorded as a component of accumulated other comprehensive income (loss) until realized. The Company determines the appropriateclassification of its investments in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date. TheCompany periodically reviews its investments in debt securities for impairment and adjusts these investments to their fair value when a decline inmarket value is deemed to be other than temporary. If losses on these securities are considered to be other than temporary, the loss is recognizedin earnings.Property and equipmentProperty and equipment are recorded at cost. Depreciation and amortization is determined using the straight-line method over the estimated usefullives. Expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized. When property andequipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gainor loss is reflected in the consolidated statements of operations. Estimated Useful LivesLaboratory equipment5 yearsComputer hardware and equipment3 yearsFurniture and fixtures5 - 7 yearsLeasehold improvementsLesser of lease term or estimated usefullife.Impairment of long-lived assetsLong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset maynot be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to futureundiscounted net cash flows expected to be generated. Impairment charges are recognized at the amount by which the carrying amount of anasset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs tosell. The Company has not recognized any impairment of long-lived assets for the years ended December 31, 2018 and 2017.Deferred offering costsThe Company capitalizes costs that are directly associated with in-process equity financings until such financings are consummated at which timesuch costs are recorded against the gross proceeds of the offering. Should the in-process equity financing be abandoned, the deferred offeringcosts will be expensed immediately as a charge to operating expenses in the consolidated statements of operations.Restricted cashCash accounts that are restricted as to withdrawal or usage are presented as restricted cash. Restricted cash includes amounts held as a securitydeposit in the form of a letter of credit for the Company’s leased facility.138TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)Classification and accretion of redeemable convertible preferred stockThe Company has classified redeemable convertible preferred stock outside of stockholders’ equity (deficit) because the shares contain certainredemption features that are not solely within the control of the Company. The carrying value of the preferred stock is being accreted to redemptionvalue at the end of each reporting period as if the end of the reporting period were the redemption date. Increases to the carrying value ofredeemable convertible preferred stock are charged to additional paid-in capital or, in the absence of additional paid-in capital, charged toaccumulated deficit.Patent costsAll patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty aboutthe recovery of future expenditure. Amounts incurred are classified as general and administrative expenses.Stock-based compensationThe Company measures employee stock-based awards at grant-date fair value and records compensation expense on a straight-line basis overthe requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues awards with onlyservice-based vesting conditions. The Company accounts for forfeitures as they occur.The Company measures the fair value of stock-based awards granted to non-employees on the date at which the related service is complete.Compensation expense is recognized over the period during which services are rendered by such non-employee consultants until completed. Atthe end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fairvalue of its common stock and updated assumption inputs in the Black-Scholes option-pricing model for options or the then current fair value of itscommon stock for restricted stock. Exercised but unvested stock-based awards are subject to repurchase by the Company at the lesser of theinitial exercise price and the fair market value of the Company’s common stock at the time of repurchase. The proceeds from the shares subjectto repurchase are classified as a liability and reclassified to equity as the shares vest.Estimating the fair value of stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s commonstock, and, for stock options and warrants, the expected life of the options and stock price volatility. The Company uses the Black-Scholes optionpricing model to value its stock option awards and warrants. The assumptions used in calculating the fair value of stock-based awards representmanagement’s estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change andmanagement 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’spayroll costs are classified or in which the award recipient’s service payments are classified.Research and development expensesResearch and development costs are expensed as incurred and consist primarily of funds paid to third parties for the provision of services forproduct candidate development, clinical and preclinical development and related supply and manufacturing costs, and regulatory compliancecosts. At the end of the reporting period, the Company compares payments made to third party service providers to the estimated progress towardcompletion of the research or development objectives. Such estimates are139TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progressthat the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relatingto these costs.Upfront milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed asservices are rendered.Income taxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respectivetax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected toapply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A reduction in the carryingvalue of the deferred tax assets is required when it is not more likely than not that such deferred tax assets are not realizable.The Tax Cuts and Jobs Act (“the TCJA”) was enacted on December 22, 2017. The TCJA, among other things, contains significant changes tocorporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deductionfor interest expense, limitation of the deduction for net operating losses and elimination of net operating loss carrybacks, in each case, for lossesarising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely), and modifying orrepealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in thetesting of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”. On December 22, 2017, the Securities andExchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and JobsAct (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary informationavailable, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law.As of December 31, 2018, we have completed our accounting for the tax effects of enactment of the Act, including the impacts described below.The impacts of the Act relate to the reduction in the U.S. corporate income tax rate to 21%, which resulted in re-measuring our deferred tax assetsand liabilities using the new 21% federal tax rate. This did not result in any net tax expense or benefit as there were corresponding and offsettingimpacts to our deferred tax asset valuation allowance. During the year ended December 31, 2018 we recognized no changes to the 2017enactment-date provisional amounts. Net loss per shareBasic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-averageshares of common stock outstanding during the period. The Company’s outstanding redeemable convertible preferred stock contractually entitlesthe holders of such shares to participate in distributions but contractually does not require the holders of such shares to participate in losses of theCompany. Similarly, restricted stock awards granted by the Company entitle the holder of such awards to dividends declared or paid by the boardof directors, regardless of whether such awards are unvested, as if such shares were outstanding shares of common stock at the time of thedividend. However, the unvested restricted stock awards are not entitled to share in the residual net140TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)assets (deficit) of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted netloss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutiveshares of common stock are not assumed to have been issued if their effect is anti-dilutive. Therefore, the weighted-average shares used tocalculate both basic and diluted loss per share are the same.The following potentially dilutive securities, on an as converted basis have been excluded from the computation of diluted weighted-average sharesoutstanding as of December 31, 2018 and 2017, as they would be antidilutive: Years Ended December 31, 2018 2017Series A redeemable convertible preferred stock7,184,588 7,184,588Series B redeemable convertible preferred stock10,090,711 —Stock options2,121,551 1,215,727Unvested shares of restricted stock47,960 137,244Common stock warrants203,676 373,061Total19,648,486 8,910,620Comprehensive lossComprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events andcircumstances from non-owner sources (which excludes investments from owners). The Company’s only element of other comprehensive loss isunrealized gains and losses on investments.Segment informationOperating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chiefoperating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views itsoperations and manages its business in one segment.JOBS Act accounting electionThe Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the JOBSAct, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Actuntil such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying withnew or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) nolonger an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As aresult, these consolidated financial statements may not be comparable to companies that comply with the new or revised accountingpronouncements as of public company effective dates.Recently issued accounting pronouncementsIn June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718) Improvements to Non-employee Share-BasedPayment Accounting. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiringgoods and services from non-employees. Under this ASU, an entity should apply the requirements of Topic 718 to141TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of costs (that is, the period of time overwhich share-based payment awards vest and the pattern of cost recognition over that period). The guidance is applicable to public businessentities for fiscal years beginning after December 15, 2018 including interim periods within that fiscal year. For all other entities, the amendmentsare effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. TheCompany is currently evaluating the effect that this guidance will have on its consolidated financial statements and related disclosures.In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash, which requires entities to show thechanges in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. Entities will nolonger present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows.The guidance is applicable to public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscalyears. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscalyears beginning after December 15, 2019 with early adoption permitted. The Company is currently evaluating the effect that this guidance will haveon its consolidated financial statements and related disclosures.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued the update to require the recognition of lease assets andliabilities on the balance sheet of lessees. The standard will be effective for public business entities for fiscal years beginning after December 15,2018 and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning afterDecember 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This ASU requires a modified retrospectivetransition method with the option to elect a package of practical expedients. Early adoption is permitted. The Company is currently evaluating thepotential impact of the adoption of this standard on its consolidated financial statements and related disclosures.142TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)4. Investments and Fair Value MeasurementsAs of December 31, 2018, investments were comprised of the following: AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE Corporate bonds$58,029 $1 $(94) $57,936Agency bonds9,966 — (9) 9,957Commercial paper7,214 — (4) 7,210Asset backed securities390 — — 390 $75,599 $1 $(107) $75,493As of December 31, 2017, there were no investments outstanding.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. Whereavailable, fair value is based on observable market prices, or parameters derived from such prices. Where observable prices or inputs are notavailable, valuation models are applied. This hierarchy requires the use of observable market data when available and to minimize the use ofunobservable inputs when determining fair value. These valuation techniques involve some level of management estimation and judgment. Thedegree of management estimation and judgment is dependent on the price transparency for the instruments, or market, and the instruments’complexity.The guidance requires fair value measurements to be classified and disclosed in one of the following three categories:Level 1—Quoted prices (unadjusted in active markets for identical assets or liabilities)Level 2—Inputs other than quoted prices in active markets that are observable either directly or indirectlyLevel 3—Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions143TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)The Company has classified assets measured at fair value on a recurring basis as follows: DECEMBER 31, 2018 FAIR VALUE MEASUREMENT BASED ON AMORTIZED COST FAIR VALUE QUOTED PRICESIN ACTIVE MARKETS (LEVEL 1) SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2) SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) Assets Cash equivalents (1)$45,974 $45,974 $45,108 $866 $—Corporate bonds58,029 57,936 — 57,936 —Agency bonds9,966 9,957 — 9,957 —Commercial paper7,214 7,210 — 7,210 —Asset backed securities390 390 — 390 — $121,573 $121,467 $45,108 $76,359 $—(1) Includes cash sweep accounts, U.S. Treasury money market mutual fund, bank certificates of deposit, U.S. Treasury bills and corporatebonds that have a maturity of three months or less from the original acquisition date. DECEMBER 31, 2017 FAIR VALUE MEASUREMENT BASED ON AMORTIZED COST FAIR VALUE QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1) SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2) SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) Cash equivalents (2)$19,107 $19,107 $18,107 $1,000 $—(2) Includes cash sweep accounts, U.S. Treasury money market mutual fund, bank certificates of deposit, U.S. Treasury bills and corporatebonds that have a maturity of three months or less from the original acquisition date.During the years ended December 31, 2018 and 2017, there were no transfers among the Level 1, Level 2 and Level 3 categories.1445. Property and EquipmentProperty and equipment, net, consisted of: DECEMBER 31, 2018 2017Laboratory equipment$2,118 $1,312Computer hardware and equipment105 105Furniture and fixtures326 —Leasehold improvements34 —Construction in-process— 136 2,583 1,553Less: Accumulated depreciation and amortization(945) (527) $1,638 $1,026Depreciation expense was $0.4 million and $0.3 million for the years ended December 31, 2018 and 2017, respectively.6. Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consisted of: DECEMBER 31, 2018 2017Employee compensation and related benefits$1,676 $686Professional fees342 37Contract manufacturing organization fees173 —Contract research organization fees232 —University partnerships162 —Other217 81 $2,802 $8047. Commitments and ContingenciesLeasesThe Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not yet paid.Landlord allowances for tenant improvements are deferred and recognized as a reduction to rent expense on a straight-line basis and over theremaining lease term.During March 2018, the Company entered into a lease for larger office and laboratory facilities that expires in July 2025. Under the terms of thelease, the Company placed $0.3 million letter into a restricted cash account as security for the facility. Rent expense was $1.9 million and$1.2 million for the years ended December 31, 2018 and 2017, respectively.The following table presents future minimum rent payments under non-cancellable operating leases with initial terms in excess of one year atDecember 31, 2018:145TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted) Minimum RentPayments20192,39220202,48220212,19420221,96520232,002Thereafter3,116Total minimum payments required$14,151LitigationThe Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potentialloss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addressesaccounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.Royalty transfer agreementIn connection with the sale of Series A redeemable convertible preferred stock (see Note 9), certain investors are entitled to receive, in theaggregate, a royalty from the Company equal to one percent of (i) all global net sales of any Company products and (ii) any license income onintellectual property that was in existence at the time of the Series A preferred stock financing. The Company has elected to account for thisliability at fair value with changes recognized in earnings. Given the early stage nature of the underlying technology and inherent risks associatedwith obtaining regulatory approval and achieving commercialization, the Company ascribed no value to the royalty agreement at inception and atDecember 31, 2018 and 2017. The Company currently does not have any net sales or license income and as a result has paid no royalties underthis obligation as of December 31, 2018 or 2017 nor has the Company accrued any liability as of December 31, 2018 or 2017.8. Employee benefit planThe Company maintains a defined contribution 401(k) plan (the 401(k) Plan) in which employees may contribute a portion of their compensation,subject to statutory maximum contribution amounts. The Company assumes all administrative costs of the 401(k) Plan. For the years endedDecember 31, 2018 and 2017, the expense relating to the matching contribution was $0.1 million and $61, respectively.9. Common Stock and Redeemable Convertible Preferred StockCommon stockEach share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Subject to therights of holders of redeemable convertible preferred stock, common stockholders are entitled to receive dividends, as may be declared by theboard of directors, if any. No dividends had been declared through December 31, 2018.Redeemable Convertible Preferred StockThe Company has elected to accrete the carrying value of the Series A and B preferred stock to redemption value at the end of each reportingperiod as if the end of the reporting period were the146TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)redemption date, increases to the carrying value of redeemable convertible preferred stock are charged to additional paid-in capital or, in theabsence of additional paid-in capital, charged to accumulated deficit.Series A preferred stock and Series B preferred stock may be redeemed at a price equal to the greater of (a) the original issuance price, plus anycumulative dividends accrued but unpaid thereon, whether or not declared, or (b) the fair market value as of the date of the redemption, in threeannual installments commencing not more than 60 days after receipt of notice by holders of the Series A stock and B stock after February 2023.The fair value of the Series A preferred stock was determined to be $1.64 per share and the fair value of the Series B preferred stock wasdetermined to be $2.18 per share as of December 31, 2018.Upon completion of the IPO on February 19, 2019, all redeemable convertible preferred stock was converted to common stock.Series A Redeemable Convertible Preferred StockIn 2015, the Company entered into a Series A preferred stock purchase agreement and initially sold 5,823,530 shares. During the years endedDecember 31, 2016 and 2017, the Company sold 22,509,804 and 16,166,667 shares, respectively, of its Series A preferred stock at a price of$1.00 per share in exchange for gross cash proceeds of $22.5 million and $16.2 million, respectively. Included in the Series A preferred stockpurchase agreement, the investor is required to purchase additional shares upon the achievement of certain Company milestones. The Companyevaluated the future commitment obligations at original issuance and determined they were not freestanding instruments as they were not legallydetachable. The future commitment obligations were also evaluated as embedded derivatives and determined they did not meet the definition of aderivative instrument for which bifurcation would be required.ConversionEach share of Series A preferred stock is convertible, at the option of the holder, into shares of common stock. As of December 31, 2018 prior tothe common stock reverse stock split in February 2019, the shares were convertible on a one-to-one basis. Post-split the Series A stock wereconvertible at 1-to-0.1615 basis. The Series A conversion rights were subject to adjustment for certain dilutive events. The conversion price maybe adjusted to prevent dilution of the Series A preferred stock.The preferred stock is also mandatorily convertible upon the closing of an initial public offering and proceeds exceeding $50.0 million or by awritten election by the majority of the Series A stockholders.RedemptionAt the election of a majority of the Series A stockholders, the Series A preferred stock is redeemable at any time on or after October 16, 2020.The Series A preferred stock may be redeemed at a price equal to the greater of (a) the original issuance price, plus any cumulative dividendsaccrued but unpaid thereon, whether or not declared, or (b) the fair market value as of the date of the redemption.DividendsThe holders of shares of Series A preferred stock are entitled to receive cumulative dividends of 6% from the date of issuance. Accumulateddividends are payable only when and if declared by the Board of Directors, in preference to dividends paid to holders of common stock. Thedividend preference for Series147TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)A preferred stock is $0.06 per share, as adjusted for recapitalizations. No dividends have been declared through December 31, 2017.LiquidationIn the event of a liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or in the event of a deemed liquidationevent, which includes a sale of the Company as defined in the Company’s certificate of incorporation, holders of Series A preferred stock areentitled to receive, in preference to all other stockholders, an amount equal to their original investment amount plus any declared and unpaiddividends. If upon the occurrence of such event, the assets and funds available for distribution are insufficient to pay such holders the full amountto which they are entitled, then the entire assets and funds legally available for distribution shall be distributed ratably among the holders of theSeries A preferred stock in proportion to the full amounts to which they would otherwise be entitled.After payment of the liquidation preference on shares of Series A preferred stock has been made, any remaining assets would be distributedratably to common and Series A stockholders, on an as-converted basis.Series B Redeemable Convertible Preferred StockIn 2018, the Company issued an aggregate of 62.5 million shares of Series B preferred stock in exchange for gross cash proceeds of$125.0 million.The Series B preferred stock is classified outside of stockholders’ equity (deficit) as the preferred holders may, at their option, elect to have theirshares redeemed upon written notice by a majority of the preferred shareholders and at any time after February 2023.Certain provisions of the outstanding Series B preferred stock are as follows:ConversionEach share of Series B preferred stock is convertible, at the option of the holder, into shares of common stock. As of December 31, 2018 prior tothe common stock reverse stock split in February 2019, the shares were convertible on a one-to-one basis. Post-split the Series B stock wereconvertible at 1-to-0.1615 basis. The Series A conversion rights were subject to adjustment for certain dilutive events. The conversion price maybe adjusted to prevent dilution of the Series B preferred stock.The Series B preferred stock is also mandatorily convertible upon the closing of an initial public offering and proceeds exceeding $50.0 million orby a written election by the majority of the Series B stockholders.RedemptionAt the election of a majority of the Series B stockholders, the Series B preferred stock is redeemable at any time on or after February 2023. TheSeries B preferred stock may be redeemed at a price equal to the greater of (a) the original issuance price, plus any cumulative dividends accruedbut unpaid thereon, whether or not declared, or (b) the fair market value as of the date of the redemption.DividendsThe holders of shares of Series B preferred stock are entitled to receive cumulative dividends of 6% from the date of issuance. Accumulateddividends are payable only when and if declared by the Board of148TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)Directors, in preference to dividends paid to holders of Series A preferred stock and common stock. The dividend preference for Series B preferredstock is $0.12 per share, as adjusted for recapitalizations. No dividends have been declared through December 31, 2018.LiquidationIn the event of a liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or in the event of a deemed liquidationevent, which includes a sale of the Company as defined in the Company’s articles of incorporation, holders of Series B preferred stock are entitledto receive, in preference to the holders of Series A preferred stock or Common Stock, an amount equal to their original investment amount plusany declared and unpaid dividends. If upon the occurrence of such event, the assets and funds available for distribution are insufficient to paysuch holders the full amount to which they are entitled, then the entire assets and funds legally available for distribution shall be distributed ratablyamong the holders of the Series B preferred stock in proportion to the full amounts to which they would otherwise be entitled.After payment of the liquidation preference on shares of Series B preferred stock has been made, any remaining assets shall be distributed ratablyto Series A stockholders an amount equal to their original investment amount plus any accrued dividends, whether or not declared, together withany other dividends declared but unpaid thereon.10. Stock-based CompensationThe Company issues stock-based awards pursuant to its 2015 Stock Option and Grant Plan, as amended (the Plan). The amount, terms of grants,and exercisability provisions are determined and set by the Company’s board of directors. The maximum number of authorized shares to be issuedunder the Plan was 2,554,723. As of December 31, 2018, there were 268,439 shares of common stock available for future issuance. The term ofthe options may be up to 10 years, and options are exercisable in cash or as otherwise determined by the board of directors. Generally, optionsand restricted stock awards vest over a four-year period.The Company recorded stock-based compensation expense in the following expense categories of its accompanying consolidated statements ofoperations for the years ended December 31, 2018 and 2017: DECEMBER 31, 2018 2017Research and development$559 $43General and administrative1,574 365 $2,133 $408149TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)Stock optionsThe following table summarizes the activity related to stock option grants to employees and non-employees for the years ended December 31,2018 and 2017: SHARES WEIGHTED AVERAGE EXERCISE PRICE PER SHARE WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (IN YEARS) Balance at January 1, 2017596,141 $0.74 Granted682,706 0.74 Exercised(19,115) 0.74 Forfeited(44,005) 0.74 Outstanding at December 31, 20171,215,727 0.74 9.5Granted1,185,119 6.14 Exercised(145,618) 0.74 Forfeited(133,677) 0.74 Outstanding at December 31, 20182,121,551 $3.78 9.1 Exercisable at December 31, 2018299,957 $0.87 8.5Vested and expected to vest at December 31, 20182,121,551 $3.78 9.1The table above includes 26,725 shares of common stock subject to repurchase by the Company, which were issued in 2017 upon the earlyexercise of unvested stock options. In addition, the above table excludes 8,017 options that were granted outside of the Plan.The weighted average grant date fair value of options granted to employees, directors and non-employee consultants during the years endedDecember 31, 2018 and 2017 was $5.14 and $1.11, respectively. As of December 31, 2018, there was $6.6 million in unrecognized compensationcost that is expected to be recognized over an estimated weighted-average amortization period of 3.3 years. The aggregate intrinsic value ofoptions outstanding and options exercisable as of December 31, 2018 was $19.3 million and $4.2 million, respectively. The aggregate intrinsicvalues of options exercised during the year ended December 31, 2018 was $66. The fair value of options is estimated using the Black-Scholes option pricing model, which takes into account inputs such as the exercise price,the value of the underlying common stock at the grant date, expected term, expected volatility, risk-free interest rate and dividend yield. The fairvalue of each grant of options during the year ended December 31, 2018 and 2017 was determined using the methods and assumptions discussedbelow:▪The expected term of employee options is determined using the “simplified” method, as prescribed in the SEC Staff Accounting Bulletin(SAB) No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of theoption due to the Company’s lack of sufficient historical data. The expected term of non-employee options is equal to the contractualterm.▪The expected volatility is based on historical volatilities of similar entities within the Company’s industry which were commensurate withthe expected term assumption as described in SAB No. 107.▪The estimated annual dividend yield is 0% because the Company has not historically paid, and does not expect for the foreseeablefuture to pay, a dividend on its common stock.150TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)▪The Company considered numerous objective and subjective factors in estimating the fair value of its common stock, including theestimated fair value of the Company’s Series A preferred stock.For the years ended December 31, 2018 and 2017, the grant date fair value of all option grants was estimated at the time of grant using the Black-Scholes option-pricing model using the following weighted average assumptions: DECEMBER 31, 2018 2017Risk free interest rate2.9% 2.1%Expected term (in years)6.1 6.6Expected volatility66.8% 65.7%Annual dividend yield—% —%Fair value of common stock$7.62 $1.49Restricted stockFor restricted stock awards granted to employees, the fair value of the award is the current fair value of the Company’s common stock on thegrant date, while for non-employees, the fair value of the award is re-measured each reporting period using the then-current fair value of theCompany’s common stock until performance is complete. All restricted stock grants were outside of the plan.In the event of a termination of employment or consulting services arrangement, the unvested restricted stock awards are subject to repurchaseby the Company at the lower of the purchase price paid by the holder and the then current fair value.The following table summarizes the activity related to unvested restricted stock grants to employees and non-employees for the years endedDecember 31, 2018 and 2017: SHARESBalance at January 1, 2017227,614Granted—Vested(89,645)Forfeited(725)Outstanding at December 31, 2017137,244Granted—Vested(89,284)Forfeited—Outstanding at December 31, 201847,960As of December 31, 2018, there was $0.4 million in unrecognized compensation cost that is expected to be recognized over an estimatedweighted-average amortization period of 0.5 years.WarrantsWarrants issued to non-employees in connection with providing consulting services are issued outside of the Plan and are accounted for as stock-based compensation. The fair value of warrants is estimated using the Black-Scholes option pricing model each reporting period until vested.151TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)The warrants have an initial exercise price of $0.74 per share and will expire at the earlier of ten years from the date of issuance or a change incontrol event as defined in the warrant agreements.The following table summarizes the activity related to warrant grants to non-employees for the years ended December 31, 2018 and 2017: SHARESBalance at January 1, 201742,761Granted330,300Exercised—Forfeited—Outstanding at December 31, 2017373,061Granted—Exercised(169,385)Forfeited—Outstanding at December 31, 2018203,676The table above includes 112,923 shares of common stock subject to repurchase by the Company, which were issued in 2018 upon the earlyexercise of unvested warrants. As of December 31, 2018, there was $1.1 million in unrecognized compensation cost that is expected to berecognized over an estimated weighted-average amortization period of 1.9 years.For the years ended December 31, 2018 and 2017, the fair value as of those dates was estimated using the Black-Scholes option-pricing modelusing the following weighted average assumptions: DECEMBER 31, 2018 DECEMBER 31, 2017Risk free interest rate2.5% 2.4%Expected term (in years)9.5 10.0Expected volatility68.3% 68.3%Annual dividend yield—% —%Fair value of common stock$4.65 $1.7311. Income taxesFor the years ended December 31, 2018 and 2017, the Company did not record a current or deferred income tax expense. The Company’sconsolidated loss before income taxes consists solely of a domestic loss.A reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes as reflected in the consolidated financialstatements is as follows: DECEMBER 31, 2018 2017Federal income tax benefit at statutory rate21.0 % 34.0 %State income tax, net of federal benefit7.3 6.1Permanent differences(1.3) (0.9)Research and development credit benefit3.3 2.8Federal rate change – Tax Act— (21.4)Change in valuation allowance(30.3) (20.6)Effective income tax rate— % — %On December 22, 2017, the U.S. Government signed into law The Tax Cuts and Jobs Act (the TCJA). The Act, among other things, containssignificant changes to corporate taxation, including reduction of the corporate tax rate from a marginal rate of 35% to a flat rate of 21%, limitationof the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for netoperating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings atreduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions),immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing manybusiness deductions and credits.On December 22, 2017, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income TaxAccounting Implications of the Tax Cuts and Jobs Act directing taxpayers to consider the impact of the U.S. legislation as “provisional” when itdoes not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accountingfor the change in tax law. As of December 31, 2018, the Company has completed its accounting for the change in tax law.In connection with the TCJA, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected toreverse in the future, which is generally 21%. The remeasurement of the Company's deferred tax balance was offset by application of its valuationallowance. As of December 31, 2018, the Company had completed its accounting for all of the tax effects of the enactment of the Act; includingthe effects on its existing deferred tax balances. The Company had not recognized any material adjustment to the provisional estimate of $2.8million that was previously recorded related to the Act.The Company has not yet conducted a study of its research and development credit carryforwards. This study may result in an increase ordecrease to the Company’s credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are beingpresented as an uncertain tax position. A full valuation allowance has been provided against the Company’s credits, and if an adjustment isrequired, this adjustment would be offset by an adjustment to the valuation allowance. As a result, there would be no impact to the consolidatedstatements of operations and comprehensive loss or consolidated statements of cash flows if an adjustment were required.152TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)The components of net deferred income tax assets as of December 31, 2018 and 2017 are as follows: DECEMBER 31, 2018 2017Deferred tax assets: Net operating loss carryforwards$5,193 $471Research and development credits1,893 732Capitalized costs6,770 5,879Accrued expenses and other514 187Stock compensation172 —Total deferred tax assets14,542 7,269Less: valuation allowance(14,510) (7,180)Deferred tax liabilities: Depreciation(32) (15)Other temporary differences— (74)Total deferred tax liabilities(32) (89)Total net deferred tax assets (liabilities)$— $—In assessing the realizability of the net deferred tax asset, the Company considers all relevant positive and negative evidence in determiningwhether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the grossdeferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operatingloss carryforwards. Management believes that it is more likely than not that the Company’s deferred income tax assets will not be realized. Assuch, there is a full valuation allowance against the net deferred tax assets as of December 31, 2017 and 2018. The valuation allowance increasedby approximately $7.3 million during the year ended December 31, 2018 primarily as a result of the increase in net operating loss carryforwards.The valuation allowance increased by approximately $2.7 million during the year ended December 31, 2017 primarily as a result of the increase inour capitalized costs for start-up and research and development expenditures deferred tax assets offset by the re-measurement of our deferred taxbalance following the TCJA.Subject to the limitations described below, at December 31, 2018, the Company has cumulative net operating loss carryforwards of approximately$19.2 million and $18.3 million available to reduce federal and state taxable income, respectively, of which $17.4 million of federal net operatinglosses will carryforward indefinitely, with the remaining federal and state losses beginning to expire in 2035. In addition, we have cumulative federaland state tax credit carryforwards of $1.2 million and $0.8 million, respectively, available to reduce federal and state income taxes which will beginto expire in 2035 and 2031, respectively. Our net operating loss carryforwards and tax credit carryforwards may be limited as a result of certainownership changes, as defined under Sections 382 and 383 of the Internal Revenue Code. This limits the annual amount of these tax attributesthat can be utilized to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our valueimmediately prior to an ownership change. Subsequent ownership changes may affect the limitation in future years. The Company has notperformed an Internal Revenue Code Section 382 study in connection with changes in control.At December 31, 2018 and 2017, we had no unrecognized tax benefits. As of December 31, 2018, and 2017, we had no accrued interest orpenalties related to uncertain tax positions and no amounts have been recognized in our consolidated statements of operations. We will recognizeinterest and penalties related to uncertain tax positions in income tax expense.153TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)The Company’s income tax returns remain open and subject to examination for all tax years after 2015. We file income tax returns in the U.S.federal and Massachusetts. The statute of limitations for assessment by the Internal Revenue Service, or IRS, and state tax authorities isgenerally three years from the filing date, although carryforward attributes that were generated prior to this period may still be adjusted uponexamination by the IRS or state tax authorities if they either have been or will be used in a future period. The Company is not currently under auditby any taxing authority.12. Related party transactionsConsulting arrangementsOn October 1, 2015, we entered into a consulting agreement with Dr. Patrick Baeuerle. Pursuant to the consulting agreement, Dr. Baeuerle agreedto perform such consulting, advisory and related services to and for us as may be reasonably requested. In exchange, we agreed to payDr. Baeuerle a consulting fee of €15 per month. On November 1, 2016, we amended the consulting agreement to revise Dr. Baeuerle’s consultingfee to be €3 per month. Dr. Baeuerle is also eligible for an annual bonus equal to 33% of the annual fees paid under the consulting agreement,subject to the discretion of our board of directors based on Dr. Baeuerle’s performance and our performance. The term of the agreement is oneyear, and automatically extends for additional one-year periods unless terminated. During the fiscal years ended December 31, 2018 and 2017, weincurred fees and travel related expenses to Dr. Baeuerle in the amount of $76 and $71, respectively, under the consulting agreement.Dr. Baeuerle is a member of our board of directors and is a managing director at MPM Capital, the beneficial owner of more than 5% of our votingsecurities.On March 2, 2016, we entered into a consulting agreement with Dr. Mitchell Finer (the Original Finer Agreement), which was amended and restatedon May 9, 2017 to, among other things, add Pattern Recognition Ventures as a party. Pursuant to the amended and restated consultingagreement, Pattern Recognition Ventures agreed to perform scientific consulting, advisory and related services to and for us as may bereasonably requested, including making Dr. Finer available to serve as Chairman of our Scientific Advisory Board. Pursuant to the amended andrestated consulting agreement, we agreed (i) to pay Pattern Recognition Ventures a consulting fee of $19 per quarter for services provided underthe agreement, commencing on July 1, 2017, (ii) to pay Pattern Recognition Ventures an amount equal to $38 for services performed fromJanuary 1, 2017 through July 1, 2017, and (iii) to grant Pattern Recognition Ventures an option to purchase 8,017 shares of our common stock,which option is subject to vesting. During the fiscal years ended December 31, 2018 and 2017, we incurred fees and travel-related expenses toPattern Recognition Ventures in the amount of $76 and $77, respectively. Dr. Finer has a financial interest in Pattern Recognition Ventures and isits managing member. Dr. Finer is also a member of our board of directors and is an executive partner at MPM Capital, the beneficial owner ofmore than 5% of our voting securities.On October 1, 2017, we entered into a consulting agreement with Globeways Holdings Limited. Dr. Morana Jovan-Embiricos has financial interestsin Globeways Holdings Limited and is its founding director. Pursuant to the consulting agreement, Globeways Holdings Limited providesconsulting, advisory and related services in exchange for consulting fees of $0.1 million per year. During the fiscal year ended December 31, 2018and 2017, we incurred fees and travel-related expenses to Globeways Holdings Limited in the amount of $0.1 million for each period. Dr. Jovan isalso a member of our board of directors and Globeways Holdings Limited is the appointed manager of certain affiliates of F2 Capital thatcollectively beneficially own more than 5% of our voting securities.The majority investor in the Company is MPM Capital (MPM). In September 2015, the Company began receiving consulting and managementservices pursuant to agreements with three Managing Directors at MPM. For the years ended December 31, 2018 and 2017, the Company incurredapproximately $0 and154TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)$0.5 million, respectively, for management and advisory services in connection with those agreements. These amounts were recorded in generaland administrative expenses in the consolidated statements of operations.13. Subsequent EventsCollaboration Agreement with Cell Therapy Catapult LimitedIn December 2018, the Company signed a collaboration agreement (the Collaboration Agreement) with Cell Therapy Catapult Limited (Catapult) toestablish their manufacturing process in Catapult’s GMP manufacturing facility in the United Kingdom. The Company paid a £200,000 non-refundable contribution to Catapult to reserve a GMP manufacturing cleanroom in October 2018. The non-refundable contribution will be appliedagainst the Company’s input contributions (or fees) once Catapult and the Company have determined the various inputs that Catapult willcontribute to the collaboration in order to support the Company’s manufacturing process under the Collaboration Agreement. The initial term of theCollaboration Agreement is three years and assumes an occupancy date of March 1, 2019. The Company can terminate the CollaborationAgreement earlier with twelve months’ notice and continued payment for contributions during the twelve-month termination period. The only feefixed over the three-year term is a specified facility input contribution. The total financial contribution from the Company under the CollaborationAgreement comprises the Company’s portion of the shared costs for the infrastructure of the center and its operation as a licensed GMP facility.The Company’s exact costs under the Collaboration Agreement are based on collaboration input-related contributions and will change year to year,and are partially dependent on the inputs the Company requires from Catapult to meet the collaboration aim of establishing the Company’smanufacturing of autologous cell therapies.Reverse Stock SplitOn February 1, 2019, the Company effected a 1-for-6.1938 reverse stock split of its issued and outstanding shares of common stock and aproportional adjustment to the existing conversion ratios for each series of the Company’s preferred stock. Accordingly, all share and per shareamounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively,where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.In connection with the Company’s IPOIn February 2019, the Company’s Board of Directors and stockholders approved the 2018 Stock Option and Incentive Plan (the 2018 Plan), whichreplaced the 2015 Plan. The 2018 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards,restricted stock units, stock appreciation rights and other stock-based awards. The Company’s officers, employees, directors and other keypersons (including consultants) are eligible to receive awards under the 2018 Plan. The maximum number of authorized shares to be issued underthe Plan is 3,000,000 shares of our common stock. The amount, terms of grants, and exercisability provisions are determined and set by theCompensation Committee of the Company’s Board of Directors. The term of the options may be up to 10 years, and options are exercisable incash or as otherwise determined by the Board of Directors.In February 2019, the Company’s Board of Directors adopted and the Company’s stockholders approved the 2018 Employee Stock Purchase Plan(2018 ESPP). The 2018 ESPP enables eligible employees to purchase shares of the Company's common stock at the end of each six-monthoffering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offeringperiod, whichever is lower. Eligible employees generally included all employees. Offering155TCR2 Therapeutics Inc.Notes to Consolidated Financial StatementsFor the years ended December 31, 2018 and 2017(Amounts in thousands, excluding share and per share items or as otherwise noted)periods began on the first trading day September 1 and March 1 of each year and ended on the last trading day in February and August of eachyear. Share purchases are funded through payroll deductions of up to 15% of an employee’s eligible compensation for each payroll period,or $25,000 each calendar year.156Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable.Item 9A. Controls and ProceduresDisclosure Controls and ProceduresThe term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, asamended (the Exchange Act), refers to controls and procedures that are designed to ensure that information required to be disclosed by acompany in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periodsspecified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensurethat such information is accumulated and communicated to a company’s management, including its principal executive and principal financialofficers, as appropriate to allow timely decisions regarding required disclosure.In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matterhow well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls andprocedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgmentin evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based inpart upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree ofcompliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error orfraud may occur and not be detected.Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of ourdisclosure controls and procedures as of December 31, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonableassurance level.Changes in Internal Control over Financial Reporting:During the fourth quarter of 2018, we implemented a new enterprise resource planning system to record our financial transactions, summarize andproduce our financial reports.Management’s Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting FirmThis Annual Report does not include a report of management’s assessment regarding internal control over financial reporting (as defined in Rule13a-15(f) under the Exchange Act) or an attestation report of our independent registered public accounting firm due to a transition periodestablished by the rules of the SEC for newly public companies.Item 9B. Other InformationNone.157Part IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe following table sets forth information about our directors, executive officers and other key employees as of March 15, 2019.NAMEAGEPOSITION(S)Executive Officers Garry Menzel54President, Chief Executive Officer and DirectorRobert Hofmeister51Chief Scientific OfficerAlfonso Quintás Cardama48Chief Medical OfficerMayur (Ian) Somaiya45Chief Financial Officer Non-Employee Directors Ansbert Gadicke (2)(3)(4)61Chairman of the Board of DirectorsAndrew Allen (2)52DirectorPatrick Baeuerle61DirectorMitchell Finer (1)(3)60DirectorNeil Gibson (1)(2)(3)62DirectorMorana Jovan-Embiricos (1)(2)(4)52Director (1) Member of our audit committee(2) Member of our compensation committee(3) Member of our nominating and corporate governance committee(4) Member of our finance and strategy committeeExecutive OfficersGarry Menzel, Ph.D. Dr. Menzel joined our company in 2016 as a director and Chief Executive Officer. Dr. Menzel has also served on the boardof directors and chairman of the audit committee of the oncology company Black Diamond Therapeutics Inc. since 2014. Previously, Dr. Menzelwas the Chief Strategy Officer at Axcella Health Inc. from 2015 to 2016, the Chief Financial Officer at DaVita Healthcare Partners Inc. from 2013to 2015, and the Chief Operating Officer at Regulus Therapeutics Inc. from 2008 to 2013. Dr. Menzel also had global leadership roles in running thebiotechnology practices at Goldman Sachs & Co. LLC from 1994 to 2004 and Credit Suisse Group AG from 2004 to 2008. In addition, he was aconsultant with Bain & Company and was a research assistant at SmithKline Beecham PLC (now GlaxoSmithKline PLC). Dr. Menzel received hisPh.D. from the University of Cambridge, where he studied the regulation of oncogenes in immune cells, and his M.B.A. from the StanfordUniversity Graduate School of Business. We believe Dr. Menzel is qualified to serve as a member of our board of directors because of hisscientific background and corporate leadership experience.Robert Hofmeister, Ph.D. Dr. Hofmeister joined our company in September 2015 as Senior Vice President, Research and Development andbecame our Chief Scientific Officer in October 2016. From 2005 to 2015, Dr. Hofmeister held positions at EMD Serono Research and DevelopmentInstitute, Inc., including as the Global Head of Translational Immunotherapy, Immuno-Oncology from 2012 to 2015. Previously, Dr. Hofmeister heldpositions at Micromet AG (now a part of Amgen, Inc.). Dr. Hofmeister received his Ph.D. from the University of Regensburg in Germany, where hestudied the signaling of the cytokine interleukin-1.Alfonso Quintás Cardama, M.D. Dr. Quintás joined our company in 2017 as Chief Medical Officer. Dr. Quintás was the Clinical DevelopmentHead of the Cell & Gene Therapies Unit at GlaxoSmithKline PLC in 2017. Between 2014 and 2016, he served as Global Clinical Leader, Cell &Gene Therapy, at158Novartis AG and was an Assistant Professor in the Department of Leukemia at The University of Texas, MD Anderson Cancer Center from 2009to 2014. Dr. Quintás received his M.D. from the Universidad de Santiago de Compostela School of Medicine in Spain. He completed an internshipand residency in the Department of Medicine of the Albert Einstein College of Medicine—Yeshiva University and a hematology and oncologyfellowship and a leukemia fellowship at The University of Texas, MD Anderson Cancer Center.Mayur (Ian) Somaiya. Mr. Somaiya joined our company in 2018 as Chief Financial Officer. From 2015 to 2018, Mr. Somaiya was ManagingDirector and Head of Biotechnology Research at BMO Capital Markets Corp. Previously, he served as a Managing Director and Equity Analyst atNomura Securities Co. Ltd. from 2013 to 2015, Piper Jaffray Companies from 2009 to 2013, Thomas Weisel Partners Group, Inc. from 2003 to2009 and Morgan Stanley from 2000 to 2003. Mr. Somaiya received his B.A in Biology from New York University.Non-Employee DirectorsAnsbert Gadicke, M.D. Dr. Gadicke joined our board of directors in May 2015. Dr. Gadicke co-founded MPM Capital’s venture investing activitiesin 1997 and has since served as a Managing Director. Prior to that, Dr. Gadicke led MPM Capital’s Advisory and Investment Banking businessfrom 1992 to 1996 and was in Boston Consulting Group’s Health Care Group from 1989 to 1992. He is a member of the board of directors ofCullinan Oncology, LLC and ElevateBio, LLC and formerly served as a member of the board of directors of Radius Health, Inc. and Chiasma, Inc.Dr. Gadicke received his M.D. from J.W. Goethe University and has held research positions at the Whitehead Institute and Harvard University. Webelieve Dr. Gadicke is qualified to serve as a member of our board of directors because of his extensive experience in the life sciences industryand in investment management.Andrew Allen, M.D., Ph.D. Dr. Allen joined our board of directors in December 2018. Dr. Allen is a co-founder of Gritstone Oncology, Inc., andhas served as its President and Chief Executive Officer since August 2015. Dr. Allen previously co-founded Clovis Oncology, Inc., a publicpharmaceutical development company, and served as its executive vice president of clinical and preclinical development and chief medical officerfrom April 2009 to July 2015. Prior to that, he was chief medical officer at Pharmion Corporation from 2006 to 2008. Previously, Dr. Allen served inclinical development leadership roles at Chiron Corporation and Abbott Laboratories, and worked at McKinsey & Company, where he advised lifescience companies on strategic issues. He currently serves on the board of directors of Gritstone Oncology, Inc., Epizyme, Inc., Sierra Oncology,Inc., and Revitope Oncology, Inc. Dr. Allen previously served on the board of directors of Cell Design Labs, a private biotechnology company, fromNovember 2015 until its acquisition by Gilead Sciences, Inc. in December 2017. Dr. Allen qualified in medicine at Oxford University and received aPh.D. in immunology from Imperial College of Science, Technology and Medicine in London. We believe Dr. Allen is qualified to serve on our boardof directors due to his educational experience and his experience as a founder and senior executive of biotechnology and pharmaceuticalcompanies.Patrick Baeuerle, Ph.D. Dr. Baeuerle has served on our board of directors since May 2015. Since 2015, Dr. Baeuerle has been a ManagingDirector of MPM Capital. From 2012 to 2015 he served as Vice President, Research, and General Manager at Amgen Research (Munich) GmbH.From 1998 to 2012, Dr. Baeuerle served as Chief Scientific Officer for Micromet, Inc. Dr. Baeuerle co-founded Harpoon Therapeutics, Inc. in 2015.Dr. Baeuerle also co-founded Cullinan Oncology, LLC, of which he is Chief Scientific Officer—Biologics, Maverick Therapeutics, Inc. and iOmxAG. He currently serves on the board of directors of Harpoon Therapeutics and the advisory boards of Amphivena Therapeutics, Inc., iOmx AGand Maverick Therapeutics, Inc. He is also an Honorary Professor of Immunology of the Medical Faculty at University of Munich. Dr. Baeuerlereceived his Ph.D. in biology from the University of Munich and performed post-doctoral research at the Whitehead Institute. We believeDr. Baeuerle is qualified to serve as a member of our board of directors because of his scientific background, experience in the venture159capital industry, corporate leadership experience and his experience as a founder of numerous biopharmaceutical companies.Mitchell Finer, Ph.D. Dr. Finer has served on our board of directors since October 2015. Dr. Finer has served as an Executive Partner of MPMCapital since August 2015. Dr. Finer previously served as Chief Executive Officer of Oncorus, Inc. from January 2016 to June 2018 and co-founded Adverum Biotechnologies, Inc. and CODA Biotherapeutics, Inc. Previously, he served as Chief Scientific Officer of bluebird bio, Inc., fromMarch 2010 through July 2015. Dr. Finer serves on the boards of directors of Adverum Biotechnologies, Inc., Semma Therapeutics, Inc., Oncorus,Inc. and CODA Biotherapeutics, Inc. Dr. Finer received a Ph.D. in biochemistry and molecular biology from Harvard University and a B.A. inbiochemistry and bacteriology from the University of California, Berkeley. He completed a postdoctoral fellowship at the Whitehead Institute forBiomedical Research. We believe Dr. Finer is qualified to serve as a member of our board of directors because of his operational, strategic andcorporate leadership experience and his experience as a founder of numerous biopharmaceutical companies.Neil Gibson, Ph.D. Dr. Gibson has served on our board of directors since February 2018. Since 2017, he has served as Senior Vice President toCOI Pharmaceuticals, Inc. From 2015 to 2016, Dr. Gibson served as Senior Vice President and Chief Development Officer to BioAlta LLC. From2011 to 2015, he served as Chief Scientific Officer of Regulus Therapeutics Inc. Prior to joining Regulus Dr. Gibson was the Chief ScientificOfficer of the Pfizer Oncology Research Unit. Dr. Gibson also held leadership roles on Pfizer's Oncology Business Unit Executive team. Prior toPfizer, Dr. Gibson was the Chief Scientific Officer of OSI Pharmaceuticals. Dr. Gibson received his Ph.D. from the University of Aston and hisB.Sc. from the University of Strathclyde. We believe that Dr. Gibson is qualified to serve on our board of directors because of his extensiveexperience in the life sciences industry. Morana Jovan-Embiricos, Ph.D. Dr. Jovan has served on our board of directors since October 2015. In 2003, Dr. Jovan co-founded F2 Ventures,a biotech venture capital fund and has since served as its Managing Partner. Prior to joining F2 Ventures, Dr. Jovan was a partner at MPMCapital. Dr. Jovan currently serves on the boards of directors of ElevateBio, LLC, TriNetX, Inc. and Cullinan Oncology, LLC. Dr. Jovan receivedher Ph.D. in biophysical chemistry from the University of Cambridge and was a post-doctoral fellow at Harvard University. We believe Dr. Jovan isqualified to serve as a member of our board of directors because of her scientific background and experience in the venture capital industry.Family RelationshipsThere are no family relationships among any of our directors or executive officers.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires our directors, executive officers and beneficial owners of more than 10% of our equity securities to filereports of holdings and transactions in securities of the Company with the SEC. Our directors, executive officers and beneficial owners of morethan 10% of our equity securities did not become subject to such Section 16(a) reporting requirements until February 13, 2019, after thecompletion of our fiscal year ended December 31, 2018.Code of Business Conduct and EthicsOur board of directors has adopted a Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics applies to all of ouremployees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller or personsperforming similar functions), agents and representatives, including directors and consultants.160The full text of our Code of Business Conduct and Ethics is posted on our website at www.tcr2.com. We intend to disclose future amendments tocertain provisions of our Code of Business Conduct and Ethics on our website. The inclusion of our website address in this Annual Report doesnot include or incorporate by reference the information on our website into this Annual Report, and you should not consider that information a partof this Annual Report.Audit CommitteeThe members of our audit committee are Morana Jovan-Embiricos, Neil Gibson and Mitchell Finer, and Morana Jovan-Embiricos is the chair of theaudit committee. Our board of directors has determined that all members of our audit committee will meet the requirements for financial literacyunder the applicable rules and regulations of the SEC and the Nasdaq listing rules.Item 11. Executive CompensationExecutive Compensation OverviewAs an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reportingcompanies,” as such term is defined in the rules promulgated under the Securities Act. This section provides an overview of the compensationawarded to and earned by each individual who served as our principal executive officer at any time during our fiscal years ended December 31,2018 and 2017 and to our next two most highly compensated executive officers in respect of their service to our company for our fiscal yearsended December 31, 2018 and 2017. We refer to these individuals as our named executive officers. Our named executive officers are:▪Garry Menzel, our President and Chief Executive Officer;▪Robert Hofmeister, our Chief Scientific Officer; and▪Alfonso Quintás Cardama, our Chief Medical Officer.Our executive compensation program is based on a pay-for-performance philosophy. Compensation for our executive officers is composedprimarily of the following main components: base salary, bonus and equity incentives in the form of stock options. Our executive officers, like allfull-time employees, are eligible to participate in our health and welfare benefit plans. As we transition from a private company to a publicly tradedcompany, we intend to evaluate our compensation values and philosophy and compensation plans and arrangements as circumstances require.Summary Compensation TableThe following table sets forth information regarding compensation awarded to and earned by our named executive officers for services rendered tous in all capacities during our fiscal years ended December 31, 2018 and 2017. On February 1, 2019, we effected a reverse stock split of shares ofour common stock at a ratio of one-for-6.1938 pursuant to an amendment to our amended and restated certificate of incorporation approved by ourboard of directors and stockholders. All issued and outstanding common shares and per share amounts have been retroactively adjusted to reflectthis reverse stock split for all periods presented.161NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTION AWARDS ($) (1) NON-EQUITY PLAN COMPENSATION $ (2) ALL OTHER COMPENSATION ($) TOTAL ($) Garry Menzel, Presidentand Chief ExecutiveOfficer2018 $435,845 — $2,398,230 $343,750(3) — $3,177,825 2017 423,150 — 190,129 179,204 — 792,483 Robert Hofmeister, ChiefScientific Officer2018 320,114 — 502,304 182,875(3) — 1,005,293 2017 297,000 — 55,920 89,843 — 442,763 Alfonso Quintás Cardama, ChiefMedical Officer2018 362,484 60,000(5) 502,273 206,938(3) — 1,131,695 2017 82,500(4)60,000(5) 89,625 25,047(4) — 257,172(1) The amounts reported in the “Option Awards” column reflects the aggregate grant date fair value of share-based compensation awarded during the indicated yearcomputed in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718. See Note 10 to ourconsolidated financial statements appearing elsewhere in this Annual Report regarding assumptions underlying the valuation of equity awards.(2) Except where noted, the amounts reported reflect annual bonuses earned based upon achievement of company and individual performance metrics.(3) These amounts were paid in 2019 for services provided during the year ended December 31, 2018.(4) Dr. Quintás Cardama commenced his employment with us in October 2017. His annual salary and annual bonus for 2017 were prorated to reflect his partial year ofservice.(5) Dr. Quintás Cardama received a $120,000 sign-on bonus with 50% paid upon commencement of employment in October 2017 and the other 50% paid upon the six-monthanniversary of his continued employment in April 2018.Narrative to the Summary Compensation TableBase SalaryWe use base salaries to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our namedexecutive officers. Base salaries are reviewed annually, typically in connection with our annual performance review process, and adjusted fromtime to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience.Annual BonusWe do not have a formal performance-based bonus plan. Our employment arrangements with our named executive officers provide that theexecutive may be eligible to earn an annual performance bonus of up to a target percentage of the executive’s base salary, as described furtherbelow under the section entitled “––Employment Arrangements and Severance Agreements with our Named Executive Officers”. From time totime, our board of directors or compensation committee may approve additional annual bonuses for our named executive officers based onindividual performance, company performance or as otherwise determined to be appropriate. We have also adopted a senior executive cash bonusplan.Equity CompensationAlthough we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, or any formal equityownership guidelines applicable to them, we believe that equity grants provide our executive officers with a strong link to our long-termperformance, create an ownership culture and help to align the interests of our executive officers and our stockholders. In addition, we believe thatequity grants with a time-based vesting feature promote executive retention because this feature incentives our executive officers to remain in ouremployment during the vesting period. Accordingly, our board of directors periodically reviews the equity incentive compensation of ourexecutives, including our named executive officers, and from time to time may grant equity incentive awards to them in the form of stock options.We typically grant stock option awards at the start of employment to each executive officer and our other employees as well as on an annual basisfor retention purposes. We award our stock options on the date our162board of directors approves the grant. We set the option exercise price equal to the fair market value of our common stock on the date of grant.401(k) PlanWe maintain a tax-qualified retirement plan (the 401(k) Plan) that provides eligible U.S. employees with an opportunity to save for retirement on atax advantaged basis. Eligible employees are able to defer eligible compensation subject to applicable annual Code limits. Employees’ pre-tax orRoth contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to theparticipants’ directions. Employees are immediately and fully vested in their contributions. Our 401(k) Plan is intended to be qualified underSection 401(a) of the Code with our 401(k) Plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualifiedretirement plan, contributions to our 401(k) Plan and earnings on those contributions are not taxable to the employees until distributed from our401(k) Plan.Limitations on Liability and IndemnificationAs permitted by Delaware law, provisions in our amended and restated certificate of incorporation and amended and restated bylaws limit oreliminate the personal liability of directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, whenacting on behalf of the corporation, a director exercise an informed business judgment based on all material information reasonably available tohim or her. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as adirector, except for liability for:▪any breach of the director’s duty of loyalty to us or our stockholders;▪any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;▪any act related to unlawful stock repurchases, redemptions or other distributions or payments of dividends; or▪any transaction from which the director derived an improper personal benefit.These limitations of liability do not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as injunctive relief orrescission. These provisions will not alter a director’s liability under other laws, such as the federal securities laws or other state or federal laws.Our amended and restated certificate of incorporation also authorizes us to indemnify our officers, directors and other agents to the fullest extentpermitted under Delaware law.As permitted by Delaware law, our amended and restated bylaws provide that:▪we will indemnify our directors, officers, employees and other agents to the fullest extent permitted by law;▪we must advance expenses to our directors and officers, and may advance expenses to our employees and other agents, in connectionwith a legal proceeding to the fullest extent permitted by law; and▪the rights provided in our amended and restated bylaws are not exclusive.If Delaware law is amended to authorize corporate action further eliminating or limiting the personal liability of a director or officer, then the liabilityof our directors or officers will be so eliminated or limited to the fullest extent permitted by Delaware law, as so amended. Our amended andrestated bylaws will also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of hisor her actions in connection with their services to us, regardless of whether our bylaws permit such indemnification. We have obtained suchinsurance.In addition to the indemnification that is provided for in our amended and restated certificate of incorporation and amended and restated bylaws, wehave entered into indemnification agreements with each of our directors and executive officers, which may be broader than the specificindemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements may require us, among otherthings, to indemnify our directors and executive officers for some expenses, including attorneys’ fees, expenses, judgments, fines and settlementamounts incurred by a director or executive officer in any action or proceeding arising out of his service as one of our directors or executiveofficers or any other company or enterprise to163which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualifiedindividuals to serve as directors and executive officers.This description of the indemnification provisions of our amended and restated certificate of incorporation, our amended and restated bylaws andour indemnification agreements is qualified in its entirety by reference to these documents, each of which is attached as an exhibit to this AnnualReport.Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the Securities Act), may be permitted to ourdirectors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC,such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.There is no pending litigation or proceeding naming any of our directors or officers as to which indemnification is being sought, nor are we aware ofany pending or threatened litigation that may result in claims for indemnification by any director or officer.Health and Welfare BenefitsAll of our named executive officers are eligible to participate in our employee benefit plans, including our medical, dental and vision insuranceplans, in each case on the same basis as all of our other full-time employees.We believe the perquisites described above are necessary and appropriate to provide a competitive compensation package to our namedexecutive officers.Rule 10b5-1 Sales PlansOur directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sellshares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by thedirector or officer when entering into the plan, without further direction from the director or officer. The director or officer may amend or terminatethe plan in some circumstances. Our directors and executive officers may also buy or sell additional shares outside of a Rule 10b5-1 plan whenthey are not in possession of material, nonpublic information.Employment Arrangements and Severance Agreements with our Named Executive OfficersWe have entered into employment agreements with each of our named executive officers.Garry MenzelWe entered into an offer letter with Dr. Garry Menzel, our President and Chief Executive Officer, on July 22, 2016, pursuant to which Dr. Menzelwas entitled to receive an annual base salary of $420,000, an annual target bonus of 35% of his annual base salary based upon our board ofdirectors’ assessment of Dr. Menzel’s performance and our attainment of targeted goals approved by the board of directors. Dr. Menzel alsoreceived, pursuant to the offer letter, an equity grant equal to 4.25% of our fully-diluted capitalization as of the date Dr. Menzel commencedemployment with us. The offer letter also required that Dr. Menzel sign an Employee Confidentiality and Assignment Agreement, pursuant to whichDr. Menzel agreed to refrain from disclosing our confidential information and agrees not to compete with us during the term of his employment andfor two years following termination of his employment for any reason. Dr. Menzel was also eligible to participate in the employee benefit plansavailable to our employees, subject to the terms of those plans. Dr. Menzel’s offer letter provided that, in the event that his employment isterminated by us without “cause” or by him for “good reason” (as each term is defined in the offer letter), subject to the execution and effectivenessof a release of claims, he would be entitled to receive (in addition to accrued compensation and benefits through the date of termination) (i) salarycontinuation based on his then-current base salary for 12 months following termination and (ii) continuation of COBRA premium payments for 12months following termination.In December 2018, we entered into an employment agreement with Dr. Menzel, effective upon the closing of the IPO, pursuant to which Dr.Menzel is entitled to receive an annual base salary of $500,000 and an annual164target bonus equal to 50% of his annual base salary based upon our board of directors’ or the compensation committee of the board ofdirectors’ assessment of Dr. Menzel’s performance and our performance. This employment agreement also includes a reaffirmation ofDr. Menzel’s Employee Confidentiality and Assignment Agreement, which contains continuing obligations to us, including provisions on proprietaryinformation, assignment of inventions, non-competition and non-solicitation of customers and employees. Dr. Menzel’s employment agreementprovides that, in the event that his employment is terminated by us without “cause” or by him for “good reason,” then subject to the execution andeffectiveness of a separation agreement and release, he will be entitled to receive (i) an amount equal to (x) 12 months of base salary payable onour normal payroll cycle if such termination is not in connection with a “change in control” or (y) 18 months of base salary if such termination is inconnection with a “change in control,” payable on our normal payroll cycle, provided that in either case, if Dr. Menzel commences newemployment, all payments shall cease; and (ii) payment of the monthly employer COBRA premium for the same level of group health coverage asin effect for Dr. Menzel on the date of termination up to (x) 12 months if such termination is not in connection with a “change in control,” and(y) 18 months if such termination is in connection with a “change in control.” In addition, if within 12 months following a “change in control,” Dr.Menzel’s employment is terminated by us without “cause” or he resigns for “good reason,” then subject to the execution of the separationagreement and release, all time-based stock options and other time-based stock-based awards held by Dr. Menzel will accelerate and vestimmediately.Robert HofmeisterWe entered into an offer letter with Dr. Robert Hofmeister, our Chief Scientific Officer, on September 16, 2015, pursuant to which Dr. Hofmeisterwas entitled to receive an annual base salary of $270,000, an annual target bonus of 20% of his annual base salary based upon our board ofdirectors’ assessment of Dr. Hofmeister’s performance and our attainment of targeted goals approved by the board of directors. Dr. Hofmeisteralso received, pursuant to the offer letter, an equity grant equal to 1.25% of our fully diluted capitalization at the conclusion of the first tranche ofour Series A preferred stock financing. The offer letter also required that Dr. Hofmeister sign an Employee Confidentiality and AssignmentAgreement, pursuant to which Dr. Hofmeister agreed to refrain from disclosing our confidential information and agrees not to compete with usduring the term of his employment and for two years following termination of his employment for any reason. Dr. Hofmeister was also eligible toparticipate in the employee benefit plans available to our employees, subject to the terms of those plans. Dr. Hofmeister’s offer letter providedthat, in the event that his employment was terminated by us without “cause” or by him for “good reason” (as each term is defined in the offerletter), subject to the execution and effectiveness of a release of claims, he would be entitled to receive (in addition to accrued compensation andbenefits through the date of termination) (i) salary continuation based on his then-current base salary for nine months following termination and(ii) continuation of COBRA premium payments for six months following termination.In December 2018, we entered into an employment agreement with Dr. Hofmeister, effective upon the closing of the IPO, pursuant to which Dr.Hofmeister is entitled to receive an annual base salary of $380,000 and an annual target bonus equal to 35% of his annual base salary based uponour board of directors’ or the compensation committee of the board of directors’ assessment of Dr. Hofmeister’s performance and ourperformance. This employment agreement also includes a reaffirmation of Dr. Hofmeister’s Employee Confidentiality and Assignment Agreement,which contains continuing obligations to us, including provisions on proprietary information, assignment of inventions, non-competition and non-solicitation of customers and employees. Dr. Hofmeister’s employment agreement provides that, in the event that his employment is terminated byus without “cause” or by him for “good reason,” then subject to the execution and effectiveness of a separation agreement and release, he will beentitled to receive (i) an amount equal to (x) nine months of base salary payable on our normal payroll cycle if such termination is not in connectionwith a “change in control” or (y) 12 months of base salary if such termination is in connection with a “change in control,” payable on our normalpayroll cycle, provided that in either case, if Dr. Hofmeister commences new employment, all payments shall cease; and (ii) payment of themonthly employer COBRA premium for the same level of group health coverage as in effect for Dr. Hofmeister on the date of termination for up to(x) nine months if such termination is not in connection with a “change in control,” and (y) 12 months if such termination is in connection with a“change in control.” In addition, if within 12 months following a “change in control,” Dr. Hofmeister’s employment is terminated by us without“cause” or he resigns for “good reason,” then subject to the execution of the separation agreement and release, all time-based stock options andother time-based stock-based awards held by Dr. Hofmeister will accelerate and vest immediately.165Alfonso Quintás CardamaWe entered into an offer letter with Dr. Alfonso Quintás Cardama, our Chief Medical Officer, on July 20, 2017, pursuant to which Dr. QuintásCardama was entitled to receive an annual base salary of $360,000, a one-time bonus of $120,000, with 50% awarded upon commencement ofemployment and the other 50% awarded upon the six-month anniversary of his continued employment, an annual target bonus of 25% of hisannual base salary based upon the our board of directors’ assessment of Dr. Quintás Cardama’s performance and our attainment of targeted goalsapproved by the board of directors. Dr. Quintás Cardama also received, pursuant to the offer letter, an equity grant equal to 1.25% of our fully-diluted capitalization on the date of grant. This offer letter also required that Dr. Quintás Cardama sign an Employee Confidentiality andAssignment Agreement, pursuant to which Dr. Quintás Cardama agreed to refrain from disclosing our confidential information and agrees not tocompete with us during the term of his employment and for two years following termination of his employment for any reason. Dr. QuintásCardama was also eligible to participate in the employee benefit plans available to our employees, subject to the terms of those plans.In December 2018, we entered into an employment agreement with Dr. Quintás Cardama, effective upon the closing of the IPO, pursuant to whichDr. Quintás Cardama is entitled to receive an annual base salary of $430,000 and an annual target bonus equal to 35% of his annual base salarybased upon our board of directors’ or the compensation committee of the board of directors’ assessment of Dr. Quintás Cardama’s performanceand our performance. This employment agreement also includes a reaffirmation of Dr. Quintás Cardama’s Employee Confidentiality andAssignment Agreement, which contains continuing obligations to us including provisions on proprietary information, assignment of inventions, non-competition and non-solicitation of customers and employees. Dr. Quintás Cardama’s employment agreement provides that, in the event that hisemployment is terminated by us without “cause” or by him for “good reason,” then subject to the execution and effectiveness of a separationagreement and release, he will be entitled to receive (i) an amount equal to (x) nine months of base salary payable on our normal payroll cycle ifsuch termination is not in connection with a “change in control” or (y) 12 months of base salary if such termination is in connection with a “changein control,” payable on our normal payroll cycle, provided that in either case, if Dr. Quintás Cardama commences new employment, all paymentsshall cease; and (ii) payment of the monthly employer COBRA premium for the same level of group health coverage as in effect for Dr. QuintásCardama on the date of termination for up to (x) nine months if such termination is not in connection with a “change in control,” and (y) 12 monthsif such termination is in connection with a “change in control.” In addition, if within 12 months following a “change in control,” Dr. QuintásCardama’s employment is terminated by us without “cause” or he resigns for “good reason,” then subject to the execution of the separationagreement and release, all time-based stock options and other time-based stock-based awards held by Dr. Quintás Cardama will accelerate andvest immediately.166Outstanding Equity Awards at 2018 Fiscal Year-EndThe following table sets forth information concerning outstanding equity awards held by our named executive officers as of December 31, 2018. OPTION AWARDS STOCK AWARDS NAMEVESTING START DATENUMBER OF SECURITIES ACQUIRED ON EXERCISEVALUEREALIZED UPONEXERCISENUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE OPTION EXERCISE PRICE ($)OPTION EXPIRATION DATE NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#) MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED ($) (6)Garry Menzel10/17/1684,527$434,46952,829(1) 116,225(1) $0.7412/12/2026 — — 12/6/17—$—35,994 107,983(2) $0.7412/6/2027 — — 7/26/18—$—— 433,037(3) $5.887/25/2028 — — Robert Hofmeister12/13/1614,713$75,62510,509(1) 25,223(1) $0.7412/12/2026 6,036(5) $90,540 12/6/17—$—10,586 31,760(2) $0.7412/6/2027 — — 7/26/18—$—— 90,720(3) $5.887/25/2028 — — Alfonso Quintás Cardama10/10/17—$—21,753 52,829(4) $0.749/11/2027 — — 12/6/17—$—10,586 31,760(2) $0.7412/6/2027 — — 7/26/18—$—— 90,720(3) $5.887/25/2028 — — Unless otherwise specified, all option awards vest over four years, with 25% vesting on the first anniversary of the vesting commencement date, and the remainder vesting in36 equal monthly installments thereafter, subject to continued employment with us.(1) Represents stock option granted on December 13, 2016.(2) Represents stock option granted on December 7, 2017.(3) Represents stock option granted on July 26, 2018.(4) Represents stock option granted on October 10, 2017.(5) Represents shares of restricted stock granted on October 1, 2015, with 25% vesting on the first anniversary of the grant date, and the remainder vesting in 12 equalquarterly installments through October 1, 2019.(6) Market value was calculated using $15.00, the offering price at the time of the IPO, as we did not have a public market for our common stock as of December 31, 2018.Compensation Risk AssessmentWe believe that although a portion of the compensation provided to our executive officers and other employees is performance-based, ourexecutive compensation program does not encourage excessive or unnecessary risk taking.This is primarily due to the fact that our compensation programs are designed to encourage our executive officers and other employees to remainfocused on both short-term and long-term strategic goals. As a result, we do not believe that our compensation programs are reasonably likely tohave a material adverse effect on us.Director CompensationThe following table presents the total compensation for each person who served as a non-employee member of our board of directors and receivedcompensation for such service during the fiscal year ended December 31, 2018. Other than as set forth in the table and described more fullybelow, we did not pay any compensation, make any equity awards to, or pay any other compensation to any of the non-employee members of ourboard of directors in 2018. Dr. Menzel, our President and Chief Executive Officer, did not receive any compensation for his service as a memberof our board of directors during 2018. Dr. Menzel’s compensation for service as an employee for fiscal year 2018 is presented in “ExecutiveCompensation—Summary Compensation Table.” We reimburse non-employee167members of our board of directors for reasonable travel and out-of-pocket expenses incurred in connection with attending board of directors andcommittee meetings.Director Compensation Table—2018NAMEFEES EARNED OR PAIDIN CASH ($) WARRANT AWARDS ($)STOCK AWARDS ($)OPTION AWARDS ($)(2)ALL OTHER COMPENSATION ($) (4)TOTAL ($) Ansbert Gadicke (1)$—$—$—$—$—$—Andrew Allen———48,9974,63453,631Patrick Baeuerle (3)————76,13476,134Mitchell Finer (1)(3)————76,02976,029Neil Gibson———48,9976,41255,409Morana Jovan-Embiricos (1)(3)————126,757126,757(1) Investor-appointed directors did not receive fees, as directors, or other equity compensation for their service on our board of directors.(2) Represents stock options granted on December 31, 2018. In accordance with SEC rules, these columns reflect the aggregate grant date fair value of the option awardsgranted during 2018 computed in accordance with Financial Accounting Standard Board ASC Topic 718 for stock-based compensation transactions.(3) Each of Drs. Baeuerle, Finer and Jovan-Embiricos provided services to us pursuant to the terms of the consulting agreements with Dr. Baeuerle, Dr. Finer and PatternRecognition Ventures, and Globeways Holdings Limited, respectively. The cash fees presented above are related to these services for the period ended December 31,2018. For more information regarding these consulting arrangements, see “Certain Relationships and Related Person Transactions, and Director Independence”.(4) Includes reimbursement for travel expenses.Non-Employee Director Compensation PolicyOur board of directors has adopted a non-employee director compensation policy, effective as of the completion of our initial public offering, that isdesigned to enable us to attract and retain, on a long-term basis, highly qualified non-employee directors. Under the policy, each director who isnot an employee will be paid cash compensation from and after the completion of our initial public offering, as set forth below: MEMBERANNUAL FEE ($) CHAIRMAN ADDITIONAL ANNUAL FEE ($) Board of Directors$35,000 $25,000Audit Committee7,500 7,500Compensation Committee5,000 5,000Nominating and Corporate Governance Committee4,000 3,500Finance and Strategy Committee— —In addition, each non-employee director elected or appointed to our board of directors following the closing of our initial public offering will begranted options to purchase 8,072 shares of common stock on the date of such director’s election or appointment to the board of directors, whichwill vest in three equal annual installments, subject to continued service through such vesting date(s). On the date of each annual meeting ofstockholders of our company, each non-employee director will be granted options to purchase shares of common stock, which will vest on theearlier of the date that is one year from the date of grant or the date of the first annual meeting of our stockholders held after the date of grantsubject to continued service as a director through such vesting date(s).168Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Securities authorized for issuance under equity compensation plansThe following table provides information relating to our equity compensation plans as of December 31, 2018. As of December 31, 2018, we hadone equity compensation plan, our 2015 Plan, which was approved by our Board of Directors and our stockholders. Equity Compensation Plans Number of securities to beissued upon exercise ofoutstanding options,warrants and rights Weighted-average exerciseprice of outstandingoptions, warrants, andrights Number of securities remainingavailable for future issuance underequity compensation plans (excludingsecurities reflected in column (a) (a) (b) (c)Equity compensation plans approved bystockholders 2,094,816 $3.79 268,393 Equity compensation plans not approved bystockholders — —Total 2,094,816 268,393As described in Note 13 to our consolidated financial statements, in connection with our IPO our Board of Directors and stockholders approved twonew equity compensation plans, the 2018 Plan and the 2018 ESPP. The 2018 Plan and 2018 ESPP became effective on February 13, 2019.Security Ownership of Certain Beneficial OwnersThe following table sets forth certain information known to us regarding beneficial ownership of our capital stock outstanding as of March 1, 2019for:•each person, or group of affiliated persons, who is known by us to be the beneficial owner of five percent or more of our outstandingcommon stock (on an as-converted to common stock basis);•each of our directors;•each of our named executive officers; and•all of our current directors and executive officers as a group.We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficialownership for any other purpose. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared votingpower or investment power with respect to those securities as well as any shares of common stock that the person has the right to acquire within60 days of March 1, 2019 through the exercise of stock options or other rights. These shares are deemed to be outstanding and beneficially ownedby the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstandingfor the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in thistable have sole voting and investment power with respect to all shares shown as beneficially owned by them. Each individual or entity shown onthe table has furnished information with respect to beneficial ownership. Except as otherwise indicated below, the address of each officer, directorand five percent stockholder listed below is c/o TCR2 Therapeutics Inc., 100 Binney Street, Suite 710, Cambridge, MA 02142.169The percentage of beneficial ownership in the table below is based on 23,939,901 shares of common stock deemed to be outstanding asof March 1, 2019. COMMON STOCKBENEFICIALLY OWNED SHARES PERCENTAGE5% or Greater Stockholders Entities affiliated with MPM Capital (1)4,229,134 17.54%Entities affiliated with F2 Capital (2)3,571,261 14.92%UBS Oncology Impact Fund, L.P. (3)3,370,982 14.08%Entities affiliated with Cathay Fortune Corporation (4)2,137,419 8.93%Entities affiliated with 6 Dimensions Capital (5)1,614,516 6.74% Directors, Named Executive Officers and Other Executive Officers Garry Menzel (6)206,480 *Robert Hofmeister (7)67,678 *Alfonso Quintás Cardama (8)42,083 *Ansbert Gadicke (9)7,600,116 31.51%Andrew Allen (14)— 0Patrick Baeuerle (10)467,715 1.95%Mitchell Finer (11) 52,687 *Neil Gibson (13)706,351 2.95%Morana Jovan-Embiricos (12)3,571,261 14.92%All executive officers and directors as a group (10 persons) (15)12,714,371 52.26%* Less than one percent.(1) Based solely on a Schedule 13D filed by MPM Asset Management on March 4, 2019, consists of (i) 110,859 shares of common stock held by MPM Asset ManagementInvestors BV2014 LLC, (ii) 62,916 shares of common stock held by MPM Asset Management Investors SunStates Fund LLC, (iii) 195,902 shares of common stock andwarrants to purchase 178,269 shares of common stock exercisable within 60 days of March 1, 2019, in each case held by MPM Asset Management LLC, (iv) 203,846 sharesof common stock held by MPM BioVentures 2014 (B), L.P., (v) 3,056,272 shares of common stock held by MPM BioVentures 2014, L.P., and (vi) 421,070 shares of commonstock held by MPM SunStates Fund, L.P. MPM Bioventures 2014 GP LLC is the general partner of MPM BioVentures 2014, L.P. and MPM BioVentures 2014 (B), L.P. MPMBioventures 2014 LLC is the managing member of MPM Bioventures 2014 GP LLC and the manager of MPM Asset Management Investors BV2014 LLC. MPM SunStates FundGP LLC is the general partner of MPM SunStates Fund, L.P. MPM SunStates GP Managing Member LLC is the managing member of MPM SunStates Fund GP LLC and themanager of MPM Asset Management Investors SunStates Fund LLC. MPM Asset Management LLC was retained as a manager to manage the operations of MPM BioVentures2014, L.P., MPM BioVentures 2014 (B), L.P., MPM Asset Management Investors BV2014 LLC, MPM SunStates Fund, L.P., and MPM Asset Management SunStates Fund LLC.Dr. Ansbert Gadicke is a member of MPM BioVentures 2014 LLC, MPM SunStates GP Managing Member LLC, and MPM Capital, formerly known as MPM Asset ManagementLLC, and collectively with the other members of such entities makes investment decisions with respect to shares held by such entities. Each of the entities and individuals listedabove expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address of these entities and individualsis 450 Kendall Street, Cambridge, MA 02142.(2) Consists of (i) 193,742 shares of common stock held by F2 Bioscience II 2017 Limited, (ii) 1,614,515 shares of common stock held by F2 Capital I 2015 Limited, (iii) 410,168shares of common stock held by F2 Capital I 2017 Limited, (iv) 449,207 shares of common stock held by F2 MG Limited, and (v) 536,962 shares of common stock held by F2-TPO Investments, LLC, (vi) 200,000 shares of common stock held by F2 BBG LLC and (vii) 166,667 shares of common stock held by F2 Capital I 2019, LLC. Dr. MoranaJovan-Embiricos is a member of our board of directors and is the founding director of Globeways Holdings Limited, which is the appointed manager of each of F2 Bioscience II2017 Limited, F2 Capital I 2015 Limited, F2 Capital I 2017 Limited, F2 MG Limited, F2-TPO Investments, LLC, F2 BBG LLC and F2 Capital I 2019, LLC and makes investmentdecisions on behalf of such entities with respect to shares held by such entities. Dr. Morana Jovan-Embiricos expressly disclaims beneficial ownership of the securities listed170above except to the extent of any pecuniary interest therein. The address of these entities and individuals for correspondence is 8, Rue Saint-Leger, 04-1205, Geneva,Switzerland.(3) Based solely on a Schedule 13D filed by MPM Asset Management on March 4, 2019, consists of 3,370,982 shares of common stock held by UBS Oncology Impact Fund,L.P. The general partner of UBS Oncology Impact Fund, L.P. is Oncology Impact Fund (Cayman) Management L.P. The general partner of Oncology Impact Fund (Cayman)Management L.P. is MPM Oncology Impact Management LP. The general partner of MPM Oncology Impact Management LP is MPM Oncology Impact Management GP LLC.Dr. Ansbert Gadicke is a managing member and the managing director of MPM Oncology Impact Management GP LLC. Each of the entities and individuals listed aboveexpressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address of these entities and individuals isDurell House, 28 New Street, St Helier, Jersey, JE1 4FS.(4) Based solely on a Schedule 13D filed by China Molybdenum Co., Ltd. on February 22, 2019, consists of (i) 2,137,419 shares of common stock held by an entity affiliated withCathay Fortune Corporation. The address of this entity is Vistra Corporate Services Centre, Wickham’s Cay II, Road Town, Tortola, VG1110, British Virgin Islands.(5) Consists of (i) 80,725 shares of common stock held by 6 Dimensions Affiliates Fund, L.P. and (ii) 1,533,791 shares of common stock held by 6 Dimensions Capital, L.P. Thegeneral partner of 6 Dimensions Affiliates Fund, L.P. and 6 Dimensions Capital, L.P. is 6 Dimensions Capital GP, LLC. Wei Li was a member of our board of directors fromFebruary 2018 to December 2018 and is a Director of 6 Dimensions Capital GP, LLC. Each of the entities and individuals listed above expressly disclaims beneficial ownershipof the securities listed above except to the extent of any pecuniary interest therein. The address of these entities and individuals is P.O. Box 309, Ugland House, GrandCayman, Cayman Islands, KY 1-1104.(6) Consists of (i) options to purchase 121,953 shares of common stock exercisable within 60 days of March 1, 2019 and (ii) 84,527 shares of common stock held by Dr. GarryMenzel, as Trustee of the Garry E. Menzel and Mary E. Henshall Family Trust, under instrument of trust dated July 29, 2010. Dr. Menzel is the trustee of the Garry E. Menzeland Mary E. Henshall Family Trust and may be deemed to beneficially own these securities.(7) Consists of (i) 38,850 shares of common stock, of which 3,018 will remain unvested within 60 days of March 1, 2019 and subject to a right of repurchase in our favor upon Dr.Robert Hofmeister’s cessation of service prior to vesting, and (ii) options to purchase 28,828 shares of common stock exercisable within 60 days of March 1, 2019.(8) Consists of options to purchase 42,083 shares of common stock exercisable within 60 days of March 1, 2019.(9) See notes (1) and (3) above.(10) Consists of 467,715 shares of common stock held by APAK Solutions GmbH, of which 137,497 shares will remain unvested within 60 days of March 1, 2019 and subject to aright of repurchase in our favor upon APAK Solutions GmbH’s and/or Dr. Patrick Baeuerle’s cessation of service prior to vesting. Dr. Baeuerle is a managing director of APAKSolutions GmbH and shares voting and investment power with respect to these shares. Each of the entities and individuals listed above expressly disclaims beneficialownership of the securities listed above except to the extent of any pecuniary interest therein. The address of these entities and individuals is c/o MPM Capital, 450 KendallStreet, Cambridge, MA 02142.(11) Consists of (i) 36,731 shares of common stock held by Dr. Mitchell Finer, of which 2,295 shares will remain unvested within 60 days of March 1, 2019 and subject to a rightof repurchase in our favor upon Dr. Finer’s cessation of service prior to vesting, and (ii) options to purchase 4,676 shares of common stock exercisable within 60 days ofMarch 1, 2019 and warrants to purchase 11,280 shares of common stock exercisable within 60 days of March 1, 2019, in each case held by Pattern Recognition Ventures. Dr.Finer is a managing member of Pattern Recognition Ventures and shares voting and investment power with respect to these shares. Each of the entities and individuals listedabove expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address of these entities and individualsis 450 Kendall Street, Cambridge, MA 02142.(12) See note (2) above.(13) Consists of 706,351 shares of common stock held by Curative Ventures CT LLC. Dr. Neil Gibson is a partner at Curative Ventures CT LLC and shares voting andinvestment power with respect to these shares. Each of the entities and individuals listed above expressly disclaims beneficial ownership of the securities listed above except tothe extent of any pecuniary interest therein. The address of Curative Ventures CT LLC is 5949 Sherry Lane, Suite 820, Dallas, TX 75225,.(14) Dr. Allen was appointed to our board of directors in December 2018.(15) Includes options to purchase 197,540 shares of common stock exercisable within 60 days of March 1, 2019 and warrants to purchase 189,549 shares of common stockexercisable within 60 days of March 1, 2019, held by ten executive officers, directors and entities affiliated with such executive officers and directors, as described in notes (7)through (14) above.171Communications with the Board of DirectorsStockholders who want to communicate with members of the Board, including the independent directors, individually or as a group, should addresstheir communications to the Board, the Board members or the Board committee, as the case may be, and send them by mail to c/o TCR2Therapeutics Inc., 100 Binney Street, Suite 710, Cambridge, Massachusetts 02142. The Chair of the Audit Committee will forward all suchcommunications directly to such Board members. Any such communications may be made on an anonymous and confidential basis.A copy of any such written communication may also be forwarded to the Company’s legal counsel and a copy of such communication may beretained for a reasonable period of time. The director may discuss the matter with the Company’s legal counsel, with independent advisors, withnon-management directors, or with the Company’s management, or may take other action or no action as the director determines in good faith,using reasonable judgment, and applying his or her own discretion.The Audit Committee oversees the procedures for the receipt, retention, and treatment of complaints received by the Company regardingaccounting, internal accounting controls, or audit matters, and the confidential, anonymous submission by employees of concerns regardingquestionable accounting, internal accounting controls or auditing matters. The Company has also established a toll-free telephone number for thereporting of such activity, which is 877-865-0978.Board CommitteesOur Board of Directors has established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance committee,each of which operates pursuant to a charter adopted by our Board of Directors. Our Board of Directors has also established a Finance andStrategy committee. We believe that the composition and functioning of all of our committees will comply with the applicable requirements ofNasdaq, the Sarbanes-Oxley Act of 2002 and SEC rules and regulations that will be applicable to us. We intend to comply with future requirementsto the extent they become applicable to us.The full text of our Audit Committee charter, Compensation Committee charter, and Nominating and Corporate Governance charter are posted onthe investor relations portion of our website at www.tcr2.com. We do not incorporate the information contained on, or accessible through, ourcorporate website into this Annual Report, and you should not consider it a part of this Annual Report.Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe following is a description of transactions or series of transactions since January 1, 2017 through the year ended December 31, 2018, to whichwe were or will be a party, in which:•the amount involved in the transaction exceeds, or will exceed, $120,000; and•in which any of our executive officers, directors or holder of five percent or more of any class of our capital stock, including theirimmediate family members or affiliated entities, had or will have a direct or indirect material interest.Compensation arrangements for our named executive officers and our directors are described elsewhere in this Annual Report under “DirectorCompensation” and “Executive Compensation.”All amounts in thousands unless otherwise noted172Consulting ArrangementsOn October 1, 2015, we entered into a consulting agreement with Dr. Patrick Baeuerle. Pursuant to the consulting agreement, Dr. Baeuerle agreedto perform such consulting, advisory and related services to and for us as may be reasonably requested. In exchange, we agreed to payDr. Baeuerle a consulting fee of €15 per month. On November 1, 2016, we amended the consulting agreement to revise Dr. Baeuerle’s consultingfee to be €3 per month. Dr. Baeuerle is also eligible for an annual bonus equal to 33% of the annual fees paid under the consulting agreement,subject to the discretion of our board of directors based on Dr. Baeuerle’s performance and our performance. The term of the agreement is oneyear, and automatically extends for additional one-year periods unless terminated. During the fiscal years ended December 31, 2018 and 2017, weincurred fees and travel related expenses to Dr. Baeuerle in the amount of $76 and $71, respectively, under the consulting agreement.Dr. Baeuerle is a member of our board of directors and is a managing director at MPM Capital, the beneficial owner of more than 5% of our votingsecurities.On March 2, 2016, we entered into a consulting agreement with Dr. Mitchell Finer (the Original Finer Agreement), which was amended and restatedon May 9, 2017 to, among other things, add Pattern Recognition Ventures as a party. Pursuant to the amended and restated consultingagreement, Pattern Recognition Ventures agreed to perform scientific consulting, advisory and related services to and for us as may bereasonably requested, including making Dr. Finer available to serve as Chairman of our Scientific Advisory Board. Pursuant to the amended andrestated consulting agreement, we agreed (i) to pay Pattern Recognition Ventures a consulting fee of $19 per quarter for services provided underthe agreement, commencing on July 1, 2017, (ii) to pay Pattern Recognition Ventures an amount equal to $38 for services performed fromJanuary 1, 2017 through July 1, 2017, and (iii) to grant Pattern Recognition Ventures an option to purchase 8,017 shares of our common stock,which option is subject to vesting. During the fiscal years ended December 31, 2018 and 2017, we incurred fees and travel-related expenses toPattern Recognition Ventures in the amount of $76 and $77, respectively. Dr. Finer has a financial interest in Pattern Recognition Ventures and isits managing member. Dr. Finer is also a member of our board of directors and is an executive partner at MPM Capital, the beneficial owner ofmore than 5% of our voting securities.On October 1, 2017, we entered into a consulting agreement with Globeways Holdings Limited. Dr. Morana Jovan-Embiricos has financial interestsin Globeways Holdings Limited and is its founding director. Pursuant to the consulting agreement, Globeways Holdings Limited providesconsulting, advisory and related services in exchange for consulting fees of $0.1 million per year. During the fiscal year ended December 31, 2018and 2017, we incurred fees and travel-related expenses to Globeways Holdings Limited in the amount of $0.1 million for each period. Dr. Jovan isalso a member of our board of directors and Globeways Holdings Limited is the appointed manager of certain affiliates of F2 Capital thatcollectively beneficially own more than 5% of our voting securities.The majority investor in the Company is MPM Capital (MPM). In September 2015, the Company began receiving consulting and managementservices pursuant to agreements with three Managing Directors at MPM. For the years ended December 31, 2018 and 2017, the Company incurredapproximately $0 and $0.5 million, respectively, for management and advisory services in connection with those agreements. These amounts wererecorded in general and administrative expenses in the consolidated statements of operations.Leasing ArrangementsFollowing its inception, the Company began leasing office space pursuant to an unwritten shared facilities and services agreement with MPM. Forthe years ended December 31, 2018 and 2017, the Company incurred approximately $0 and $7, respectively, for facilities costs in connection withthat agreement, which were recorded in general and administrative and research and development expense in the173statement of operations and comprehensive loss. The Company ended its lease with MPM in January 2017.Private Placements of SecuritiesOption and Warrant GrantsOn December 6, 2017, we granted MPM Asset Management LLC a warrant to purchase 135,508 shares of our common stock at an exercise priceof $0.74 per share for an aggregate exercise price of $100,276.On December 6, 2017, we granted APAK Solutions Gmbh a warrant to purchase 169,385 shares of our common stock at an exercise price of$0.74 per share for an aggregate exercise price of $125,345. Dr. Baeuerle has a financial interest in APAK Solutions Gmbh, and he serves as themanaging director of APAK Solutions Gmbh. Dr. Baeuerle is a member of our board of directors and is a managing director at MPM Capital, thebeneficial owner of more than 5% of our voting securities.On December 6, 2017, we granted Pattern Recognition Ventures a warrant to purchase 25,407 shares of our common stock at an exercise price of$0.74 per share for an aggregate exercise price of $18,801. On May 9, 2017, we entered into a Non-Qualified Stock Option Agreement with PatternRecognition Ventures pursuant to which Pattern Recognition Ventures has the option to purchase 8,017 shares of our common stock at anexercise price of $0.74 per share for an aggregate exercise price of $5,933. Dr. Finer has a financial interest in Pattern Recognition Ventures andis its managing member. Dr. Finer is also a member of our board of directors and is an executive partner at MPM Capital, the beneficial owner ofmore than 5% of our voting securities.Series B Preferred Stock FinancingIn February 2018, with subsequent closings in March 2018 and April 2018, we sold an aggregate of 62,500,000 shares of our Series B preferredstock at a purchase price of $2.00 per share for an aggregate amount of $125.0 million. The following table summarizes purchases of our Series Bpreferred stock by related persons: SHARES OF SERIES B PREFERRED STOCK TOTAL PURCHASE PRICEEntities affiliated with MPM Capital (1)2,000,000 $4,000,000Entities affiliated with F2 Capital (2)7,990,500 $15,981,000UBS Oncology Impact Fund L.P. (3)1,750,000 $3,500,000Entities affiliated with 6 Dimensions Capital (4)10,000,000 $20,000,000Entities affiliated with Curative Ventures (5)4,375,000 $8,750,000(1) Represents 57,552 shares of Series B preferred stock purchased by MPM Asset Management Investors BV2014 LLC, 32,500 shares of Series B preferred stockpurchased by MPM Asset Management Investors SunStates Fund LLC, 105,825 shares of Series B preferred stock purchased by MPM Bioventures 2014 (B), L.P.,1,586,623 shares of Series B preferred stock purchased by MPM BioVentures 2014, L.P., and 217,500 shares of Series B preferred stock purchased by MPM SunStatesFund, L.P. Each of Patrick Baeuerle, Ansbert Gadicke and Mitchell Finer serves as an officer or director of the Company and is an affiliate of MPM Capital, of which MPMAsset Management Investors BV2014 LLC, MPM Asset Management Investors SunStates Fund LLC, MPM Bioventures 2014 (B), L.P., MPM BioVentures 2014, L.P., andMPM SunStates Fund, L.P are affiliated funds. Entities affiliated with MPM Capital collectively hold more than 5% of our voting securities.(2) Represents 1,200,000 shares of Series B preferred stock purchased by F2 Bioscience II 2017 Limited, 2,540,500 shares of Series B preferred stock purchased by F2Capital I 2017 Limited, 1,750,000 shares of Series B preferred stock purchased by F2 MG Limited, and 2,500,000 shares of Series B preferred stock purchased by F2-TPO Investments, LLC. Morana Jovan-Embiricos serves as a director of the company and is the Managing Partner of F2 Capital, of which F2 Bioscience II 2017 Limited,F2 Capital I 2017 Limited, F2 MG Limited, and F2-TPO Investments, LLC are affiliated funds. Entities affiliated with F2 Capital collectively hold more than 5% of our votingsecurities.(3) Represents 1,750,000 shares of Series B preferred stock purchased by UBS Oncology Impact Fund L.P. Each of Patrick Baeuerle, Ansbert Gadicke and Mitchell Finerserves as an officer or director of the Company and is an affiliate of UBS Oncology Impact Fund L.P. UBS Oncology Impact Fund L.P. is a holder of more than 5% of ourvoting securities.174(4) Represents 500,000 shares of Series B preferred stock purchased by 6 Dimensions Affiliates Fund, L.P. and 9,500,000 shares of Series B preferred stock purchased by6 Dimensions Capital, L.P. Wei Li was a director of the company from February 2018 to December 2018 and is a Managing Partner of 6 Dimensions Capital, of which 6Dimensions Affiliates Fund, L.P. and 6 Dimensions Capital, L.P. are affiliated funds. Entities affiliated with 6 Dimensions Capital collectively hold more than 5% of our votingsecurities.(5) Represents 4,375,000 shares of Series B preferred stock purchased by Curative Ventures CT LLC. Neil Gibson is a director of the Company and is a partner of CurativeVentures CT LLC.Participation in our Initial Public OfferingCertain of our directors, executive officers and our 5% stockholders purchased shares of our common stock in our IPO at the initial public offeringprice. The following table sets forth the number of shares of our common stock purchased by directors, executive officers and 5% stockholdersand their affiliates and the aggregate purchase price paid for such shares. Shares of Common Stock Purchased Aggregate Cash Purchase PriceEntities affiliated with MPM Capital1,373,333 $20,599,995Entities affiliated with F2 Capital666,667 $10,000,005UBS Oncology Impact Fund L.P.666,667 $10,000,005Entities affiliated with 6 Dimensions Capital333,333 $4,999,995Entities affiliated with Cathay Fortune Corporation200,000 $3,000,000Harpoon Therapeutics, Inc. License AgreementIn June 2017, we entered into a license agreement with Harpoon Therapeutics, Inc. (Harpoon), under which Harpoon provides us with rights to usecertain Harpoon intellectual property relating to antibody-based protein binders and related know-how developed by Harpoon. In return, we provideHarpoon with the right to use antibody-based protein binders developed by us. Each license granted under this Harpoon license agreement is non-exclusive. Affiliates of MPM Capital that own shares of our preferred and common stock are founding stockholders in Harpoon, and Dr. PatrickBaeuerle, one of our directors and co-founders, is a director and co-founder of Harpoon.Amended and Restated Investors’ Rights AgreementWe are a party to an amended and restated investors’ rights agreement, or the Investors’ Rights Agreement, dated as of February 28, 2018, withholders of our previously-outstanding Series A preferred stock and Series B preferred stock, including certain of our 5% stockholders and theiraffiliates and entities affiliated with certain of our officers and directors. The Investors’ Rights Agreement provides these holders the right todemand that we file a registration statement or request that their shares be covered by a registration statement that we are otherwise filing.Employment AgreementsWe have entered into employment agreements with certain of our executive officers. See “Item 11-Executive Compensation—EmploymentArrangements and Severance Agreements with our Named Executive Officers”Equity GrantsWe have granted stock options and warrants to certain of our executive officers and members of our board of directors. See “Item 11-ExecutiveCompensation”175Indemnification AgreementsAs permitted by Delaware law, provisions in our amended and restated certificate of incorporation and amended and restated bylaws limit oreliminate the personal liability of directors for a breach of their fiduciary duty of care as a director. In addition, we have entered into indemnificationagreements with each of our executive officers and the members of our board of directors which may require us to indemnify them. See “Item 11-Executive Compensation—Limitations on Liability and Indemnification”Policies for Approval of Related Party TransactionsOur board of directors reviews and approves transactions with directors, officers and holders of 5% or more of our voting securities and theiraffiliates, each a related party. Prior to our initial public offering, the material facts as to the related party’s relationship or interest in the transactionwere disclosed to our board of directors prior to their consideration of such transaction, and the transaction was not considered approved by ourboard of directors unless a majority of the directors who are not interested in the transaction approved the transaction. Further, when stockholderswere entitled to vote on a transaction with a related party, the material facts of the related party’s relationship or interest in the transaction weredisclosed to the stockholders, who must have approved the transaction in good faith.In connection with our initial public offering, our board of directors adopted a written related party transactions policy. Pursuant to this policy, theaudit committee has the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactionsbetween us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a relatedperson has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director, executiveofficer, nominee for director, or greater than 5% beneficial owner of our common stock, in each case since the beginning of the most recentlycompleted year, and their immediate family members.Director IndependenceUnder the Nasdaq listing rules, independent directors must comprise a majority of a listed company’s board of directors within twelve months fromthe date of listing. In addition, the Nasdaq listing rules require that, subject to specified exceptions, each member of a listed company’s audit,compensation and nominating and governance committees be independent within twelve months from the date of listing. Audit committeemembers must also satisfy additional independence criteria, including those set forth in Rule 10A-3 under the Securities Exchange Act of 1934, asamended (the Exchange Act), and compensation committee members must also satisfy the independence criteria set forth in Rule 10C-1 underthe Exchange Act. Under Nasdaq listing rules, a director will only qualify as an “independent director” if, in the opinion of that company’s board ofdirectors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilitiesof a director. In order to be considered independent for purposes of Rule 10A-3 under the Exchange Act, a member of an audit committee of alisted company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other boardcommittee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries,other than compensation for board service; or (2) be an affiliated person of the listed company or any of its subsidiaries. In order to be consideredindependent for purposes of Rule 10C-1, the board of directors must consider, for each member of a compensation committee of a listed company,all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to beindependent from management in connection with the duties of a compensation committee member, including, but not limited to: the source ofcompensation of the director, including any consulting advisory or other compensatory fee paid by such company to the director, and whether thedirector is affiliated with the company or any of its subsidiaries or affiliates.176In October, 2018, our board of directors undertook a review of the composition of our board of directors and its committees and the independenceof each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations,including family relationships, our board of directors has determined that all members of our board of directors, except Garry Menzel and PatrickBaeuerle, are independent directors, including for purposes of Nasdaq and SEC rules. In making that determination, our board of directorsconsidered the relationships that each director has with us and all other facts and circumstances the board of directors deemed relevant indetermining independence, including the potential deemed beneficial ownership of our capital stock by each director, including non-employeedirectors that are affiliated with certain of our major stockholders. There are no family relationships among any of our directors or executiveofficers.Audit CommitteeAs of March 15, 2019, our audit committee consists of Morana Jovan-Embiricos, Mitchell Finer and Neil Gibson and is chaired by Morana Jovan-Embiricos. The functions of the audit committee include:•appointing, approving the compensation of and assessing the independence of our independent registered public accounting firm;•pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registeredpublic accounting firm;•reviewing the overall audit plan with our independent registered public accounting firm and members of management responsible forpreparing our consolidated financial statements;•reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly consolidatedfinancial statements and related disclosures as well as critical accounting policies and practices used by us;•coordinating the oversight and reviewing the adequacy of our internal control over financial reporting;•establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;•recommending based upon the audit committee’s review and discussions with management and our independent registered publicaccounting firm whether our audited consolidated financial statements shall be included in our Annual Report on Form 10-K;•monitoring the integrity of our consolidated financial statements and our compliance with legal and regulatory requirements as they relateto our consolidated financial statements and accounting matters;•preparing the audit committee report required by SEC rules to be included in our annual proxy statement;•reviewing all related party transactions for potential conflict of interest situations and approving all such transactions; and•reviewing quarterly earnings releases.All members of our audit committee will meet the requirements for financial literacy under the applicable rules and regulations of the SEC and theNasdaq listing rules. Our board of directors has determined that Neil Gibson is “independent” for audit committee purposes as that term is definedin the rules of the SEC and the current listing standards of Nasdaq. The transition rules of the SEC require (1) one independent member at the timeof listing, (2) a majority of independent members within 90 days of listing and (3) all independent members within one year of listing. Our board ofdirectors intends to cause our audit committee to comply with the transition rules within the applicable time periods. There is not an “auditcommittee financial expert” (within the meaning of applicable SEC regulations) currently serving on our audit committee. Our board of directorsdoes not believe that any of our current directors have the qualifications or experience to be considered an audit committee financial expert.However, the members of our board of directors individually and collectively have vast educational and business financial experience and training.Additionally, both our independent registered public accounting firm and management will periodically meet privately with our audit committee. Atthis time, no qualified candidates177to serve on our audit committee as an “audit committee financial expert” have been identified, and there can be no assurance that we can attractand retain an independent director to act as our qualified financial expert.The audit committee held three meetings during 2018. The audit committee operates under a written charter that satisfies the applicable standardsof the SEC and Nasdaq. A copy of the audit committee charter is available on our website at investors.tcr2.com/corporate-governance/governance-overview. We do not incorporate the information contained on, or accessible through, our corporate website into thisAnnual Report, and you should not consider it a part of this Annual Report.Compensation CommitteeAs of March 15, 2019, our compensation committee consists of Ansbert Gadicke, Andrew Allen and Neil Gibson, and is chaired by Neil Gibson.The functions of the compensation committee include:•annually reviewing and recommending to the board of directors the corporate goals and objectives relevant to the compensation of ourChief Executive Officer;•evaluating the performance of our Chief Executive Officer in light of such corporate goals and objectives and based on such evaluation(i) reviewing and determining the cash compensation of our Chief Executive Officer and (ii) reviewing and approving grants and awards toour Chief Executive Officer under our equity-based plans;•reviewing and approving the compensation of our other executive officers;•reviewing and establishing our overall management compensation, philosophy and policy;•overseeing and administering our compensation and similar plans;•evaluating and assessing potential and current compensation advisors in accordance with the independence standards identified in theapplicable Nasdaq listing rules;•reviewing and approving our policies and procedures for the grant of equity-based awards;•reviewing and recommending to the board of directors the compensation of our directors;•preparing our compensation committee report if and when required by SEC rules;•reviewing and discussing annually with management our “Compensation Discussion and Analysis,” if and when required, to be includedin our annual proxy statement; and•reviewing and approving the retention or termination of any consulting firm or outside adviser to assist in the evaluation of compensationmatters.Each member of our compensation committee will be a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act, andan outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code).The compensation committee held four meetings during 2018. The compensation committee operates under a written charter that satisfies theapplicable standards of the SEC and Nasdaq. A copy of the compensation committee charter is available on our website atinvestors.tcr2.com/corporate-governance/governance-overview. We do not incorporate the information contained on, or accessible through, ourcorporate website into this Annual Report, and you should not consider it a part of this Annual Report.Nominating and Corporate Governance CommitteeAs of March 15, 2019, our nominating and corporate governance committee consists of Ansbert Gadicke, Mitchell Finer and Neil Gibson and ischaired by Ansbert Gadicke. The functions of the nominating and corporate governance committee include:•developing and recommending to the board of directors criteria for board and committee membership;•establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders;178•reviewing the composition of the board of directors to ensure that it is composed of members containing the appropriate skills andexpertise to advise us;•identifying individuals qualified to become members of the board of directors;•recommending to the board of directors the persons to be nominated for election as directors and to each of the board’s committees;•developing and recommending to the board of directors a code of business conduct and ethics and a set of corporate governanceguidelines; and•overseeing the evaluation of our board of directors and management.The nominating and corporate committee held four meetings during 2018. The nominating and corporate committee operates under a writtencharter that satisfies the applicable standards of the SEC and Nasdaq. A copy of the nominating and corporate committee charter is available onour website at investors.tcr2.com/corporate-governance/governance-overview. We do not incorporate the information contained on, or accessiblethrough, our corporate website into this Annual Report, and you should not consider it a part of this Annual Report.Finance and Strategy CommitteeOur finance and strategy committee consists of Ansbert Gadicke and Morana Jovan-Embiricos and is chaired by Ansbert Gadicke. The purpose ofthe finance and strategy committee is to consider and make recommendations to our board of directors regarding issues impacting our financialstructure and strategic direction, including, but not limited to, our capital structure, business development activities and financing strategy, as wellas the overall scope and focus of our business and operations. The finance and strategy committee held two meetings during 2018.Our board of directors may from time to time establish other committees.Director AffiliationsSome of our directors are affiliated with and serve on the board of directors as representatives of entities which beneficially own or owned 5% ormore of our common stock, as indicated below:NamePrincipal StockholderAnsbert GadickeMPM Capital and UBS Oncology Impact Fund, L.P.Patrick BaeuerleMPM CapitalMitchell FinerMPM CapitalMorana Jovan-EmbiricosF2 CapitalItem 14. Principal Accountant Fees and ServicesThe Audit Committee has selected KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018.In addition to retaining KPMG LLP to audit our consolidated financial statements for fiscal 2018, we may engaged the firm from time to time duringthe year to perform other services.The following table sets forth the aggregate fees billed by KPMG LLP in connection with services rendered during the last two fiscal years.179 For the Year Ended 2018 2017Audit fees$1,007,500 $252,330Audit-related fees— —Tax fees— —Other fees1,780 1,780 $1,009,280 $254,110Audit Fees consist of fees for professional services rendered in connection with the audit of our annual consolidated financial statements, thereview of the interim consolidated financial statements included in quarterly reports, services rendered in connection with the Company's initialpublic offering, and services that are normally provided by KPMG LLP, such as comfort letters, in connection with statutory and regulatory filingsor engagements.All Other Fees consist of accounting research software license fees.In fiscal 2018 and 2017, no services other than those discussed above were provided by KPMG LLP.The Audit Committee has adopted a policy requiring pre-approval of all audit and non-audit related services to be performed by the Company’sindependent auditor regardless of amount. These services may include audit services, audit-related services, tax services and other relatedservices. KPMG LLP and management are required to periodically report to the Audit Committee regarding the extent of services provided byKPMG LLP in accordance with this pre-approval and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.The Audit Committee annually evaluates the qualifications, performance and independence of the Company’s independent registered publicaccounting firm. It selected KPMG as the Company’s independent registered public accounting firm for 2018. This selection was subsequentlyapproved by the Board. The Audit Committee has reviewed and discussed with management and with KPMG the Company’s audited consolidatedfinancial statements for the year ended December 31, 2018. In addition, the Audit Committee has discussed with KPMG the matters thatindependent registered public accounting firms must communicate to audit committees under applicable PCAOB standards.The Audit Committee has also discussed and confirmed with KPMG its independence from the Company and received all written disclosures andcorrespondence required by the PCAOB Ethics and Independence requirements. The Audit Committee has evaluated and concluded the non-audit services provided by KPMG to the Company do not impair KPMG’s independence.Based on the reviews and discussions referred to above, the Audit Committee recommended to our Board that the audited consolidated financialstatements for the year ended December 31, 2018 and the related footnotes be included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2018.180PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES3. ExhibitsThe exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Index immediatelypreceding the signature page of this Annual Report on Form 10-K. The exhibits listed in the Exhibit Index are incorporated by reference herein.ITEM 16. FORM 10-K SUMMARYNot applicable.181EXHIBIT INDEXNumber EXHIBIT DESCRIPTIONFORMFILE NO.EXHIBITFILING DATEFILEDHEREWITH3.1 Amended and Restated Certificate of Incorporation of the Registrant8-K001-388113.12/25/2019 3.2 Amended and Restated By-laws of the Registrant8-K001-388113.22/25/2019 4.1 Amended and Restated Investors’ Rights Agreement among theRegistrant and certain of its stockholders, dated February 28, 2018S-1333-2290664.112/28/2018 4.2 Form of Specimen Common Stock CertificateS-1333-2290664.22/1/2019 4.3 Form of Common Stock WarrantS-1333-2290664.312/28/2018 10.1# 2015 Stock Option and Grant Plan and forms of award agreementsthereunderS-1333-22906610.112/28/2018 10.2# 2018 Stock Option and Incentive Plan and forms of award agreementsthereunderS-1333-22906610.22/1/2019 10.3# Senior Executive Cash Incentive Bonus PlanS-1333-22906610.312/28/2018 10.4# 2018 Employee Stock Purchase PlanS-1333-22906610.42/1/2019 10.5# Form of Director Indemnification AgreementS-1333-22906610.512/28/2018 10.6# Form of Officer Indemnification AgreementS-1333-22906610.612/28/2018 10.7 Lease Agreement, dated as of June 30, 2017, by and between ARE-MA Region No. 45, LLC and the RegistrantS-1333-22906610.712/28/2018 10.8# Form of Amended and Restated Employment AgreementS-1333-22906610.812/28/2018 10.9† License Agreement, dated as of June 21, 2017, by and between HarpoonTherapeutics, Inc. and the RegistrantS-1333-22906610.912/28/2018 10.10# Consulting Agreement, dated as of October 1, 2015, by and between theRegistrant and Patrick Baeuerle, as amendedS-1333-22906610.1012/28/2018 10.11# Amended and Restated Consulting Agreement, dated as of May 9, 2017,by and between the Registrant, Mitchell Finer and Pattern RecognitionVenturesS-1333-22906610.1112/28/2018 10.12# Consulting Agreement, dated as of October 1, 2017, by and between theRegistrant and Globeways Holdings LimitedS-1333-22906610.1212/28/2018 10.13 Royalty Transfer Agreement, dated as of May 26, 2016, by and amongthe Registrant, MPM Oncology Charitable Foundation, Inc. and the UBSOptimus FoundationS-1333-22906610.1312/28/2018 10.14 Letter Agreement, dated as of May 26, 2016, by and among theRegistrant, MPM Oncology Charitable Foundation, the UBS OptimusFoundation and UBS Oncology Impact Fund L.P.S-1333-22906610.1412/28/2018 10.15† Collaboration Agreement, dated as of December 18, 2018, by andbetween the Registrant and Cell Therapy Catapult LimitedS-1333-22906610.1512/28/2018 21.1 Subsidiaries of the RegistrantS-1333-22906621.12/1/2019 23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm X31.1 Certification of Principal Executive Officer pursuant to Rule 13a‑14(a) /Rule 15d‑14(a) of the Securities Exchange Act of 1934, as amended X31.2 Certification of Principal Financial Officer pursuant to Rule 13a‑14(a) /Rule 15d‑14(a) of the Securities Exchange Act of 1934, as amended X32.1 Certifications of the Principal Executive Officer and Principal FinancialOfficer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 X# Indicates a management contract or any compensatory plan, contract orarrangement † Confidential treatment has been granted as to certain portions of thisexhibit, which portions have been omitted and submitted separately to theSecurities and Exchange Commission. 182SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized. TCR2 THERAPEUTICS INC. March 29, 2019 By:/s/ Garry E. Menzel Garry E. Menzel President, Chief Executive Officer and Director (PrincipalExecutive Officer)183POWER OF ATTORNEYEach person whose individual signature appears below hereby authorizes and appoints Garry E. Menzel and Mayur (Ian) Somaiya, and each ofthem, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact andagent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity statedbelow, and to file any and all amendments to this annual report on Form 10-K and to file the same, with all exhibits thereto, and other documents inconnection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full powerand authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them ortheir or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.SignatureTitleDate/s/ Garry E. Menzel Garry E. MenzelPresident, Chief Executive Officer and Director (PrincipalExecutive Officer)March 29, 2019/s/ Mayur (Ian) Somaiya Mayur (Ian) SomaiyaChief Financial Officer (Principal Financial and AccountingOfficer)March 29, 2019/s/ Ansbert Gadicke Ansbert GadickeDirectorMarch 29, 2019/s/ Andrew Allen Andrew AllenDirectorMarch 29, 2019/s/ Patrick Baeuerle Patrick BaeuerleDirectorMarch 29, 2019/s/ Mitchell Finer Mitchell FinerDirectorMarch 29, 2019/s/ Neil Gibson Neil GibsonDirectorMarch 29, 2019/s/ Morana Jovan-Embiricos Morana Jovan-EmbiricosDirectorMarch 29, 2019184Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsTCR2 Therapeutics Inc.:We consent to the incorporation by reference in the registration statement (No. 333-229691) on Form S-8 of TCR2 Therapeutics Inc. of our reportdated March 29, 2019, with respect to the consolidated balance sheets of TCR2 Therapeutics Inc. as of December 31, 2018 and 2017, the relatedconsolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cashflows for each of the years then ended, and the related notes, which report appears in the December 31, 2018 annual report on Form 10‑K of TCR2Therapeutics Inc./s/ KPMG LLPCambridge, MassachusettsMarch 29, 2019 Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A‑14(A) / RULE 15D‑14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDEDI, Garry E. Menzel, certify that:1. I have reviewed this Annual Report on Form 10‑K of TCR2 Therapeutics Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b) (Paragraph omitted pursuant to SEC Release Nos. 33‑8238/34‑47986 and 33‑8392/34‑49313);(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 29, 2019/s/ Garry E. Menzel Garry E. Menzel President, Chief Executive Officer and Director(Principal Executive Officer)Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A‑14(A) / RULE 15D‑14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDEDI, Mayur (Ian) Somaiya, certify that:1. I have reviewed this Annual Report on Form 10‑K of TCR2 Therapeutics Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b) (Paragraph omitted pursuant to SEC Release Nos. 33‑8238/34‑47986 and 33‑8392/34‑49313);(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: March 29, 2019/s/ Mayur (Ian) Somaiya Mayur (Ian) Somaiya Chief Financial Officer(Principal Financial and Accounting Officer)Exhibit 32.1CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002In connection with this Annual Report on Form 10‑K of TCR2 Therapeutics Inc. (the “Company”) for the fiscal year ended December 31, 2018 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, hereby certifies, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that, to the best of his or her knowledge:1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Dated: March 29, 2019/s/ Garry E. Menzel Garry E. Menzel President, Chief Executive Officer and Director(Principal Executive Officer)/s/ Mayur (Ian) Somaiya Mayur (Ian) Somaiya Chief Financial Officer(Principal Financial and Accounting Officer)

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