UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 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 710
Cambridge, 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
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 Par Value
TCRR
The Nasdaq Stock Market, LLC
Securities 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 ☐ No ☒
Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate 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 12
months (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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2022: $89,641,770
As of March 5, 2023, there were 39,244,199 shares of the registrant’s Common Stock, $0.0001 par value per share, outstanding.
TCR2 Therapeutics Inc.
Table of Contents
PART I
8
Item 1.
Business
40
Item 1A.
Risk Factors
96
Item 1B.
Unresolved Staff Comments
96
Item 2.
Properties
96
Item 3.
Legal Proceedings
96
Item 4.
Mine Safety Disclosures
96
PART II
97
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
97
Item 6.
Reserved
97
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
98
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
107
Item 8.
Financial Statements
108
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
135
Item 9A.
Controls and Procedures
135
Item 9B.
Other Information
136
Item 9C.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
136
PART III
137
Item 10.
Directors, Executive Officers and Corporate Governance
137
Item 11.
Executive Compensation
140
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
147
Item 13.
Certain Relationships and Related Transactions and Director Independence
149
Item 14.
Principal Accountant Fees and Services
153
PART IV
155
Item 15.
Exhibits and Financial Statement Schedules
155
Exhibit List
155
Signatures
157
Summary of the Material Risks Associated with Our Business
Our business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business.
These risks are described more fully in “Item 1A—Risk Factors,” and include, but are not limited to, the following:
•
Failure to complete, or delays in completing, the potential merger with Adaptimmune Therapeutics plc (“Adaptimmune”) announced on March 5, 2023
(the "Merger") could materially and adversely affect our results of operations, business, financial results and/or stock price.
•
Uncertainty with respect to if or when the Merger will be completed.
•
Because the Merger Agreement provides for a fixed exchange ratio for the number of shares of Adaptimmune ADSs that will be issued for each
outstanding share of our common stock, the consideration received at the time of the Merger may be lower than the public trading value of shares of
our common stock when we entered into the Merger Agreement.
•
The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger, could discourage a potential competing acquiror of
us from making an alternative transaction proposal and, in specified circumstances, could require us to pay a termination fee to Adaptimmune.
•
Lawsuits may be filed against us and the members of our board of directors arising out of the Merger, which may delay or prevent the Merger.
•
Our approach to the discovery and development of product candidates based on our TRuC-T cell platform represents a novel approach to cancer
treatment, which creates significant challenges for us. We are early in our development efforts. Gavo-cel, our most advanced product candidate, is in
the Phase 2 portion of the Phase 1/2 clinical trial, TC-510 is in the Phase 1 portion of the Phase 1/2 clinical trial and our other product candidates are
still in preclinical development. If we are unable to advance our product candidates through clinical development, obtain regulatory approval and
ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.
•
Our business is highly dependent on our clinical trials for our lead product candidates, gavo-cel and TC-510, and we must complete IND-enabling
studies and clinical testing before we can seek regulatory approval and begin commercialization of any of our product candidates. We cannot be
certain that we will be able to complete ongoing clinical trials, initiate future planned clinical trials, or advance our product candidates into additional
trials, or to successfully develop, or obtain regulatory approval for, or successfully commercialize, any of our product candidates.
•
We have limited experience as a company in conducting clinical trials. Clinical development involves a lengthy and expensive process with an
uncertain outcome and results of earlier studies and trials may not be predictive of future clinical trial results. If our preclinical studies and clinical trials
are not sufficient to support regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or
ultimately be unable to complete, the development of such product candidate.
•
Manufacturing and administering our product candidates are complex and we may encounter difficulties in production, particularly with respect to
process development or scaling up of our manufacturing capabilities. If we encounter such difficulties, our ability to provide supply of our TRuC-T cells
for clinical trials or for commercial purposes could be delayed or stopped.
•
The market opportunities for our product candidates may be relatively small as they will be limited to those patients who are ineligible for or have failed
prior treatments and our estimates of the prevalence of our target patient populations may be inaccurate.
•
We rely on third parties to conduct our clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet
expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.
•
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability. We have
incurred significant losses since inception and we expect to incur losses over the next several years and may not be able to achieve or sustain
revenues or profitability in the future. If we fail to obtain additional financing, we may be unable to continue our research and product development
programs.
•
If we are unable to obtain and maintain patent protection for any products we develop and for our technology, or if the scope of the patent protection
obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours and our ability
to commercialize any product candidates we may develop and our technology may be adversely affected.
•
Our restructuring and strategic reprioritization activities in the past year may be disruptive to our operations and harm our business and may not be
successful.
•
The U.S. Food and Drug Administration (FDA) regulatory approval process is lengthy and time-consuming and we may experience significant delays in
the clinical development and regulatory approval of our product candidates.
•
Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review,
which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience
unanticipated problems with our product candidates.
•
We are highly dependent on our key personnel and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to
successfully implement our business strategy.
•
Our stock price has been and will likely continue to be volatile. Securities class action or other litigation involving our company or members of our
management team could also substantially harm our business, financial condition and results of operations.
4
•
Unstable global markets, economic and political conditions may have serious adverse consequences on our business, financial condition and stock
price.
•
We are an emerging growth company and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will
make our common stock less attractive to investors. We are also a “smaller reporting company,” and the reduced disclosure requirements applicable to
smaller reporting companies may make our common stock less attractive to investors.
5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K of TCR2 Therapeutics Inc. (the “Company,” “we,” “us” and “our”) contains or incorporates statements that
constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or
current facts or matters are forward looking statements. In some cases, you can identify forward-looking statements by terminology such as
“may,” “will,” “could,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “continue”
or the negative of these terms or other comparable terminology. Forward-looking statements appear in a number of places in this Annual
Report on Form 10-K and include, but are not limited to, statements about:
•
the occurrence of any event, change, or other circumstances that could delay or prevent closing of the transactions contemplated by, or give rise to the
termination of that certain Agreement and Plan of Merger, dated as of March 5, 2023 (the “Merger Agreement”), by and among us, CM Merger Sub,
Inc., a Delaware corporation and wholly owned subsidiary of Adaptimmune (“Merger Sub”), and Adaptimmune Therapeutics plc (“Adaptimmune”),
pursuant to which Merger Sub will be merged with and into the Company, with the Company surviving as a wholly-owned subsidiary of Adaptimmune;
•
the timing of preclinical studies and clinical trials of gavo-cel, TC-510 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, including for TC-520, conduct successful clinical trials and obtain regulatory approval for gavo-cel, TC-510 or
any other product 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 gavo-cel, TC-510 or any other product candidates that we may identify or
develop;
•
our ability to manufacture gavo-cel, TC-510 or any other product candidate in conformity with our specifications and with the FDA’s requirements and to
scale up manufacturing of our product candidates to commercial scale, if approved;
•
the implementation of our strategic plans for our business, including the reprioritization of our clinical and research priorities, 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 rights covering our
product candidates and technology;
•
the rate and degree of market acceptance and clinical utility for any product candidates we may develop;
•
our estimates regarding our expenses, future revenues, capital requirements and our needs for additional financing;
•
our ability to maintain and establish collaborations;
•
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;
•
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for, or ability to obtain, additional financing;
•
our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act, or the
JOBS Act;
•
the current and future impact of the ongoing COVID-19 pandemic on our business;
•
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 market growth and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. You are urged to carefully review the disclosures we make concerning these risks
and other factors that may affect our business and operating results under “Item 1A. Risk Factors” in this Annual Report on Form 10-K. You
are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The
Company does not intend and undertakes no
6
obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events, unless required by law to do so.
7
Part I
Except where the context otherwise requires or where otherwise indicated, the terms “TCR2,” “TCRR,” “we,” “us,” “our,” “our company,” “the
company,” and “our business” refer to TCR2 Therapeutics Inc. and its consolidated subsidiaries.
Item 1. Business
Overview
We are a clinical-stage cell therapy company developing a pipeline of novel T cell therapies for cancer patients suffering from solid tumors by
powering the T cell receptor (TCR) with our proprietary, first-in-class TCR Fusion Construct T cells (TRuC-T cells). Designed to overcome the
limitations of current cell therapy modalities, our TRuC-T cells, an HLA-independent T cell therapy platform, recognize and kill cancer cells by
harnessing the entire TCR signaling complex, which we believe is essential for T cell therapies to be effective in patients with solid tumors.
Our lead TRuC-T cell targeting mesothelin-expressing solid tumors is gavocabtagene autoleucel (gavo-cel, formerly TC-210). We have
completed the Phase 1 portion of our Phase 1/2 clinical trial for gavo-cel to treat patients with ovarian cancer, non-small cell lung cancer
(NSCLC), malignant pleural/peritoneal mesothelioma (MPM) or cholangiocarcinoma. We estimate the patient population for gavo-cel in the
four indications which we are exploring in our clinical trial is up to 81,000 patients in the United States alone.
•
Based on the topline data readout presented on September 28, 2022 from patients in dose escalation in the Phase 1 portion of
our Phase 1/2 clinical trial as of the September 9, 2022 data cutoff, gavo-cel has demonstrated consistent clinical benefit, with
28 of 30 (93%) patients evaluable for efficacy experiencing tumor regression, clinical activity observed in all three mesothelin-
expressing tumor types treated (i.e. ovarian cancer, mesothelioma and cholangiocarcinoma), and a 77% disease control rate
(DCR).
•
As measured by blinded independent central review (BICR), we have observed a 22% Overall Response Rate (ORR) in patients
infused with gavo-cel following lymphodepletion with six (two ovarian cancer, four mesothelioma) RECIST partial responses
(PRs). The ORR was 29% in ovarian cancer and 21% in mesothelioma.
•
The median overall survival (OS) for patients with ovarian cancer was 8.1 months, whereas the median progression-free survival
(PFS) for patients with ovarian cancer was 5.8 months. The median OS for patients with MPM was 11.2 months, whereas the
median PFS for patients with MPM was 5.6 months.
•
Based on our mesothelin cutoff screening protocol (confirmed positive mesothelin expression on ≥50% of tumor cells that are 2+
and/or 3+ by immunohistochemistry), 48% of patients screened have been eligible to be enrolled in our clinical trial.
•
A maximum tolerated dose (MTD) was declared by the Safety Review Team (SRT) after all three patients treated at dose level 5
(DL5: 5x108 cells/m2 following lymphodepletion) experienced Grade ≥3 CRS. In late December 2021, the SRT declared 1x108
cells/m2 following lymphodepletion as the recommended Phase 2 dose (RP2D).
We designed the Phase 2 portion of our Phase 1/2 clinical trial to assess gavo-cel in patients with ovarian cancer, NSCLC, malignant
pleural/peritoneal mesothelioma or cholangiocarcinoma. In January 2023, we announced that we had narrowed the focus of our development
of gavo-cel to ovarian cancer in combination with Opdivo® (nivolumab) and redosing strategies which we believe may increase the duration
of benefit in patients. We expect preliminary durability data from the ovarian cancer cohort in the second half of 2023.
Our next most advanced program is TC-510, our first enhanced TRuC-T cell targeting mesothelin-expressing solid tumors which incorporates
a PD-1:CD28 chimeric switch receptor. In our preclinical studies of TC-510, we have observed functional improvements over gavo-cel
including enhanced signaling, increased proliferation, reduced exhaustion and improved in vivo efficacy against tumors with high PD-L1
expression. Based on these preclinical studies, we believe we can improve on the efficacy of gavo-cel in specific hostile solid tumor
microenvironment settings and potentially expand into new solid tumor indications. We are conducting the Phase 1 portion of the Phase 1/2
clinical trial with initial data expected in the second half of 2023.
Proposed Transaction with Adaptimmune
On March 5, 2023, we entered into a definitive agreement with Adaptimmune Therapeutics plc ("Adaptimmune"), pursuant to which, upon the
terms and subject to the conditions thereof, the Company will become a wholly-owned indirect subsidiary of
8
Adaptimmune (the “Merger Agreement” and such transaction, the “Merger”). The combined company will create a preeminent cell therapy
company focused on treating solid tumors. The combination provides extensive advantages for clinical development and product delivery
supported by complementary technology platforms. The lead clinical franchises for the combined company utilize engineered T-cell therapies
targeting MAGE A4 and mesothelin. These targets are expressed on a broad range of solid tumors and are supported by compelling early-
and late-stage clinical data. The combined company also has a preclinical pipeline of additional target opportunities with development initially
focused on PRAME and CD70.
The Merger Agreement was approved by our board of directors (the “Board”), and the Board resolved to recommend approval of the Merger
Agreement to our stockholders. The closing of the Merger is subject to approval of our stockholders and the satisfaction of customary closing
conditions. In connection with the execution of the Merger Agreement, certain of our stockholders and certain shareholders of Adaptimmune
entered into voting and support agreements with Adaptimmune, pursuant to which they have agreed, among other things, and subject to the
terms and conditions of the agreements, to vote their
shares in favor of the Merger Agreement and the Merger, in accordance with the recommendation of the respective boards of directors of
Adaptimmune and the Company.
Subject to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share
of our common stock (other than shares of our common stock held as treasury stock, or shares of our common stock owned by
Adaptimmune or any direct or indirect wholly-owned subsidiaries of Adaptimmune), including shares of our common stock underlying our
restricted stock units that vest upon a change of control, will be converted into the right to receive 1.5117 American Depositary Shares of
Adaptimmune (“Parent ADS”) with each Parent ADS representing six ordinary shares of Adaptimmune. Following the closing of the Merger,
Adaptimmune shareholders will own approximately 75% of the combined company and our stockholders will own approximately 25% of the
combined company.
Subject to approval by our shareholders and the shareholders of Adaptimmune and satisfaction or waiver of other closing conditions, the
transaction is expected to close in the second quarter of 2023.
9
Our Pipeline
The versatility of our platform is highlighted by our lead program and multiple approaches in development. We have generated a pipeline with
assets that focus on solid tumors. Our product candidates are listed in the figure below.
Our Approach Utilizes the Full T-Cell Receptor
The TCR is one of the body’s most complex receptors, composed of an antigen-recognizing heterodimer (TCRα and TCRβ chains) which
binds to specific peptide-MHC ligands in association with a complex of signaling subunits, collectively called CD3: CD3γ, CD3δ and two
subunits each of CD3ε and CD3ζ. The contribution and interplay of the TCR’s six different receptor subunits to its very broad and complex
signaling activities in T cells is not fully understood but we believe all subunits play an important role in regulating and tuning activation
signals downstream of the TCR. In total, the six different CD3 subunits contain ten immune receptor tyrosine-based activation motifs (ITAM)
and the multiplicity of ITAMs within the TCR regulates the signaling potency and thereby the strength of T cell activation following TCR
ligation. Besides ITAMs, other unique motifs in the intracellular domains of CD3γ, CD3δ, CD3ε and CD3ζ are crucial for homeostasis,
negative feedback regulation, signaling and function of the TCR complex. In contrast to CAR-Ts, which operate as stand-alone receptors
utilizing only one of the six TCR subunits (CD3ζ), TRuCs fully integrate into the TCR complex and therefore have the potential utilize the full
signaling capacity of the TCR and take advantage of its intrinsic regulatory mechanisms.
Our Novel T-Cell Receptor Fusion Construct (TRuC) Platform
We are pioneering the development of a novel, transformative T cell engineering platform which, based on its design and our preclinical and
clinical studies, we believe has the potential to address the shortcomings of CAR-T cells and TCR-T cells and is fundamentally different from
these existing approaches. Research over more than two decades has shown that each of the TCR subunits makes distinct contributions to
the activation and regulation of T cells and the sum of the TCR subunits is required to optimally activate and control the function of T cells.
We believe that engaging the entire TCR signaling complex is required to fully realize the potential of 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. To that 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 to transfer the genetic information for the TRuC construct into a patient’s own T cells. This
10
modified subunit then naturally integrates into the native TCR complex, creating an engineered T cell equipped with a new "homing device"
to detect and engage a specific antigen on the surface of cancer cells. Upon antigen engagement, these T cells harness the entire TCR to
produce a highly potent 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 hematological malignancies we have observed greater anti-tumor activity, longer persistence and
less cytokine release compared to CAR-T cells we have engineered to target the same cancer antigen. Our findings suggest that the signal
delivered through the full TCR by TRuCs results in efficient T cell activation while avoiding overactivation and overproduction of cytokines as
occurs in CARs. We believe that these properties could translate into more durable responses with potentially fewer adverse events for
patients with cancer.
The figure below describes the natural HLA-restricted TCR complex as compared to the HLA-independent TRuC TCR.
11
Our 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 OUTCOME
Optimized
Signaling
TRuC construct integrates into and
utilizes the full signaling capacity of
the native TCR
• Naturally controlled T cell responses through TCR
regulatory motifs
• Produce a more powerful, well-controlled
anti-tumor T cell response
• Avoids cytokine overproduction
• Lower risk of adverse events
• No requirement for built-in costimulatory domain
Solid Tumor
Efficacy
Potent elimination of solid tumors
with functional persistence
• Efficient solid tumor penetration and retention
• Overcomes restricted T cell migration in solid
tumors
• Favorable metabolic profile promotes T cell fitness
• Long-term persistence to achieve durable
responses
• Promotion of memory T cell phenotype
Versatile
Targeting
Reprogramming of the TCR by
antibody-based binder recognition of
tumor antigens
• HLA-independent tumor antigen recognition through
the full TCR
• Avoids HLA downregulation as a mechanism
of escape/relapse
• Ability to attack tumors based on the recognition of
two different antigens
• Improved response rates in tumors with
heterogeneous target antigen expression
Dual targeting
• Screening of diverse binder pools yields TRuC-T
cells with optimal properties
• Reduced risk of relapse due to antigen
escape
Broad range of available binder
formats allows identification of
optimized TRuC for each target
• Binder formats include, but are not limited to, single-
chain variable fragments, single-domain antibodies
and receptors
• TRuC optimization leads to increased
likelihood of clinical activity
Our goal is to improve upon the efficacy and safety of T-cell therapies by enhancing trafficking of T cells into tumors, tumor antigen targeting,
the ability 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, including those we have
engineered with the same binders. Importantly, in our gavo-cel Phase 1 dose escalation, we have demonstrated proof-of-concept and benefit
for patients in all treated indications.
Design of the gavo-cel TRuC Construct
The construct used to generate gavo-cel is comprised of a humanized single-domain antibody that specifically binds to mesothelin on the cell
surface. This binding domain is tethered to the human CD3ε subunit via a flexible linker to form the mesothelin-targeting TRuC construct, as
shown below. 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, the TRuC protein is expressed and integrated into the endogenous TCR followed by transport of the reprogrammed TCR to the cell
surface. There, it redirects the TRuC-T cells to recognize mesothelin-positive tumor cells and activate them to eliminate mesothelin-positive
tumors. We believe that gavo-cel’s unique way of engaging and powering T cells as well as its humanized binding domain could lead to
improved clinical outcomes for patients. The following figure illustrates the design of gavo-cel.
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Gavo-cel Market Opportunity
We estimate the patient population for gavo-cel in the four indications which we are exploring in our clinical trial is up to 81,000 patients in the
United States alone. Mesothelin is overexpressed on the cell surface in multiple cancers, including approximately 76% of malignant pleural
mesothelioma (the most common type of mesothelioma), 58% of ovarian cancers and 31% of NSCLC, among others. The following figure
illustrates the proportion of cancer patients with mesothelin expressed on the surface of their tumors and are therefore potential candidates
for gavo-cel therapy.
Ovarian Cancer Background
Epithelial ovarian cancer comprises approximately 90% of all ovarian malignancies. Approximately 21,000 patients in the United States were
estimated to be diagnosed with ovarian cancer in 2021 with an estimated 12,400 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
low efficacy rates (below 15%) in patients with advanced forms of the disease. The majority of patients progressing after platinum
retreatment have the options of three approved PARP inhibitors, expanding treatment options. Relapsed, recurrent ovarian cancer remains
incurable with an estimated 13,770 deaths from ovarian cancer in 2021 in the United States alone.
NSCLC Background
NSCLC remains the leading cause of cancer-related mortality worldwide, accounting for approximately 18% of all cancer deaths. There are
an estimated 235,760 new cases in the United States annually with an estimated 62,600 (27%) expressing mesothelin on the cell surface.
Patients with metastatic NSCLC have a poor prognosis with a median survival of approximately 26-months and a five-year survival rate of
approximately 16% to 32%. While recent advances with checkpoint inhibitors have demonstrated promising results, the majority of patients
treated with these agents do not derive a long-term benefit. Notably, no standard of care is available for patients failing to respond or
relapsing after checkpoint inhibitor therapy, a segment of the NSCLC market which is expected to grow in size as the use of immune
checkpoint inhibitors increases in first- and second-line settings.
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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 are eligible for enrollment in our Phase 1/2 clinical trial of gavo-cel.
Malignant pleural mesothelioma is the most common form of mesothelioma, accounting for an estimated 84% of cases. Asbestos exposure
causes approximately 80% of malignant pleural mesothelioma cases. There are an estimated 2,600 new cases per year of malignant
mesothelioma in the United States of which an estimated 1,800 express mesothelin on the cell surface.
Effective treatment options for patients with malignant pleural mesothelioma are very limited. In October 2020, the FDA approved Opdivo
(nivolumab) in combination with Yervoy (ipilimumab) for the first-line treatment of adults with malignant pleural mesothelioma that cannot be
removed by surgery. This is the first drug regimen approved for mesothelioma in 16 years and the second FDA-approved systemic therapy
for mesothelioma. In second line, the standard of care recommended is chemotherapy that includes a platinum salt and an anti-folate.
Unfortunately, the ORR is 17% to 40% and the median overall survival of patients with malignant pleural mesothelioma is 12 to 19 months
when systemic chemotherapy is used with or without anti-angiogenic agents or targeted therapy. Malignant mesothelioma causes
approximately 2,500 deaths in the United States annually.
Malignant peritoneal mesothelioma is the second-most common form of mesothelioma, accounting for an estimated 10% of cases. While
malignant peritoneal mesothelioma is less commonly studied than malignant pleural mesothelioma, similar systemic chemotherapy regimens
of platinum and antifolate combinations are often used. The prognosis for patients with malignant peritoneal mesothelioma is poor as only
35% of patients survive more than two years after diagnosis.
In the first half of 2022, we announced that we received an FDA Orphan Drug Designation for gavo-cel’s treatment of mesothelioma.
Cholangiocarcinoma Background
Cholangiocarcinoma is a form of cancer that is composed of mutated epithelial cells that originate in the bile ducts. There are an estimated
8,000 new cholangiocarcinoma cases in the United States per year with about 50% expressing mesothelin on the cell surface. Most patients
with cholangiocarcinoma have advanced-stage disease at presentation, for which the available standard-of-care chemotherapy (gemcitabine
and cisplatin) renders a median overall survival of less than one year. In 2020, the FDA approved pemigatinib for the treatment of
unresectable locally advanced or metastatic cholangiocarcinoma with a fibroblast growth factor receptor 2 (FGFR2) fusion or other
rearrangement, however this treatment addresses only 10-16% of patients. Multiple products, including checkpoint inhibitors and others, are
being tested in clinical trials, but cholangiocarcinoma remains an unmet medical need. Cholangiocarcinoma causes over 7,000 deaths per
year in the United States alone.
In 2021, we received an FDA Orphan Drug Designation for gavo-cel’s treatment of cholangiocarcinoma.
Gavo-cel Phase 1/2 Trial in Mesothelin-Positive Tumors
We have initiated a Phase 1/2 clinical trial of gavo-cel in patients with mesothelin-positive ovarian cancer, NSCLC, malignant
pleural/peritoneal mesothelioma and cholangiocarcinoma. In January 2023, we announced that we had narrowed the focus of our
development of gavo-cel to ovarian cancer in combination with Opdivo® (nivolumab) and redosing strategies.
Our Phase 1/2 clinical trial consists of two parts:
•
In the Phase 1 portion of the clinical trial, patients may be infused with gavo-cel at one of four different dose levels with or
without lymphodepleting chemotherapy to determine the RP2D. At each dose level, gavo-cel T cells are first given without
lymphodepletion to one patient and, if deemed safe, given to the subsequent three patients following lymphodepleting
chemotherapy. The Phase 1 portion of the clinical trial was completed during 2022.
•
The objective of the Phase 2 portion of the clinical trial, in addition to further characterizing the safety profile of gavo-cel, is to
evaluate the efficacy of gavo-cel in mesothelin-expressing cancers as assessed by overall response rate (ORR) according to
standard Response Evaluation Criteria In Solid Tumors (RECIST) v1.1 criteria (ORR: complete response + partial response).
Secondary endpoints include time to response, duration of response, progression free survival and overall survival.
•
In January 2023, we announced that we had narrowed the focus of our development of gavo-cel to ovarian cancer in
combination with Opdivo® (nivolumab) and redosing strategies which we believe may increase the duration of benefit in
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patients. We expect preliminary durability data from the ovarian cancer cohort in the second half of 2023. We are now planning
to prioritize enrollment completion in a 20-patient ovarian cancer cohort.
Clinical findings
On September 28, 2022, we announced positive topline data from the Phase 1 portion of the gavo-cel Phase 1/2 clinical trial that enrolled 32
patients with mesothelin-expressing solid tumors. As of the September 9, 2022 data cutoff, six PRs according to RECIST 1.1 criteria were
recorded among 30 evaluable patients treated on study in dose escalation. Gavo-cel was administered up to dose level 5 (DL5) (5x108/m2
following lymphodepletion).
Two dose limiting toxicities (DLTs) were reported: at DL1, one Grade 3 pneumonitis that resolved with supportive measures, which permitted
the continuation of dose escalation and at DL5, one Grade 5 bronchoalveolar hemorrhage along with the development of severe CRS in all 3
patients treated at this dose level. Following the DLT at DL5, one patient had received gavo-cel at 3x108/m2 after lymphodepletion using a
split dosing approach to refine the identification of the RP2D and an additional patient was treated at DL3 (1x108/m2 following
lymphodepletion). In both cases gavo-cel was well tolerated with only Grade 1 non-hematological toxicities being reported. Since then, five
additional patients were treated at 3x108/m2 after lymphodepletion and subsequently, in late December 2021, the SRT declared DL3 as the
RP2D.
The primary objectives of the Phase 1 portion of the study are to define the safety profile of gavo-cel in patients whose tumors overexpress
mesothelin and to determine the RP2D. Secondary objectives include ORR and DCR (response or stable disease lasting at least 12 weeks).
Exploratory objectives include the assessment of expansion, tumor infiltration and persistence of gavo-cel.
Summary of trial conduct, baseline characteristics and gavo-cel dose:
•
Screening: 48 percent of patients met the mesothelin expression cut-off as defined per protocol.
•
Patient Characteristics: 32 patients received gavo-cel including 23 with mesothelioma, eight with ovarian cancer and one with
cholangiocarcinoma with a median age of 63 years (range, 28-84 years). The median number of prior therapies was five (range,
1-13), including immune checkpoint inhibitor therapy (66%) and anti-mesothelin therapies (19%).
•
Gavo-cel Dose: The 32 patients disclosed to date have received gavo-cel at the following dose level (DL):
o
DL 0: 5x107 cells/m2 without lymphodepletion – one mesothelioma
o
DL 1: 5x107 cells/m2 following lymphodepletion – seven mesothelioma and one ovarian cancer
o
DL 2: 1x108 cells/m2 without lymphodepletion – one mesothelioma
o
DL3: 1x108 cells/m2 following lymphodepletion – six mesothelioma patient, one cholangiocarcinoma patient, and six
ovarian cancer patients
o
DL 3.5: 3x 108 cells/ m2 following lymphodepletion – four mesothelioma and one ovarian cancer
o
DL4: 5x108 cells/m2 without lymphodepletion – one mesothelioma patient
o
DL5: 5x108 cells/m2 following lymphodepletion – three mesothelioma patients
Key clinical findings from 32 patients treated with gavo-cel:
•
Safety: gavo-cel was generally well tolerated with a manageable adverse event profile up until DL5. Two DLTs were observed:
one case of Grade 3 pneumonitis at DL1 that resolved with anti-cytokine therapy, and one case of Grade 5 bronchoalveolar
hemorrhage at DL5. Furthermore, all three patients treated at DL5 experienced Grade ≥3 CRS which resulted in 5x108 cells/m2
following lymphodepletion being declared the MTD.
•
Clinical Activity: 30 patients were evaluable for response. As measured by blinded independent central review (BICR), tumor
regression was observed in 28 (93%) patients with a DCR (CR+PR+SD lasting at least three months) of 77%. Eight patients
achieved PRs by target lesion assessment, six of whom (four with mesothelioma and two with ovarian cancer) achieved a PR
according to RECISTv1.1 criteria. We have observed a 22% Overall Response Rate (ORR) in patients infused with gavo-cel
following lymphodepletion with six (four mesothelioma, two ovarian cancer) RECIST PRs, including one patient who also
achieved a complete metabolic response. The ORR was 29% in ovarian cancer and 21% in mesothelioma. The median overall
survival (OS) for patients with ovarian cancer was 8.1 months,
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whereas the median progression-free survival (PFS) for patients with ovarian cancer was 5.8 months. The median OS for
patients with MPM was 11.2 months, whereas the median PFS for patients with MPM was 5.6 months.
•
Translational Data: Peak gavo-cel expansion (Cmax) occurred between days 7 and 23. Cmax markedly increased when gavo-cel
was administered following lymphodepletion. Cytokine induction post gavo-cel infusion was observed in all evaluable patients,
which is indicative of mesothelin target engagement. Post infusion, expression of PD-1 was observed to be upregulated on
circulating gavo-cel T cells. Detection of gavo-cel in tumors and malignant effusions showed higher expansion and longer
persistence in these tissues as compared to peripheral blood.
TC-510: Our First TRuC-T Cell Enhanced with a PD-1:CD28 Chimeric Switch Receptor Targeting Mesothelin Positive Solid Tumors
We are also developing TC-510, a mesothelin-targeted TRuC-T cell that co-expresses a PD-1:CD28 chimeric switch receptor to provide a
local costimulatory signal in the hostile tumor microenvironment. In our preclinical studies of TC-510, the co-expression of the PD-1:CD28
switch receptor enhanced TCR downstream signaling, increased proliferation, reduced exhaustion and improved in vivo efficacy against
tumors with high PD-L1 expression. Based on these studies, we believe TC-510 can improve on the efficacy of gavo-cel in a PD-L1 rich
hostile solid tumor microenvironment and potentially expand into new solid tumor indications. We are conducting the Phase 1 portion of the
Phase 1/2 clinical trial with initial data expected in the second half of 2023.
Design of TC-510
TC-510 cells express two transgenes: the mesothelin-specific TRuC construct used in TC-210 and a chimeric PD-1:CD28 switch receptor.
Both proteins are encoded by a single genetic construct. As described for TC-210, a humanized single-domain antibody that specifically
binds to mesothelin is tethered to the human CD3ε subunit via a flexible linker to form the mesothelin-targeting TRuC construct, as shown
below. The PD-1:CD28 switch receptor is constructed by fusing the cytoplasmic signaling domain of CD28 to the extracellular domain of PD-
1. We use a lentiviral vector to transfer the genetic information for the transgenes into a patient’s own T cells. Once in the T cell, the TRuC
protein is expressed and integrated into the endogenous TCR. There, it redirects the TRuC-T cells to recognize mesothelin-positive tumor
cells and eliminate mesothelin-positive tumors. The PD-1:CD28 switch receptor is co-expressed on the cell surface to engage with PD-L1
expressed in tumor microenvironment thereby co-activating the TRuC-T cells. We believe that TC-510’s unique way of engaging and
powering T cells by providing local co-stimulation of T cells reduces TRuC cell exhaustion and improves persistence resulting in enhanced
clinical outcomes for patients. The following figure illustrates the design of TC-510.
Summary of our Preclinical Data on TC-510
Our preclinical data support our hypothesis that TC-510 could have potent anti-tumor activity and improve clinical efficacy for patients
compared to gavo-cel allowing expansion into additional solid tumor indications beyond gavo-cel’s initial cancer targets. TC-510 showed
functional improvements in preclinical models where we compared the T cell signaling, cytokine production and anti-tumor activity of TC-510
with gavo-cel and gavo-cel with a mutationally inactivated CD28 signaling domain of the switch to
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eliminate the costimulatory function of the switch receptor, which we engineered with the same mesothelin binder as TC-510. In our
preclinical studies of TC-510, we observed the following results:
•
Enhanced early TCR downstream signaling;
•
Significantly increased cell proliferation;
•
Prevented exhaustion upon repeated antigen stimulation; and
•
Enhanced efficacy of gavo-cel against PD-L1 overexpressing solid tumors.
TC-510 Cleared Tumors with High PD-L1 Expression in MSTO Mouse Model More Efficiently
We compared the anti-tumor activity of TC-510 with that of gavo-cel and gavo-cel with a mutationally inactivated CD28 signaling domain of
the switch to eliminate the costimulatory function of the switch receptor in a MSTO-M/PDL1 model expressing high mesothelin and PD-L1. In
order to make the tumor model more challenging, tumors were allowed to grow to a large size prior to treatment. Under these conditions,
mice were treated with similar numbers of either unmodified T cells, TC-510, gavo-cel, or gavo-cel engineered with a mutationally inactivated
CD28 signaling domain of the PD-1:CD28 switch receptor, in each case bearing an identical mesothelin-binding domain. As shown below,
treatment with gavo-cel and gavo-cel with the CD28 mutated switch failed to control tumor growth, whereas TC-510 achieved deep tumor
regressions in all treated animals, further confirming the importance of the CD28 signaling to TC-510’s function.
Broadening our Core TRuC-T Cell Platform with a Series of Next-Generation Enhancements
We have developed a novel, transformative platform to address the limitations of existing T cell therapies. Our TRuC-T cell platform is
designed to deliver the first HLA-independent TCR-T cell therapies to a broader population of patients with solid tumors. Our approach 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 and industry partners in the field of T-cell immunology, cell therapy, gene editing and process development.
We are developing enhancements that further combat the immunosuppressive solid tumor microenvironment, including mechanisms
designed to block a key cancer defense known as the PD-1/PD-L1 pathway. Our lead enhanced TRuC is TC-510, our mesothelin targeting
TRuC-T cell co-expressing a PD-1:CD28 switch receptor. This switch receptor acts as a cell-intrinsic mechanism to overcome PD-L1/PD-L2
mediated immunosuppression. In our preclinical studies, upon repeated antigen stimulation, co-expression of the switch receptor in
mesothelin-targeting T cells enhanced TCR signaling, prevented PD-L1-mediated functional T-cell inhibition, significantly increased
proliferation and augmented the production of growth and effector cytokines.
Our next most advanced enhanced TRuC is TC-520, our fratricide resistant CD70 targeting TRuC-T cell co-expressing an IL-15
enhancement. In our preclinical studies, we have shown that an IL-15 enhancement can further improve the preclinical efficacy of
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our CD70 targeting TRuC-T cells due to IL-15 effectively improving the expansion, persistence and durable efficacy. We are conducting IND-
enabling activities for TC-520 to treat patients with hematological malignancies and solid tumors, specifically renal cell carcinoma and acute
myeloid leukemia. Due to the high expression of CD70 across many cancer types, we estimate that up to 141,000 patients express CD70 in
the United States alone.
TC-520: Our First TRuC-T Cell Targeting CD70-Expressing Tumors
We are also developing TC-520, a CD70-targeted TRuC-T cell that incorporates an IL-15 pathway enhancement. In our preclinical studies of
TC-520, the T cells exhibited potent activity against CD70-expressing cells, while the IL-15 enhancement improved T cell phenotype,
function, and persistence. We are conducting IND-enabling activities for TC-520 to treat CD70-expressing solid tumors and hematological
malignancies.
Design of TC-520
TC-520 cells express a TRuC construct that includes a proprietary CD70 binder and a membrane-bound IL-15 enhancement. The CD70
binder is tethered to the human CD3ε subunit via a flexible linker to form the CD70-targeting TRuC construct. Both the CD70 and the IL-15
proteins are encoded by a single genetic construct. We use a lentiviral vector to transfer the genetic information for the transgenes into a
patient’s own T cells. Once in the T cell, the TRuC protein is expressed and integrated into the endogenous TCR. There, it redirects the
TRuC-T cells to recognize CD70-positive tumor cells and eliminate CD70-positive tumors. The IL-15 protein is co-expressed on the cell
surface.
Because CD70 expression occurs on activated lymphocytes as well as being overexpressed on various hematological and solid tumors,
fratricide (self-killing of CD70 expressing activated lymphocytes) has been recognized as a significant challenge for CD70-targeting T cell
therapies. In our preclinical studies of TC-520, we observed no evidence of fratricide. In addition, in our preclinical studies, we observed that
the IL-15 enhancement improved persistence and increased expansion of the TRuC-T cells, as well as improved TRuC-T cell phenotype by
increasing the proportion of cells with a memory stem T cell phenotype. The following figure illustrates the design of TC-520.
Manufacture and Delivery of TRuC-T Cells to Patients
TRuC-T Cell Production and Delivery
The process of manufacturing cell and gene therapies, such as TRuC-T cells, is highly complex. The generation of our TRuC-T cells starts
with the collection of white blood cells from patients, known as leukapheresis, at the treatment center. The blood cells are shipped 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 T cells.
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
the patient from whom the cells were originally collected.
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We use a next-generation cell processing platform that performs cell sample loading, cell washing, density-based cell separation, magnetic
separation, cell culture and final product formulation. This is a semi-automated and functionally closed system that we believe will enable us
to scale our TRuC-T cell manufacturing and overcome the constraints associated with current processes.
TRuC-T Cell Manufacturing Strategy
We are devoting resources in process development and manufacturing to optimize the reliability of our product candidates and reduce
manufacturing costs and vein-to-vein time. This investment will ensure that our manufacturing and delivery process will have utility across all
the product candidates in our pipeline.
The 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 leukapheresis, cryopreservation, manufacture of the transfer vector under cGMP conditions, ex vivo
selection, activation, transduction and expansion of the TRuC-T cells, ultimately leading to infusion of TRuC-T cells into patients. The
technical, logistical and regulatory challenges associated with the virus and cell manufacturing processes are significant. We plan to simplify
the manufacturing process through the implementation of automated technologies and the development of scalable processes aimed at
reducing the cost of goods.
We have already taken two critical steps geared toward simplifying our manufacturing process. First, our TRuC-T cells are manufactured via
a semi-automated and functionally closed system (CliniMACS Prodigy), which provides a common platform that will be employed in the
development of all of the product candidates in our pipeline. This manufacturing process is economical, reliable and scalable and can support
rapid development of the product candidates throughout the clinical life cycle and regulatory approvals. This system has a small footprint,
which enables us to manufacture multiple products in parallel units within the same minimally controlled space, thereby reducing operating
costs. Second, both the input leukapheresis material that enters the manufacturing process as well as the final TRuC-T cells are
cryopreserved products, which simplifies the logistics for delivery to the patient and reduces the risk of product delivery failure. The entire
vein-to-vein manufacturing process has safe-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 by third parties. The viral vectors are manufactured through established agreements with various CDMOs. We outsource our T
cell manufacturing process and we may enter into additional agreements to increase capacity for future clinical trials and commercialization if
licensed. Because our starting materials are frozen, we expect to be able to base future agreements on rolling forecasts of regularly
scheduled manufacturing runs, which we expect will minimize any cost overruns due to loss of reservation fees.
As part of our manufacturing strategy, we plan to be capital efficient by leveraging third party manufacturers and only expand or internalize
manufacturing capacity in anticipation of a potential regulatory approval for any of our TRuC-T cell product candidates.
Intellectual Property
Intellectual property is a fundamental component of our business and of vital importance in our field. We actively seek to protect the
intellectual property and proprietary technology that we believe is important to our business, including seeking, maintaining, enforcing and
defending patent rights for our product candidates and processes, whether developed internally or licensed from third parties. We may
additionally rely on regulatory protection afforded through orphan drug designations, data exclusivity, 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 application
disclosing the TRuC-T cell platform was filed in May 2015. Our further work encompassing a broad range of TRuC concepts has been
described in subsequent 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;
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•
methods of generating TRuCs with enhanced efficacy; 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
nucleic acid sequences)
•
methods of generating TRuCs; and
•
methods of using the TRuC-T cell platform as monotherapy or in combination with other anti-cancer or immune system
enhancing therapeutics.
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
claims have been issued yet, with the exception of ten issued U.S. patents and 19 issued foreign patents as of March 5, 2023. Examination
of many of the patent applications that we own has not yet commenced, because they are either provisional applications or Patent
Cooperation Treaty (PCT) applications that are not examined. We will need to decide whether and where to pursue protection for the
inventions disclosed in these provisional and PCT applications before applicable statutory deadlines, our applications will only be examined
in jurisdictions where we elect to pursue protection and we will only have the opportunity to attempt to obtain patents in such jurisdictions
where we elect to pursue protection. We are seeking protection across a range of commercially important territories, including (but not limited
to) countries in North America, Europe and Asia.
As of March 5, 2023, our patent portfolio includes ten issued U.S. patents, at least 23 pending U.S. provisional or nonprovisional patent
applications, at least 12 pending Patent Cooperation Treaty (PCT) international applications, 19 issued foreign patents and at least 120
pending foreign patent applications, which patent applications we own or in-license. The claims of these 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 patents and patent applications, if issued, are expected to expire on various dates from 2036 through 2043, in
each case without taking into account any possible patent term adjustments or extensions.
As of March 5, 2023, our patent portfolio includes multiple patents and patent applications with claims directed to gavo-cel, including
compositions of matter, manufacturing methods, manufacturing precursors or uses thereof, of which there are (i) five issued U.S. patents, at
least seven pending U.S. provisional or U.S. nonprovisional patent applications, at least two pending PCT international applications, 14
issued foreign patents and at least 41 pending foreign patent applications which we own and (ii) one U.S. patent, at least one pending U.S.
nonprovisional patent application, three issued foreign patents and at least 11 pending foreign patent applications for which we have a
nonexclusive license from Harpoon Therapeutics, Inc. (Harpoon). These owned and in-licensed patents and patent applications, if issued,
are expected to expire on various dates from 2036 through 2043, in each case without taking into account any possible patent term
adjustment or extensions.
As of March 5, 2023, our patent portfolio includes multiple patents and patent applications with claims directed to TC-510, including
compositions of matter, manufacturing methods, manufacturing precursors or uses thereof, of which there are (i) five issued U.S. patents, at
least three pending U.S. provisional or U.S. nonprovisional patent applications, 14 issued foreign patents and at least 25 pending foreign
patent applications which we own; (ii) one U.S. patent, at least one pending U.S. nonprovisional patent application, three issued foreign
patents and at least 11 pending foreign patent applications for which we have a nonexclusive license from Harpoon Therapeutics, Inc.
(Harpoon) and (iii) one U.S. patent, at least one pending U.S. nonprovisional patent application, five issued foreign patents and at least five
pending foreign patent applications for which we have an exclusive license from Drs. Stefan Endres and Sebastian Kobold at the Klinikum
der Universität München (the PD-1 Switch License). Pursuant to the PD-1 Switch License we have an exclusive, world-wide, royalty free,
sublicensable license to research, develop, make, use, sell, commercialize or otherwise exploit products that include a construct with a PD-1
extracellular domain with intracellular CD28 co-stimulatory domain (the PD-1 Switch). We incorporated the PD-1 Switch into TC-510. As
consideration for the PD-1 Switch License, we issued the Inventors equity and have agreed to certain technology access fees and patent and
development milestone payments. These owned and in-licensed patents and patent applications, if issued, are expected to expire on various
dates from 2036 through 2043, in each case without taking into account any possible patent term adjustment or extensions.
Our trademark portfolio currently contains issued trademarks for TCR2, TRuC and our logo in the United States.
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Collaborations and Licenses
Harpoon License
In 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 MSLN polypeptide binding proteins (the MSLN Binder). We have incorporated the MSLN Binder into gavo-cel.
As consideration for the Harpoon License, we granted Harpoon a perpetual, irrevocable, world-wide, non-exclusive, royalty free,
sublicensable license to research, develop, make, use, sell, commercialize or otherwise exploit products based on certain binding proteins
which we had developed (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 our product candidates incorporating the MSLN Binder. Similarly, Harpoon retains ownership of the MSLN Binder and owns any of its
improvements to the Out-Licensed Binder and any of its products incorporating the Out-Licensed Binder. Each party is responsible for the
prosecution and maintenance of the patent rights owned by such party.
The Harpoon License is effective through the expiration of all patents underlying the MSLN Binder and Out-Licensed Binder and it may be
terminated by either party upon a material breach that remains uncured for 60 days after receiving notice thereof, or in the event of the other
party’s bankruptcy.
Competition
We believe our novel TRuC-T cell platform, its design flexibility, superior performance over CAR-T cell and TCR-T cell therapies, emerging
enhancements and our knowledge of cellular immunotherapy should enable us to successfully develop novel and highly effective treatments
for cancer. However, we may face intense and increasing competition from larger biotechnology and pharmaceutical companies with greater
financial resources, 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 prove competitive.
The market opportunity in oncology has led to a number of collaborations including 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)/Kite Pharma Inc. (Kite)/Tmunity, Bristol Myers
Squibb Co (BMS)/Celgene Corporation (Celgene)/Juno Therapeutics, Inc. (Juno), Takeda Pharmaceutical Company Limited
(Takeda)/GammaDelta Therapeutics Limited (GammaDelta)), Astra Zeneca/Neogene, among companies focused on cellular cancer
therapies. If this trend continues, which we expect, we could see further consolidation of technical expertise and human capital. This
potentially provides a partnership opportunity for us but could also make it more challenging for us to acquire complementary technology or
products and recruit and retain qualified scientific and management personnel. In addition, this competition could impact our ability to recruit
clinical trial sites and patients in a timely manner for our clinical trials. Larger companies with greater financial flexibility and global reach may
be able to obtain regulatory approvals and gain widespread market acceptance before us, which could impact our commercial launch and
could make our products obsolete or non-competitive.
We are developing one of our lead product candidates, gavo-cel, in combination with an immune checkpoint inhibitors. Others are evaluating
these immune checkpoint inhibitor approaches in combination with CAR-T cells and TCR-T cells to enhance efficacy in the treatment of solid
tumors. We therefore could experience significant direct competition from this type of combination immunotherapy. We may also face
substantial competition in the future from other immunotherapies, if their use alone or in combination demonstrates a significant improvement
in efficacy. Development of more effective small molecules, antibody-based approaches, cancer vaccines, oncolytic viruses and other
products could lead to them preferentially being used as 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 increasing
competition as new more effective treatments for cancer enter the market and further advancements in technologies are made. We expect
market adoption of any treatments that we develop and commercialize to be dependent on, among other things, efficacy, safety, delivery,
price and the availability of reimbursement from government and other third-party payors.
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We expect the commercial opportunity for our products that we take to regulatory licensing to be reduced or eliminated if competitors develop
and commercialize products that are more effective, safer (have fewer or less severe side effects), are more convenient or are less
expensive or better reimbursed than any products that we may commercialize. We compete with larger, better-funded companies, who may
obtain regulatory approval for their products more rapidly than we may obtain licensing for ours. This could result in our competitors
establishing a strong market position for either the product or a specific indication before we are able to enter the market.
Competition for Our Product Candidates Targeting Mesothelin-Expressing Solid Tumors
The 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 novel antibody therapeutics, such as unconjugated monoclonal antibodies, antibody-drug conjugates, bispecific antibodies as well as
vaccines. Antibody-based approaches are being pursued by Amgen Inc., Bayer AG, Bristol-Myers Squibb Company, Eisai, F. Hoffmann-La
Roche Ltd, Harpoon Therapeutics, Inc., Morphotek, Inc., Selecta Biosciences, Inc. and Novimmune SA among others. Antibody-based
agents in development have been limited to date by immunogenicity, poor tumor penetration and dose-limiting toxicities associated with the
therapy. Adaptimmune, Atara Biotherapeutics, Inc., CARISMA Therapeutics Inc., Gracell Biotechnology Inc., Kiromic Biopharma, Inc.,
Biotech Corp, Memorial Sloan Kettering Cancer Center, the National Institutes of Health Clinical Center Inc., Takeda Pharmaceutical Co. Ltd.,
Tmunity Therapeutics, Inc., University of Pennsylvania, National Cancer Institute and several Chinese academic institutions are developing
anti-mesothelin cell therapies.
Government Regulation and Product Licensure
Government 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 of biopharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and
jurisdictions, along with compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of
substantial time and financial resources.
Licensure and Regulation of Biologics in the United States
In the United States, biological products such as our lead product candidates, are licensed for marketing by the FDA under the Public Health
Service Act (PHSA) and regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (FDCA), as well as by other federal, state
and local statute and regulations. Both the FDCA and the PHSA and their corresponding regulations govern, among other things, the testing,
manufacturing, safety, potency, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional
practices involving biological products. The FDA must license a biological product before it may be marketed within the United States. Within
the FDA, the Center for Biologics Evaluation and Research (CBER) regulates cell therapy products.
The failure of an applicant to comply with the applicable regulatory requirements at any time during the product development process,
including non-clinical testing, clinical testing, the approval process or post-approval process, may result in delays to the conduct of a study,
regulatory review and approval and/or administrative or judicial sanctions. These sanctions may include, but are not limited to, the FDA’s
refusal to allow an applicant 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 and civil or criminal investigations and penalties brought by the FDA or Department of Justice (DOJ), or other
government entities, including state agencies.
An applicant seeking licensing to market and distribute a new biologic in the United States generally must satisfactorily complete each of the
following 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 the FDA’s good laboratory practice (GLP) regulations and standards;
•
submission to the FDA of an Investigational New Drug application (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 for each proposed indication, in accordance with current good clinical practices (GCP);
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•
preparation and submission to the FDA of a BLA for a biological product which includes not only the results of the clinical trials,
but also detailed information on the chemistry, manufacture, and quality controls for the product candidate and proposed
labeling for one or more proposed 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;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which
the product candidate or components thereof are manufactured to assess compliance with cGMP requirements and to assure
that the facilities, 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 of clinical 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
requirement to conduct and any post-licensing studies required by the FDA.
Preclinical Studies and Investigational New Drug Application
Before 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 other things, the toxicity of the product candidate. The conduct of the preclinical tests and formulation of the compounds for testing
must comply with federal regulations and requirements, including GLP regulations and standards. The results of the preclinical tests, together
with manufacturing information and analytical data, are submitted to the FDA a part of an IND. Some long-term preclinical testing, such as
animal tests of reproductive adverse events and carcinogenicity and long-term toxicity studies, may continue after the IND is submitted.
The IND and IRB Processes
An IND is an exemption from the FDCA that allows an unapproved product candidate to be shipped in interstate commerce for use in an
investigational clinical trial and a request for FDA authorization to administer such investigational product to humans. Such authorization
must be secured prior to interstate shipment and administration of any product candidate that is not the subject of an approved BLA. In
support of a request for an IND, applicants must submit a protocol for each clinical trial and any subsequent protocol amendments must be
submitted to the FDA as part of the IND. In addition, the results of the preclinical tests, together with manufacturing information, analytical
data, any available clinical data or 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 waiting period 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 determine whether human research subjects will be exposed to unreasonable health risks. At any time during
this 30-day period, or thereafter, the FDA may raise 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, the IND 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
hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial
clinical hold 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 not allowed 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 will provide the sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical
hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that
determination on information provided 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 that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application
for marketing approval or licensing. In particular, such studies must be conducted in accordance with GCP, including review and approval by
an independent ethics committee (IEC) and informed consent from subjects. The GCP requirements in the final rule encompass both ethical
and data integrity standards for clinical studies and the FDA must be able to validate the data through an onsite inspection, if deemed
necessary by the FDA. The FDA’s regulations are
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intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the quality and integrity of the
resulting data. They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required for IND studies.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve
the plan for any clinical trial before it commences at that institution and the IRB must conduct continuing review and reapprove the study at
least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to
study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its
institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product
candidate has been 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 safety
monitoring board or committee (DSMB). This group provides authorization as to whether or not a trial may move forward at designated check
points based on access that only the group maintains to available data from the study. Suspension or termination of development during any
phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk. Other
reasons 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 Trials
In addition to the regulations discussed above, there are a number of additional standards that apply to clinical trials involving the use of
gene therapy. The FDA has issued various guidance documents regarding gene therapies, which outline additional factors that the FDA will
consider at each of the above stages of development, which relate to, among other things: the proper preclinical assessment of gene
therapies; the CMC information that should be included in an IND; the proper design of tests to measure product potency in support of an
IND or BLA; and measures to 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-year period, 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 includes
information 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 BLA
Clinical trials involve the administration of the investigational product candidate to human subjects under the supervision of a qualified
investigator in accordance with GCP requirements which include, among other things, the requirement that all research subjects provide their
informed consent in 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 be evaluated.
Human clinical trials are typically conducted in three sequential phases, but the phases may overlap or be combined. Additional studies may
also be 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 1 clinical trials, information about the investigational biological product’s pharmacokinetics and pharmacological
effects may be obtained to permit the 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
optimal dosage. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger
and more costly Phase 3 clinical trials. Phase 2 clinical trials are well controlled, closely monitored and conducted in a limited
patient population.
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•
Phase 3 clinical trials proceed if the Phase 2 clinical trials demonstrate that a dose range of the product candidate is potentially
potent or effective and has an acceptable safety profile. Phase 3 clinical trials are undertaken within an expanded patient
population to further evaluate dosage, provide substantial evidence of clinical potency or efficacy and further test for safety in an
expanded and diverse patient population at multiple, geographically dispersed clinical trial sites. A well-controlled, statistically
robust Phase 3 trial may be designed to deliver the data that regulatory authorities will use to decide whether or not to license
and, if licensed, how to appropriately label 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
assess the product candidate’s safety and effectiveness after approval. Such post-approval trials are typically referred to as Phase 4 clinical
trials. These studies are used to gain additional experience from the treatment of a larger number of patients in the intended treatment group
and to further document a clinical benefit in the case of biologics licensed under accelerated approval regulations. Failure to exhibit due
diligence with regard to conducting Phase 4 clinical trials could result in withdrawal of approval for products.
In March 2022, the FDA released a final guidance entitled “Expansion Cohorts: Use in First-In-Human Clinical Trials to Expedite
Development of Oncology Drugs and Biologics,” which outlines how drug developers can utilize an adaptive trial design commonly referred to
as a seamless trial design in early stages of oncology drug development (i.e., the first-in-human clinical trial) to compress the traditional three
phases of trials into one continuous trial called an expansion cohort trial. Information to support the design of individual expansion cohorts
are included in IND applications and assessed by FDA. Expansion cohort trials can potentially bring efficiency to drug development and
reduce developmental costs and time.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA. In addition, IND safety reports must
be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal
or in vitro testing that suggest a significant risk in humans exposed to the product; and any clinically important increase in the case of a
serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may
not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical
trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not
being conducted in accordance with the IRB’s requirements or if the product has been associated with unexpected serious harm to patients.
The FDA will typically inspect 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 in humans and that the investigational protocol is scientifically sound. The IDE application must be approved in advance by
the FDA, unless the product is deemed a non-significant risk device and eligible for more abbreviated IDE requirements. Clinical trials for a
significant risk device may begin once the IDE application is approved by the FDA as well as the appropriate institutional review boards, or
IRBs, at the clinical trial sites and the informed consent of the patients participating in the clinical trial is obtained.
Review and Approval of a BLA
In order to obtain approval to market a biological product in the United States, a marketing application must be submitted to the FDA that
provides sufficient data establishing the safety, purity and potency of the proposed biological product for its intended indication. The
application includes all relevant data available from pertinent preclinical and clinical trials, including negative or ambiguous results as well as
positive findings, together with detailed information 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, including studies initiated by investigators. To support marketing approval, the data submitted must be
sufficient in quality and quantity to establish the safety, 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 for one or more indications. Every new biological product candidate must be the subject of an approved BLA before it may be
commercialized in the United States. Under federal law, the submission of most BLAs is subject to a significant application user fee. The
sponsor of an approved BLA is also subject to an annual program fee. Certain exceptions and waivers are available for some of these fees,
such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses.
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Following submission of a BLA, the FDA conducts a preliminary review of the application generally within 60 calendar days of its receipt and
strives to inform the sponsor by the 74th day after the FDA’s receipt of the submission whether the application is sufficiently complete to
permit substantive review. The FDA may request additional information rather than accept the application for filing. In this event, the
application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts
it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified
performance goals in the review process of the BLAs. Under that agreement, 90% of original BLA submissions are meant to be reviewed
within ten months of the 60-day filing 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 filing date. The review process and the Prescription Drug User Fee Act (PDUFA) goal date may be extended
by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding
deficiency identified by the FDA following the original submission.
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 product
manufacturing and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing
processes and facilities 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
the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the
FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected
duration of treatment, 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
advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a
recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Fast Track, Breakthrough Therapy, Priority Review and Regenerative Medical Advanced Therapy Designations
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the
treatment of 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 Medical 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 other
products, for the treatment of a serious or life-threatening disease or condition and it demonstrates the potential to address unmet medical
needs for such a disease or condition. For Fast Track products, sponsors may have greater interactions with the FDA and the FDA may
initiate review of sections of a Fast Track product’s application before the application is complete. This rolling review may be available if the
FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a Fast Track product may be effective. The
sponsor must also provide and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay
applicable user fees. However, the FDA’s time period goal for reviewing a Fast Track application does not begin until the last section of the
application is submitted. In addition, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no
longer supported by data emerging in the clinical 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 substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment
effects observed early in clinical development. The FDA may take certain actions with respect to Breakthrough Therapies, including holding
meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and
approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other
steps to design the clinical trials in an efficient manner.
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 a
significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed product represents
a significant improvement when compared with other available therapies. Significant improvement may be
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illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting
product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes and evidence of safety
and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such
applications and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.
A product may be designated as a regenerative medicine advanced therapy if it is a regenerative medicine therapy that is intended to treat,
modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product has the
potential to address unmet medical needs for such disease or condition. The benefits of a regenerative medicine advanced therapy
designation include early interactions with FDA to expedite development and review, benefits available to breakthrough therapies, potential
eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic
advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is
reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect
on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality (IMM) and that is
reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and
the availability or lack of alternative treatments. Products granted accelerated approval 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 be
measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that
is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with
accelerated approvals based on intermediate clinical endpoints but has indicated that such endpoints generally may support accelerated
approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a
basis for concluding that the 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 is
required 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 which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course
requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit. Thus, the benefit of accelerated approval derives
from the potential to receive approval based on surrogate endpoints sooner than possible for trials with clinical or survival endpoints, rather
than deriving from any explicit shortening 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-approval
confirmatory studies to verify and describe the product’s clinical benefit. Under the Food and Drug Omnibus Reform Act of 2022 (FDORA),
the FDA may require, as appropriate, that such trials be underway prior to approval or within a specific time period after the date of approval
for a product granted accelerated approval. Under FDORA, the FDA has increased its authority for expedited procedures to withdraw
approval of the product or indication approved under accelerated approval if, for example, the confirmatory trials fail to confirm a clinical
benefit during post-marketing studies. All promotional materials for product candidates licensed under accelerated regulations are subject to
prior review by the FDA.
The FDA’s Decision on a BLA
On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of the
manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial
marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the
deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application.
If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval
letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even
with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for
licensing.
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If the FDA licenses a new product, it may limit the licensed indications for use of the product. The agency may also require testing and
surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other
risk management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risks. REMS can
include medication guides, communication plans for health care professionals and elements 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 marketing of 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 review and approval.
Post-Licensing Regulation
If regulatory licensing for marketing of a product or new indication for an existing product is obtained, the sponsor will be required to comply
with all regular post-licensing regulatory requirements as well as any post-licensing requirements that the FDA may have imposed as part of
the licensing process. The sponsor will be required to report, among other things, certain adverse reactions and manufacturing problems to
the FDA, provide updated safety and potency or efficacy information and comply with requirements concerning advertising and promotional
labeling requirements. Manufacturers and certain of their subcontractors, and those supplying products, ingredients, and components of
them, are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which
impose certain procedural and documentation requirements upon manufacturers. Changes to the manufacturing processes are strictly
regulated and often require prior FDA approval before being implemented. Accordingly, the sponsor and its third-party manufacturers must
continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMP regulations 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
product before it is released for distribution. If the product is subject to official release, the manufacturer must submit samples of each lot,
together with a release 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
occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in
revisions to the licensed labeling to add new safety information; imposition of post-market studies or clinical trials to assess safety risks; or
imposition of distribution or other 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
product license 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
regulation includes, among other things, standards and regulations for direct-to-consumer advertising, communications regarding
unapproved uses, industry-sponsored scientific and educational activities and promotional activities involving the Internet and social media.
Promotional claims about a drug’s safety or effectiveness are prohibited before the drug is licensed. After licensing, a drug product generally
may not be promoted for uses that are not licensed by the FDA, as reflected in the product’s prescribing information. In the United States,
health care professionals are generally permitted to prescribe drugs for such uses not described in the drug’s labeling, known as off-label
uses, because the FDA does not regulate the practice of medicine. However, FDA regulations impose rigorous restrictions on manufacturers’
communications, prohibiting the promotion of
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off-label uses. It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading
communication regarding 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 judicial
enforcement 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. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has also
requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or
curtailed.
In addition, manufacturers and other parties involved in the drug supply chain for prescription drug and biological products must also comply
with product tracking and tracing requirements and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products
or products that are otherwise unfit for distribution in the United States.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act, a BLA or supplement thereto for a biological product with a new active ingredient, indication,
dosage form, dosing regimen or route of administration must contain data that are adequate to assess the safety and effectiveness of the
product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data.
Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and
design, any deferral or waiver requests and other information required by regulation. The applicant, the FDA and the FDA’s internal review
committee must then review the information submitted, 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
discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early
in the development process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-
Phase 1 meeting 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
licensing of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and
procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by
regulation, the pediatric data requirements do not apply to products with orphan designation.
The FDA Reauthorization Act of 2017 established new requirements to govern certain molecularly targeted cancer indications. Any company
that submits a BLA three years after the date of enactment of that statute must submit pediatric assessments with the BLA if the biologic is
intended for the treatment of an adult cancer and is directed at a molecular target that FDA determines to be substantially relevant to the
growth or progression 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 an
additional 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 such data. 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 fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to
and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the
product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA
cannot license another application.
Orphan Drug Designations and Exclusivity
Under 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 expectation that the cost of developing and making a product available in the United States for treatment of disease or condition
will be recovered from sales of the product. A company must seek orphan drug designation
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before submitting a BLA for the candidate product. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its
potential use. Orphan drug designation does not shorten the PDUFA goal dates for the regulatory review and licensing process, although it
does convey certain advantages such as tax benefits and exemption from the PDUFA application 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
select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug
exclusivity. Orphan drug exclusivity means that the FDA may not license another sponsor’s marketing application for the same drug for the
same condition for seven years, except in certain limited circumstances. Orphan exclusivity does not block the licensing of a different product
for the same rare disease or condition, nor does it block the licensing of the same product for different conditions. If a biologic designated as
an orphan drug ultimately receives marketing 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
same biologic for the same condition is shown to be clinically superior to the licensed product on the basis of greater potency, purity or safety,
or providing a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. This is
the case despite an earlier court opinion holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan exclusivity
regardless of a showing of clinical superiority.
Biosimilars and Exclusivity
The 2010 Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010, included a subtitle called the Biologics
Price Competition and Innovation Act of 2009 (BPCIA). The BPCIA established a regulatory scheme authorizing the FDA to license
biosimilars and interchangeable biosimilars. The FDA has licensed several biosimilar products for use in the United States. The FDA has
issued several guidance documents outlining an approach to review and licensing of biosimilars. Additional guidance is 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” a previously 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 no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety,
purity and potency. For the FDA to license a biosimilar product as interchangeable with a reference product, the agency must find that the
biosimilar product can be expected to produce the same clinical results as the reference product and, for products administered multiple
times, that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks
or risks of diminished potency relative to exclusive 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
following the date of licensing of the reference product. The FDA may not license a biosimilar or interchangeable biological product until 12
years from the date on which the reference product was licensed. Even if a product is considered to be a reference product eligible for
exclusivity, another company could market a competing version of that product if the FDA licenses a full BLA for such product containing the
sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their
product. The BPCIA also created certain exclusivity periods for biosimilars licensed as interchangeable products and the FDA may approve
multiple “first” interchangeable products so long as they are all approved on the same first day of marketing. 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 Extension
A patent claiming a new biological product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a
patent restoration of up to five years for patent term lost during product development and FDA regulatory review. The restoration period
granted on a 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 restoration cannot 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 a licensed product is eligible for the extension and the application for the extension must be submitted prior to
the expiration of the patent in question and within 60 days after approval of the relevant marketing application. A patent that covers multiple
products for which licensing is sought can only be extended in connection with one of the licenses. The USPTO reviews and licenses the
application for any patent term extension or restoration in consultation with the FDA.
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Healthcare Law and Regulation
Health care providers and third-party payors play a primary role in the recommendation and prescription of biological products that are
granted marketing licensing. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable
fraud and abuse, anti-kickback, false claims laws, patient privacy laws and regulations and other health care laws and regulations that may
constrain business 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 an individual 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. Moreover, the government may
assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the civil False Claims Act. Violations are subject to civil and criminal fines and penalties
for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare
programs. On December 2, 2020, the Office of Inspector General, or OIG, published further modifications to the federal Anti-
Kickback Statute. Under the final rules, OIG added safe harbor protections under the Anti-Kickback Statute for certain
coordinated care and value-based arrangements among clinicians, providers and others. This rule (with exceptions) became
effective January 19, 2021. Implementation of this change and new safe harbors for point-of-sale reductions in price for
prescription pharmaceutical products and pharmacy benefit manager service fees are currently under review by the Biden
administration and may be further amended or repealed;
•
the federal civil and criminal false claims laws, including the civil False Claims Act and civil monetary penalties laws, which
prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal
government, claims for payment that are false, fictitious or fraudulent or knowingly making, using or causing to made or used a
false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. Manufacturers
can be held liable under the federal False Claims Act even when they do not submit claims directly to government payors if they
are deemed to “cause” the submission of false or fraudulent claims. The federal False Claims Act also permits a private
individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the federal False
Claims Act and to share in any monetary recovery;
•
the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created additional federal criminal laws
that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health
care benefit program or obtain, by means of false 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 (e.g., public or
private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any
materially false, fictitious, or fraudulent statements or representations in connection with the delivery of, or payment for,
healthcare benefits, items or services relating to healthcare matters; similar to the federal Anti-Kickback Statute, a person or
entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their respective
implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including
mandatory contractual terms, on certain covered healthcare providers, health plans and healthcare clearinghouses as well as
their respective business associates that perform services for them that involve the creation, maintenance, receipt, use, or
disclosure of, individually identifiable health information with respect to safeguarding the privacy, security and transmission of
individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make
civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs
associated with pursuing federal civil actions. In addition, there may be additional federal, state and non-U.S. laws which govern
the privacy and security of health and other personal information in certain circumstances, many of which differ from each other
in significant ways and may not have the same effect, thus complicating compliance efforts;
•
federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and
timely manner to government programs;
•
the federal transparency requirements known as the federal Physician Payments Sunshine Act, under the 2010 Patient
Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act (collectively, the
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ACA), which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers
for Medicare & Medicaid Services (CMS) within the HHS, information related to payments and other transfers of value made by
that entity to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other
licensed health care practitioners and teaching hospitals, as well as ownership 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
care items or services that are reimbursed by non-government third-party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to
payments to physicians and other health care providers or marketing expenditures. In addition, certain state and local laws require the
registration of pharmaceutical sales representatives. State and foreign laws also govern the privacy and security of health information in
some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts.
Pharmaceutical Insurance Coverage and Reimbursement
In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the
prescribed services generally rely on third-party payors to reimburse all or part of the associated health care costs. Significant uncertainty
exists as to the coverage and reimbursement status of products. Thus, even if a product candidate is licensed, sales of the product will
depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and
Medicaid, commercial health insurers and managed care organizations, provide coverage and establish adequate reimbursement levels for,
the product. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting
the price or reimbursement rate that the payor will pay for the product once coverage is licensed. Third-party payors are increasingly
challenging the prices charged, examining the medical necessity and reviewing the cost-effectiveness of medical products and services and
imposing controls to manage costs. Third-party payors may limit coverage to specific products on a licensed list, also known as a formulary,
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 expensive
pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs
required to obtain FDA or other comparable marketing licenses. Nonetheless, product candidates may not be considered medically
necessary or cost effective. A decision by a third-party payor not to cover a product could reduce physician utilization once the product is
licensed and have a material adverse effect on sales, results of operations and financial condition. Additionally, a payor’s decision to provide
coverage for a product does not imply that an adequate reimbursement rate will be licensed. Further, one payor’s determination to provide
coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product and the level of
coverage and reimbursement can differ significantly 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 a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls,
restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment
measures and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s
revenue generated from the sale of any licensed products. Coverage policies and third-party reimbursement rates may change at any time.
Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive
marketing licenses, less favorable coverage policies and reimbursement rates may be implemented in the future.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its Member
States to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the
prices of medicinal products for human use. To obtain reimbursement or pricing approval, some of these countries may require the
completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. A Member
State may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability
of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or
reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our product
candidates. Historically, products launched in the European Union do not follow price structures of the United States and generally prices
tend to be significantly lower.
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Health Care Reform
There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and
biopharmaceutical products, limiting coverage and reimbursement for drugs and biologics and other medical products, government control
and other changes to the health care system in the United States. In 2010, the ACA was enacted, which includes measures that have
significantly changed health care financing by both governmental and private insurers. The provisions of the ACA 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
average manufacturer price for branded and generic drugs, respectively;
•
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts
to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the
manufacturer’s outpatient drugs to be covered under Medicare Part D;
•
extension of manufacturers’ rebate liability under the Medicaid Drug Rebate Program;
•
expansion of eligibility criteria for Medicaid programs, thereby potentially increasing manufacturers’ Medicaid rebate liability;
•
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
•
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical
effectiveness research, along with funding for such research;
•
establishment of the Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery
models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Other legislative changes have been proposed and adopted since the ACA was enacted:
•
The U.S. Budget Control Act of 2011, among other things, led to aggregate reductions to Medicare payments to providers of up
to 2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the
statute, will remain in effect through 2031. Due to the Statutory Pay-As-You-Go Act of 2010, estimated budget deficit increases
resulting from the American Rescue Plan Act of 2021, and subsequent legislation, Medicare payments to providers will be
further reduced starting in 2025 absent further legislation.
•
The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and
increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
•
On April 13, 2017, CMS published a final rule that gives states greater flexibility in setting benchmarks for insurers in the
individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the
ACA for plans sold through such marketplaces.
•
On May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for
certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are
undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in
clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a
pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.
•
On May 23, 2019, CMS published a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B
drugs beginning January 1, 2020.
These laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for
any of our product candidates for which we may obtain regulatory licensing or the frequency with which any such product candidate is
prescribed or used.
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There have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things,
bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of
drugs under Medicare and reform government program reimbursement methodologies for drug products.
Additionally, there has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices.
President Biden has issued multiple executive orders that have sought to reduce prescription drug costs. Although a number of these and
other proposed measures may require authorization through additional legislation to become effective, and the Biden administration may
reverse or otherwise change these measures, both the Biden administration and Congress have indicated that they will continue to seek new
legislative measures to control drug costs.
The Inflation Reduction Act of 2022, or IRA includes several provisions that may impact our business to varying degrees, including provisions
that reduce the out-of-pocket cap for Medicare Part D beneficiaries to $2,000 starting in 2025; impose new manufacturer financial liability on
certain drugs under Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D price caps for certain high-cost
drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for certain drug prices that
increase faster than inflation, and delay the rebate rule that would limit the fees that pharmacy benefit managers can charge. Further, under
the IRA, orphan drugs are exempted from the Medicare drug price negotiation program, but only if they have one rare disease designation
and for which the only approved indication is for that disease or condition. If a product receives multiple rare disease designations or has
multiple approved indications, it may not qualify for the orphan drug exemption. The effects of the IRA on our business and the healthcare
industry in general is not yet known.
These healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions
in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure
on the price for any licensed product and/or the level of reimbursement physicians receive for administering any licensed product. Reductions
in reimbursement levels may negatively impact the prices or the frequency with which products are prescribed or administered. Any reduction
in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product
access and marketing cost disclosure and transparency measures and, in some cases, designed to encourage importation from other
countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures
to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs.
These measures could reduce the ultimate demand for our product candidates, once licensed, or put pressure on our product pricing.
Review and Approval of Medicinal Products in the EU
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory
requirements of other 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 necessary approvals by the comparable non-U.S. regulatory authorities before it can commence clinical trials or marketing
of the product in those countries or jurisdictions. Specifically, the process governing approval of medicinal products in the EU generally
follows the same lines as in the United States although the approval of a medicinal product in the United States is no guarantee of approval
of the same product in the European Union, either at all or within the same timescale as approval may be granted 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 the
product 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 Approval
The Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP and the related national implementing provisions of the individual
EU Member States govern the system for the approval of clinical trials in the EU. Under this system, an applicant must obtain prior approval
from the competent national authority of the EU Member States in which the clinical trial is to be conducted. Furthermore, the applicant may
only start a clinical trial at a specific study site after the competent ethics committee has issued a favorable opinion in relation to the clinical
trial. The clinical trial application must be accompanied by, among other documents, an investigational medicinal product dossier (the
Common Technical Document) with supporting information
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prescribed by Directive 2001/20/EC, Directive 2005/28/EC and, where relevant, the implementing national provisions of the individual EU
Member States and applicable guidance documents.
In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted. The Regulation was published
on June 16, 2014 but is not expected to come into effect until late 2020 at the earliest. It is expected that the Clinical Trials Regulation will
apply following confirmation of full functionality of the Clinical Trials Information System (CTIS), the centralized EU portal and database for
clinical trials foreseen by the regulation, through an independent audit. The regulation becomes applicable six months after the European
Commission publishes notice of this confirmation. The Clinical Trials Regulation will be directly applicable in all the EU Member States -
meaning that no national implementing legislation will be required - and it will supersede and repeal the current Clinical Trials Directive
2001/20/EC and 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 governed by the Clinical Trials Directive and national implementing legislation until the new Clinical Trials Regulation becomes
applicable. The extent to which on-going clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical
Trials Regulation becomes applicable and on the duration of the individual clinical trial. Clinical trials applications made before the entry into
force of the Clinical Trials Regulation will continue to be governed by the Clinical Trials Directive for up to three years after the Clinical Trials
Regulation becomes applicable, as will clinical trials applications made within one year of the Clinical Trials Regulation becoming applicable
where the clinical trial sponsor elects for the trial to be governed by the old regime until the end of the three year transition period. If a clinical
trial continues for more than three years from the 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 the
regulation include: a streamlined application procedure via a single entry point, the “EU Portal and Database”; a single set of documents to
be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized
procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the appointed reporting
Member State, whose assessment report is submitted for review by the sponsor and all other competent authorities of all EU Member States
in which an application for authorization of a clinical trial has been submitted (the so-called Member States concerned). Part II is assessed
separately by each Member State concerned. Strict deadlines have been established for the assessment of clinical trial applications. The role
of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the Member State
concerned. However, overall related timelines will be defined by the Clinical Trials Regulation.
PRIME Designation in the EU
EMA now offers a scheme that is intended to reinforce early dialogue with and regulatory support from, EMA in order to stimulate innovation,
optimize development and enable accelerated assessment of PRIority MEdicines (“PRIME”). It is intended to build upon the scientific advice
scheme and accelerated assessment procedure offered by EMA. The scheme is voluntary and eligibility criteria must be met for a medicine
to qualify for PRIME.
The PRIME scheme is open to medicines under development and for which the applicant intends to apply for an initial marketing
authorization application through the centralized procedure. Eligible products must target conditions for which where is an unmet medical
need (there is no satisfactory method of diagnosis, prevention or treatment in the European Union or, if there is, the new medicine will bring a
major therapeutic advantage) and they must demonstrate the potential to address the unmet medical need by introducing new methods or
therapy or improving existing ones. Applicants will typically be at the exploratory clinical trial phase of development and will have preliminary
clinical evidence in patients to demonstrate the promising activity of the medicine and its potential to address to a significant extent an unmet
medical need. In exceptional cases, applicants from the academic sector or SMEs (small and medium sized enterprises) may submit an
eligibility request at an earlier stage of development if compelling non-clinical data in a relevant model provide early evidence of promising
activity and first in man studies indicate adequate exposure for the desired pharmacotherapeutic effects and tolerability.
If a medicine is selected for the PRIME scheme, EMA:
•
appoints a rapporteur from the Committee for Medicinal Products for Human Use (CHMP) or from the Committee for Advanced
Therapies (CAT) to provide continuous support and to build up knowledge of the medicine in advance of the filing of a marketing
authorization application;
•
issues guidance on the applicant’s overall development plan and regulatory strategy;
•
organizes a kick-off meeting with the rapporteur and experts from relevant EMA committees and working groups;
•
provides a dedicated EMA contact person; and
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•
provides scientific advice at key development milestones, involving additional stakeholders, such as health technology
assessment bodies and patients, as needed.
Medicines that are selected for the PRIME scheme are also expected to benefit from EMA’s accelerated assessment procedure at the time of
application for marketing authorization. Where, during the course of development, a medicine no longer meets the eligibility criteria, support
under the PRIME scheme may be withdrawn.
Marketing Authorization
To obtain a marketing authorization for a product under EU regulatory systems, an applicant must submit an MAA, either under a centralized
procedure administered by the EMA or one of the procedures administered by competent authorities in EU Member States (decentralized
procedure, national procedure, or mutual recognition procedure). A marketing authorization may be granted only to an applicant established
in the EU. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the EU, applicants must demonstrate
compliance with all measures included in an EMA-approved Pediatric Investigation Plan (PIP) covering all subsets of the pediatric population,
unless 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
European Economic Area (which comprises the 27 Member States of the European Union, together with Norway, Iceland and Liechtenstein).
Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced
by certain biotechnological processes, products designated as orphan medicinal products, ATMPs and products with a new active substance
indicated for the treatment of certain diseases, including products for the treatment of cancer. For those products for which the use of the
centralized procedure is not mandatory, applicants may elect to use the centralized procedure where either the product contains a new active
substance indicated for the treatment of other diseases or where the applicant can show that the product constitutes a significant therapeutic,
scientific or technical innovation for which a centralized process is in the interest of patients at a European Union level. We anticipate that the
centralized procedure will be mandatory for the product candidates we are developing.
Under the centralized procedure, the Committee for Medicinal Products for Human use (or the “CHMP”), which is the EMA’s committee that
is responsible for human medicines, is responsible for conducting the assessment of whether a medicine meets the required quality, safety
and efficacy requirements and whether the product has a positive benefit/risk profile. The CHMP is also responsible for several post-
authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization.
Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days from the receipt of a valid MAA,
excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions of
the CHMP. Clock stops may extend the timeframe of evaluation of an MAA considerably beyond 210 days.
Accelerated evaluation may be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of
view of public health and, in particular, from the viewpoint of therapeutic innovation. If the CHMP accepts such a request, the timeframe of
210 days for assessment will be reduced to 150 days (excluding clock stops), but it is possible that the CHMP may revert to the standard
time limit 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. Within 15 calendar days of receipt of a final opinion from the CHMP, the European Commission must prepare a draft decision
concerning an application for marketing authorization. This draft decision must take the opinion and any relevant provisions of EU law into
account. Before arriving at a final decision on an application for centralized authorization of a medicinal product, the European Commission
must consult the Standing Committee on Medicinal 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 to ensure 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
for products for which the applicant can demonstrate that it is unable to provide comprehensive data on the efficacy and safety under normal
conditions of use, because the indications for which the product in question is intended are encountered so rarely that the applicant cannot
reasonably be expected to provide comprehensive evidence, or in the present state of scientific knowledge comprehensive information
cannot be provided, or it would be contrary to generally accepted principles of medical ethics to collect such information. Consequently,
marketing authorization under exceptional circumstances may be granted subject to certain specific obligations, which may include the
following:
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•
the applicant must complete an identified program of studies within a time period specified by the competent authority, the
results of which 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
under strict 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 particulars
available concerning the medicinal product in question are as yet inadequate in certain specified respects.
A marketing authorization under exceptional circumstances is subject to annual review to reassess the risk-benefit balance in an annual
reassessment procedure. Continuation of the authorization is linked to the annual reassessment and a negative assessment could potentially
result in the marketing authorization being suspended or revoked. The renewal of a marketing authorization of a medicinal product under
exceptional circumstances, however, follows the same rules as a “normal” marketing authorization. Thus, a marketing authorization under
exceptional circumstances is granted for an initial five years, after which the authorization will become valid indefinitely, unless the EMA
decides that 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 data
required 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 that the 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 the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be
fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies and with respect
to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year and may be renewed annually, if the
benefit-risk balance remains positive and after an assessment of the need for additional or modified conditions and/or specific obligations.
The timelines for the centralized 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
of any medicinal product containing, consisting of or derived from a specific type of human or animal cell, such as embryonic stem cells.
While the product candidates we have in development do not make use of embryonic stem cells, it is possible that the national laws in certain
EU Member States 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 to separate approval by, the competent authorities of each EU Member State in which the product is to be marketed. This application is
identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The reference EU
Member State prepares a draft assessment and drafts of the related materials within 70 days after receipt of a valid application. The resulting
assessment report is submitted to the concerned EU Member States who, then seek to reach a consensus in relation to the assessment
report and related materials within a further 50 days (although there may be clock stops within this period if more information is requested
and such clock stops would extend this time period). If approved at this stage, the application proceeds to the grant procedure at concerned
Member States level. If consensus is not reached by the relevant Member States during the initial 120-day period, the application enters a
further assessment period. If at the end of that further assessment period a concerned EU Member State cannot approve the assessment
report and related materials due to concerns relating to a potential serious 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
marketing authorization of a medicinal product by the competent authorities of other EU Member States. The holder of a national marketing
authorization may submit an application to the competent authority of an EU Member State requesting that this authority recognize the
marketing authorization delivered by the competent authority of another EU Member State.
Regulatory Data Protection in the EU
In the EU, innovative medicinal products approved on the basis of a complete independent data package qualify for eight years of data
exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Directive 2001/83/EC. Regulation (EC)
No 726/2004 repeats the entitlement for medicinal products authorized in accordance with the centralized authorization procedure. Data
exclusivity prevents applicants for authorization of generics of these innovative products from
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referencing the innovator’s data to assess a generic (abridged) application for a period of eight years. During the additional two-year period
of market exclusivity, a generic marketing authorization application can be submitted and authorized and the innovator’s data may be
referenced, but no generic medicinal product can be placed on the EU market until the expiration of the 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, the marketing authorization holder
obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are
held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity
so that the innovator gains the prescribed period of data exclusivity, another company may market another version of the product 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 Renewals
A marketing authorization has an initial validity for five years in principle. The marketing authorization may be renewed after five years on the
basis of 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
marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality,
safety and efficacy, including all variations introduced since the marketing authorization was granted, at least nine months before the
marketing authorization ceases 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 shall be 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 of centralized procedure) or on the market of the authorizing EU Member State within three years after
authorization ceases to be valid (the so-called sunset clause).
Orphan Drug Designation and Exclusivity
Regulation (EC) No. 141/2000, as implemented by Regulation (EC) No. 847/2000 provides that a drug can be designated as an orphan drug
by the European Commission if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life-
threatening or chronically 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 drug in the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the
applicant must also demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question
that has been authorized in the EU or, if such method 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
other benefits during the development and regulatory review process including scientific assistance for study protocols, authorization through
the centralized marketing authorization procedure covering all member countries and a reduction or elimination of registration and marketing
authorization fees. During this market exclusivity period, neither the EMA nor the European Commission or the Member States can accept an
application or grant a marketing authorization for the same therapeutic indication in respect of a “similar medicinal product”. A “similar
medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized
orphan medicinal product and which is intended for the same therapeutic indication. 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 original orphan medicinal product is unable to supply sufficient quantities.
Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if this product is safer, more
effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be
reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation
because, for example, the product is sufficiently profitable not to justify market exclusivity.
Regulatory Requirements after a Marketing Authorization has been Obtained
In case an authorization for a medicinal product in the EU is obtained, the holder of the marketing authorization is required to comply with a
range of 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
impose post-authorization studies and additional monitoring obligations.
38
•
The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be
conducted in 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 include compliance with EU cGMP standards when manufacturing medicinal products and active pharmaceutical
ingredients, including the manufacture of active pharmaceutical ingredients outside of the EU with the intention to import the
active pharmaceutical ingredients into the EU.
•
The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising
directed toward the prescribers of drugs and/or the general public, are strictly regulated in the EU notably under Directive
2001/83EC, as amended, and EU Member State laws. Direct-to-consumer advertising of prescription medicines is prohibited
across the EU.
Pricing Decisions for Approved Products
In the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed
only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-
effectiveness of a particular product candidate to currently available therapies or so-called health technology assessments, in order to obtain
reimbursement or pricing approval. For example, the EU provides options for its Member States to restrict the range of products for which
their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. Member
States may approve a specific price 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 the market. Other Member States allow companies to fix their own prices for products, but monitor and
control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many countries in the EU have increased the
amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage health care expenditures,
especially in light of the severe fiscal and debt crises experienced by many countries in the EU. The downward pressure on health care costs
in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being erected to the entry of new
products. Political, economic and regulatory developments may further complicate pricing negotiations and pricing negotiations may continue
after reimbursement has been obtained. 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 pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if
approved in those countries.
Human Capital
As of March 5, 2023, we had 66 full-time employees, of which 15 of our employees have Ph.D. or M.D. degrees and 54 of our employees are
engaged in research and development activities. Our headcount decreased by 52% in 2022.
Retention, Training and Development
The development, attraction and retention of our employees is a critical success factor for TCR2 and is reflected in our corporate goals. We
cultivate a culture of learning and offer formal and informal training and development opportunities for employees at all levels. These
programs include Insights Discovery® training, delivered with a custom curriculum designed to match our five core competencies: Team
Work, Emotional Intelligence, Technical Expertise, Leadership, and Results Orientation. We take special care to ensure our managers are
well-trained. Programming for managers includes an intensive Manager Bootcamp, a monthly thematic meet-up, and our 3-month Manager
Essentials Course. We offer a quarterly Aspiring Managers workshop, actively promote from within and continue to fill our team with strong
and experienced management talent.
We measure engagement through routine employee surveys and keep the lines of communication open through weekly all-Company
meetings, regular office hours with the TCR2 People Team, and manager one-on-ones.
Compensation and Benefits
An important part of attracting and retaining key talent is competitive pay and benefits. To ensure our compensation and benefits programs
are competitive, we engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the
effectiveness of our programs and to provide benchmarking against our peers within the industry. Our pay for performance philosophy seeks
to motivate and reward employees while accomplishing the Company’s short and long-term strategic goals. As part of a robust performance
management process, employees are evaluated both on what they accomplished
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and how they demonstrated our core competencies. Annual salary increases and incentive bonuses are based on merit and include
individual and corporate performance factors.
To encourage our employees to think like owners and share in the Company’s success, all employees are granted stock options, certain
employees are granted restricted stock units and all employees can elect to participate in our employee stock purchase plan. All full-time
employees are eligible for health insurance, paid and unpaid leaves including paid parental leave, retirement plan with an employer
contribution match, life and disability/accident coverage, parking or commuter assistance, dependent care accounts, a lifestyle allowance
which may be used to repay outstanding student loans and/or on expenses related to wellness, work-life, or personal development, tuition
assistance, an employee assistance program providing mental health, wellness support, legal and financial health resources. We celebrate
successes through our STAR Recognition Program as well as kudos posted to our internal newsfeed, employee events, and at employee
meet-ups multiple times per month.
Our Corporate Information
We were incorporated under the laws of the State of Delaware on May 29, 2015 under the name TCR2, Inc. In November 2016, we changed
our name to TCR2 Therapeutics Inc. Our principal executive offices are located at 100 Binney Street, Suite 710, Cambridge, MA 02142 and
our telephone number is (617) 949-5200. Our website address is www.tcr2.com. Our website and the information contained on, or that can
be accessed through, the website will not be deemed to be incorporated by reference in and are not considered part of, this Annual Report
on Form 10-K.
We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth
company 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
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 means the
market value of our 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 more than $1.0 billion in non-convertible debt during the prior three-year period.
Available Information
Our 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 of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information on our
website is not part of this Annual Report on Form 10-K or any of our other securities filings unless specifically incorporated herein by
reference. In addition, our filings with the SEC may be accessed through the SEC’s Interactive Data Electronic Applications system at
www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the
date of the document in which the statement is included and we do not assume or undertake any obligation to update any of those
statements or documents unless we are required to do so by law.
Our code of conduct, corporate governance guidelines and the charters of our Audit Committee, Compensation Committee and Nominating
and Corporate Governance Committee are available through our website at www.tcr2.com.
Item 1A. Risk Factors
Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Annual Report on Form
10-K and 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 to be exhaustive and are not the only risks facing the Company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impact our business, prospects, financial condition and results of operations.
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Risks Related to the Development of Our Product Candidates
Risks Related to Clinical Development
Our approach to the discovery and development of product candidates based on our TRuC-T cell platform represents a novel
approach to cancer treatment, which creates significant challenges for us.
Our future success depends on the successful development of our product candidates, which target solid tumors and hematologic
malignancies using the complete T cell receptor (TCR) complex without the need for human leukocyte antigen (HLA) matching. Advancing
our product candidates 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-in immune and tumor modulators;
•
educating medical personnel regarding the potential side effect profile of our product candidates, such as the potential adverse
side effects 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 side effects;
•
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 and manufacturing capacity as well as a complete
shipment lifecycle and supply chain, including efficiently managing shipment of patient cells from and to clinical sites;
•
minimizing potential contamination to the cell product during production and effectively 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/or may 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
method for manufacturing TRuC-T cells. We may find our existing TRuC-T cells and manufacturing process may be substantially improved
with future design or process changes, necessitating development of new or additional TRuC constructs and further clinical testing and
delaying commercial launch 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.
The preclinical studies are limited in their ability to predict behavior of our product candidates in patients. As we gain experience
working with TRuC constructs, we may decide 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-viral transfer process offers advantages. Switching from lentiviral to another delivery system would necessitate additional
process development and clinical testing and delay the development of existing 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
have explored a subset of variables and expect to continue to improve and optimize the manufacturing process. Depending
upon the nature of the process changes, we may be compelled to perform bridging studies and/or to re-start clinical
development, causing delays in time to market and potentially introducing a risk of failure if new processes do not perform as
expected.
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We are early in our development efforts. Gavo-cel, our most advanced product candidate, is in the Phase 2 portion of the Phase 1/2
clinical trial, TC-510 is in the Phase 1 portion of the Phase 1/2 clinical trial and our other product candidates are still in preclinical
development. If we are unable to advance our product candidates through clinical development, obtain regulatory approval and
ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially
harmed. In January 2023, we announced that we have narrowed the focus of the ongoing Phase 2 clinical trial of gavo-cel to
evaluate gavo-cel in ovarian cancer in combination with checkpoint inhibitors and redosing strategies, and prioritizing our second
generation enhanced TC-510 and TC-520 programs.
We are early in our development efforts. Gavo-cel, our most advanced product candidate, is in the Phase 2 portion of the Phase 1/2 clinical
trial, TC-510 is in the Phase 1 portion of the Phase 1/2 clinical trial and our other product candidates are still in preclinical development. Our
ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful
development and eventual commercialization of one or more of our product candidates. The success of our product candidates will depend
on several factors, including the following:
•
successful completion of preclinical studies;
•
successful initiation and completion 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
supply of 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;
•
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
successfully commercialize our product candidates, which would materially harm our business.
We have limited experience as a company in conducting clinical trials.
We have limited experience as a company in conducting clinical trials. Our Phase 1/2 clinical trial for gavo-cel began in 2019 and our Phase
1/2 clinical trial for TC-510 began in 2022. Because of this limited experience and other factors, we cannot be certain that our planned and
ongoing preclinical studies will be completed on time, or that our planned and ongoing clinical trials will begin, enroll sufficient patients,
produce data on expected timelines or be completed on expected timelines, if at all. Large-scale clinical trials require significant additional
financial and management resources and reliance on third-party clinical investigators, CROs and consultants. Relying on third-party clinical
investigators, CROs and consultants may force us to encounter delays that are outside of our control.
Clinical development involves a lengthy and expensive process with an uncertain outcome and results of earlier studies and trials
may not be predictive of future clinical trial results. If our preclinical studies and clinical trials are not sufficient to support
regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or
ultimately be unable to complete, the development of such product candidate.
We cannot be certain that our preclinical studies 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 expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Failure or delay
can occur at any time during the clinical trial process.
We may experience delays in obtaining the FDA’s authorization to initiate clinical trials under future INDs, completing ongoing clinical studies
of our product candidates due to a variety of factors, including the impact of COVID-19 at our clinical sites and
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initiating our planned preclinical studies and clinical trials. Additionally, we cannot be certain that preclinical studies or clinical trials for our
product candidates will begin on time, not require redesign, enroll an adequate number of subjects on time, or be completed 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
extensive negotiation 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 an investigational device exemption (IDE) application regarding our use of a commercially available in vitro diagnostic assay
for screening mesothelin expression in tumors. The CDRH subsequently determined that we did not need to submit an IDE application, but
such a requirement, or other unexpected FDA requests, could lead to future delays of our clinical trials. We may experience numerous
adverse or unforeseen events during, or as a result of, preclinical studies and clinical trials that could delay 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
clinical trials 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 to provide us with sufficient product supply to conduct and complete preclinical studies or clinical trials of our product
candidates in a timely 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
unexpected characteristics 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 product
candidates 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.
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If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if
we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not
positive or are only moderately positive or if there are safety concerns, our business and results of operations may be adversely affected and
we may incur significant additional costs. In addition, costs to treat patients with relapsed or refractory cancer and to treat potential side
effects that may result from our product candidates can be significant. Accordingly, our clinical trial costs are likely to be significantly higher
than those for more conventional 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
are being conducted, by the Data Safety Monitoring Board (DSMB) for such clinical trial or by the FDA or other regulatory authorities. Such
authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with
regulatory requirements or our clinical trial protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory
authorities resulting in the 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 commercial
prospects of our product candidates may be harmed and our ability to generate revenues from any of these product candidates will be
delayed or not realized at all. In addition, any delays in completing our preclinical studies or clinical trials may increase our costs, slow down
our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any
of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or
lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our
product candidates. If one or more of our product candidates generally prove to be ineffective, unsafe or commercially unviable, our entire
pipeline and TRuC-T cell platform would have little, if any, value, which would have a material and adverse effect on our business, financial
condition, results of operations and prospects.
Our business is highly dependent on our clinical trials for our lead product candidates, gavo-cel and TC-510 and we must complete
IND-enabling studies and clinical testing before we can seek regulatory approval and begin commercialization of any of our
product candidates. We cannot be certain that we will be able to complete ongoing clinical trials, initiate future planned clinical
trials, or advance our product candidates into additional trials, or to successfully develop, or obtain regulatory approval for, or
successfully commercialize, any of our product candidates.
Our business depends heavily on our ability to complete clinical development and non-clinical studies of our lead product candidates, gavo-
cel and TC-510 and our other product candidates and to obtain regulatory approval of and successfully commercialize these and any future
product candidates. There is no guarantee that any of our product candidates will proceed in preclinical or clinical development or achieve
regulatory approval. The process for obtaining marketing approval for any product candidate is very long and risky and there will be
significant challenges for us to address in order to obtain marketing approval as planned or, if at all.
There is no guarantee that the results obtained in current preclinical studies, the Phase 2 portion of our Phase 1/2 clinical trial of gavo-cel,
the Phase 1 and/or Phase 2 portions of our Phase 1/2 clinical trial of TC-510, or our other planned clinical trials will be sufficient to obtain
regulatory approval or marketing authorization for such product candidates. The FDA may ultimately decide that the design, number and type
of clinical trials, number of patients studied or results of our clinical trial for gavo-cel and/or TC-510, even if positive, are not sufficient for
regulatory approval in their respective target indications. Changes in the manufacturing process as we scale-up and optimize our process for
manufacturing our product candidates could also delay development or require us to conduct additional clinical trials or non-clinical studies or
could lead to different results than achieved with the earlier processes. We may not be able to initiate or complete our clinical trials or
announce results from our clinical trials on the timelines we expect. We may experience slower than expected enrollment and randomization
of patients in our clinical trials. These types of delays can lead to delays in completion of a trial and announcement of results. There is also
the potential for slower than expected clinical site initiation, delays or problems in analyzing data and the potential need for additional
analysis or data or the need to enroll additional patients in any of our clinical trials. We may also encounter delays arising from unexpected
adverse events in a trial or other unexpected hurdles or issues in the conduct of any trial. We may not be able to collect sufficient data in our
clinical trials to obtain regulatory approval or marketing authorization or to continue with clinical development of one or more of our product
candidates. For example, we may not be able to obtain sufficient patient samples because the patients we enroll in our clinical trials are
unable or unwilling to complete follow-up visits and/or proceed with sample collection such as biopsy procedures. Consequently, we may not
be able to produce translational or other data on expected timelines, or at all. Negative results in the development of our lead product
candidates may also impact our ability to obtain regulatory approval for our other product candidates, either at all or within anticipated
timeframes because, although other product candidates may target different
44
indications, the underlying technology platform, manufacturing process and development process is the same for all of our product
candidates. Accordingly, a failure in any one program may affect the ability to obtain regulatory 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
product candidates, we may forgo or delay pursuit of opportunities with other future product candidates that later prove to have greater
commercial potential, or may need to divert resources to other programs. For example, in October 2021, in alignment with our pipeline
prioritization on solid tumors, we deprioritized the development of TC-110, a product candidate in a Phase 1 clinical trial. Further, we may
forgo, delay, alter, or reduce focus and/or expenditure on development of certain lead product candidates in favor of, or to allow prioritization
of, development of other product candidates. For example, in January 2023, we announced that we have narrowed the focus of the ongoing
Phase 2 clinical trial of gavo-cel to evaluate gavo-cel in ovarian cancer in combination with checkpoint inhibitors and redosing strategies, and
prioritizing our second generation enhanced TC-510 and TC-520 programs. Our resource allocation decisions may cause us to fail to
capitalize on viable commercial products or profitable market opportunities or limit the opportunities we are able to pursue. Our spending on
current and future research and development programs and other future product candidates for specific indications may not yield any
commercially viable future product candidates. If we do not accurately evaluate the commercial potential or target market for a particular
future product candidate, we may relinquish valuable rights to those future product candidates through collaboration, licensing or other
royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization
rights to such future product candidates.
Our preclinical studies and clinical trials may fail to demonstrate adequately the safety and efficacy of any of our product
candidates, which would prevent or delay development, regulatory approval and commercialization.
Before obtaining regulatory approvals for the commercial sale of our product candidates, including gavo-cel and TC-510, we must
demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and
effective for use in each target indication. We may not be able to demonstrate the efficacy and safety of gavo-cel, TC-510, or any of our other
product candidates or any future product candidate at each stage of clinical development or we may encounter issues with any non-clinical
studies required for regulatory submissions. Success in preclinical studies or in earlier stage clinical trials may not be repeated or observed in
ongoing or future clinical trials involving TRuCs or other product candidates. The results of clinical trials or non-clinical studies of our product
candidates at any stage may not support further development or may not be sufficient to obtain regulatory approval.
Based on the topline data readout presented on September 28, 2022 from patients in dose escalation in the Phase 1 portion of our Phase
1/2 clinical trial as of the September 9, 2022 data cutoff, gavo-cel was generally well tolerated with a manageable adverse event profile up
until dose level (DL) 5, with no patients experiencing on-target, off-tumor toxicities. Two dose limiting toxicities (DLTs) were observed: one
case of Grade 3 pneumonitis at DL1 that resolved with anti-cytokine therapy and one case of Grade 5 bronchoalveolar hemorrhage at DL5.
Furthermore, all three patients treated at DL5 experienced Grade ≥3 CRS which resulted in 5x108 cells/m2 following lymphodepletion being
declared the maximum tolerated dose (MTD) by the safety review team (SRT). After declaring the MTD, the study proceeded to a dose de-
escalation portion, first at DL3.5 (3x108 cells/m2 following lymphodepletion) using a split-dosing approach and subsequently at DL3
(1x108cells/m2 following lymphodepletion) which was declared the RP2D. No new DLTs were observed during the dose de-escalation. While
our data in the Phase 1/2 clinical trial has been positive with a manageable adverse event profile, these results may not be repeated or
observed in future cohorts of patients treated in the currently ongoing clinical trial or in future clinical trials and may not be predictive of the
results of later-stage clinical trials.
The drug-development process, including preclinical and clinical testing is expensive, can take many years to complete and may include
post-marketing studies and surveillance, which will require the expenditure of substantial resources. The outcome of the drug development
process is inherently uncertain. Of the large number of drugs in development in the U.S., only a small percentage will successfully complete
the FDA regulatory approval process and will be commercialized. Failure can occur at any time during the preclinical study and clinical trial
processes and, because our product candidates are in an early stage of development, there is a high risk of failure and we may never
succeed in developing marketable products. Clinical trials of our product candidates are, and the manufacturing and marketing of our product
candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the U.S. and in other
countries where we intend to test and, if approved, market any product candidate. Accordingly, even if we have the requisite financial
resources, when needed, to continue to fund our development efforts, we cannot assure you that any of our product candidates will be
successfully developed or commercialized either in the U.S. or in any country outside the U.S. Even if we gain approval of any of our other
product candidates, we may never be able to successfully commercialize the product or to meet our expectations with respect to revenues or
profits.
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The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical
trials. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through preclinical studies and
clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having
progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered
significant setbacks in advanced clinical trials due to lack of potency 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 and efficacy necessary to obtain regulatory
approval to market our product candidates. If the results of our ongoing or future preclinical studies and clinical trials are inconclusive with
respect to the safety and efficacy of our product candidates, if we do not meet the clinical endpoints with statistical and clinically meaningful
significance, or if there are safety concerns associated with our product candidates, we may be prevented or delayed in obtaining marketing
approval for such product candidates. There can be significant variability in safety and efficacy results between different preclinical studies
and clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols,
differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout
among clinical trial participants. Additionally, our preclinical studies comparing our product candidates to chimeric antigen receptor T (CAR-T)
cells utilized CAR-T cells that we engineered, rather than the CAR-T cell therapies that are currently approved by the FDA. Although we
believe, based on the results we observed in these preclinical studies, that our product candidates have the potential to improve upon the
safety and efficacy of currently approved CAR-T cell therapies, these results may not be predictive of the outcome of our future preclinical
studies and clinical trials, including any potential preclinical studies and clinical trials that may compare our product candidates to FDA-
approved CAR-T cells.
Since the number of patients that we plan to dose in each of our Phase 1/2 clinical trials for gavo-cel is small, the results from
these clinical trials, once completed, may be less reliable than results achieved in a larger clinical trial, which may hinder our
efforts to obtain regulatory approval.
The number of patients we plan to treat in our clinical trial for gavo-cel is small and the results from this clinical trial, once completed, may be
less reliable that results achieved in larger clinical trials. For example, in the Phase 1 portion of our Phase 1/2 clinical trial of gavo-cel, we
evaluated the safety profile of gavo-cel and established the RP2D. In Phase 2, we intend to treat approximately 20 patients with ovarian
cancer. The preliminary results of clinical trials with smaller sample sizes, such as our Phase 1/2 clinical trials of gavo-cel, can be
disproportionately influenced by various biases associated with the conduct of small clinical trials, such as the potential failure of the smaller
sample size to accurately depict the features of the broader patient population, which limits the ability to generalize the results across a
broader community, thus making the clinical trial results less reliable than clinical trials with a larger number of patients. As a result, there
may be less certainty that such product candidates would achieve a statistically significant effect in any future clinical trials. If we conduct any
future clinical trials of gavo-cel, we may not achieve a statistically significant result or the same level of statistical significance, if any, that we
might have anticipated based on the results observed in our initial Phase 1/2 clinical trials.
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 are able to, the FDA may not permit us to proceed.
We may not be able to file INDs on the timelines we expect. For example, we may experience manufacturing delays or other delays with
IND-enabling studies. Moreover, we cannot be sure that submission of an IND will result in the FDA allowing further clinical trials to begin, or
that, once begun, issues will not arise that suspend or terminate clinical trials. Additionally, even if such regulatory authorities agree with the
design and implementation of the clinical trials set forth in an IND, we cannot guarantee that such regulatory authorities will not change their
requirements in the future. These considerations also apply to new clinical trials we may submit as amendments to existing INDs.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise
adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including impacts that have resulted or may
result from the ongoing COVID-19 pandemic. The timely completion of clinical trials in accordance with their protocols depends on, among
other things, our ability to enroll a sufficient number of patients who remain in the clinical trial until its conclusion. The enrollment of patients
depends on many factors, including:
•
the patient eligibility criteria defined in the clinical trial protocol;
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•
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
product candidates or clinical trial completion.
Our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product
candidates and this competition will reduce the number and types of patients available to us because some patients who might have opted to
enroll in our clinical trials may instead opt to enroll in a clinical trial being conducted by one of our competitors. In addition, patients may be
unwilling to participate in our studies because of negative publicity from adverse events in the biotechnology industry or for other reasons.
Since the number of qualified clinical 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 product candidates represent a departure from more commonly used methods for cancer treatment, potential patients
and their doctors may be inclined to use conventional therapies, such as chemotherapy and hematopoietic stem cell transplantation, rather
than enroll patients in any future clinical trial. Additionally, because some of our clinical trials are in patients with relapsed/refractory cancer,
the patients are typically in the late stages of their disease and may experience disease progression independent from our product
candidates, making them unevaluable for purposes of the clinical trial and requiring additional patient enrollment.
Delays in completing patient enrollment may result in increased costs or may affect the timing or outcome of our ongoing and planned clinical
trials, which could prevent completion or commencement of these clinical trials and adversely affect our ability to advance the development of
our product candidates.
Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development,
prevent their regulatory approval, require expansion of the trial size, limit their commercial potential, or result in significant
negative consequences.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities, including IRBs, to interrupt, delay, or halt
clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign
regulatory authorities. Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of
subjects and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly
larger number of patients exposed to the drug. Because of our planned dose escalation design for our clinical trials, undesirable side effects
could also result in an expansion in the size of our clinical trials, increasing the expected costs and timeline of our clinical trials. Additionally,
results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics, which
may stem from our product candidates specifically or may be due to an illness from which the clinical trial subject is suffering. In the Phase 1
dose escalation portion of our Phase 1/2 clinical trial, as of the September 9, 2022 data cutoff, gavo-cel was generally well tolerated with a
manageable adverse event profile up until DL5, with no patients experiencing on-target, off-tumor toxicities. Two DLTs were observed: one
case of Grade 3 pneumonitis at DL1 that resolved with anti-cytokine therapy and one case of Grade 5 bronchoalveolar hemorrhage at DL5.
Furthermore, all three patients treated at DL5 experienced Grade ≥3 CRS which resulted in 5x108cells/m2 following lymphodepletion being
declared the MTD by the SRT. After declaring the MTD, the study proceeded to a dose de-escalation portion, first at DL3.5 (3x108 cells/m2
following lymphodepletion) using a split-dosing approach and subsequently at DL3 (1x108cells/m2 following lymphodepletion) which was
declared the RP2D. No new DLTs were observed during the dose de-escalation. While our data in the Phase 1/2 clinical trial has been
positive with a manageable safety profile, these results may not be repeated or observed in future cohorts of patients treated in the currently
ongoing clinical trial or in future clinical trials and may not be predictive of the results of later-stage clinical trials.
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 upon re-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
safety risk of product candidates we develop using our TRuC-T cell platform. If a patient’s
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self-generated antibodies were directed to a target expressed on the surface of cells in normal tissue (autoantibodies), engineered T cells
would be directed to attack these same tissues, potentially resulting in off-tumor effects. These autoantibodies may be present whether or not
the patient has an active autoimmune disease. In our clinical testing, we plan to take steps to minimize the likelihood that this occurs, for
example by excluding patients with a history of severe autoimmune disease from our trials. 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 be able 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 an
additional theoretical safety risk of product candidates we develop using our TRuC-T cell platform. Patients’ immune systems may recognize
the TRuC construct on the TRuC-T cell as a foreign protein and fight against it, potentially rendering it ineffective, or even provoking an
allergic/anaphylactoid response or other adverse side effects. The immunogenic potential of novel therapeutics like TRuC-T cells is difficult to
predict. 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 to implement 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 or
comparable foreign regulatory authorities, or local regulatory authorities such as IRBs, could order us to cease clinical trials. Competent
national health authorities, such as the FDA, could also deny approval of our product candidates for any or all targeted indications.
Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the clinical trial or result in
potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff,
as toxicities resulting from T cell therapy are not normally encountered in the general patient population and by medical personnel. We
expect to have to train medical personnel using our product candidates to understand the side effect profile of our product candidates for
both our planned clinical trials and upon any commercialization of any product candidates, if licensed. Inadequate training in recognizing or
managing the potential side effects of our product candidates 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, each of gavo-cel and TC-510 targets
mesothelin, an antigen commonly found on mesotheliomas, ovarian cancers and NSCLC, as well in healthy cells that line the pleura,
pericardium and peritoneum. Our product candidates may target healthy cells, leading to serious and potentially fatal adverse effects. In the
Phase 1 portion of our Phase 1/2 clinical trial of gavo-cel we used, and in the Phase 1 portion of our Phase 1/2 clinical trial of TC-510 we are
using, a dose escalation model to closely monitor the effect of gavo-cel and TC-510 on vital organs and other potential side effects. Even
though we intend to closely monitor the side effects of our product candidates in both preclinical studies and clinical trials, 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 is
expressed within normal tissues, our product candidates may target and kill the normal tissue in a patient, leading to serious and potentially
fatal adverse effects. Detection of any cross-reactivity may halt or delay any ongoing clinical trials for any TRuC-T cell based product
candidate and prevent or delay regulatory approval. Unknown cross-reactivity of the TRuC-T cell binding domain to related proteins could
also occur. We have also developed a preclinical screening process to identify cross-reactivity of the TRuC-T cell binders. Any cross-
reactivity that impacts patient safety could materially impact our ability to advance our product candidates into clinical trials or to proceed to
marketing approval and commercialization.
Our product candidates rely on the use of protein binding domains, or binders, to target specific cancers, which we may develop
or which may be developed by third parties. We are limited in our ability to apply our product candidates to a wider range of
potential target 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 the
antigens on the surface of a tumor to target specific types of cancers. Our ability to develop and commercialize our product candidates will
depend on our ability to develop these binders or partner for such binders on commercially reasonable terms for use in clinical trials as well
as the availability of such binders for use in commercialized products, if licensed. For example, we have a non-exclusive license for the
mesothelin binder incorporated into the TRuC construct for gavo-cel and for TC-510 from Harpoon Therapeutics, Inc. (Harpoon). However,
we cannot be certain that our Harpoon license or potential future collaborations will provide us with a steady supply of binders that we can
utilize in combination with the TRuC construct to develop
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future product candidates. If we are unable to enter into such collaborations on commercially reasonable terms or fail to realize the benefits
of any such collaboration, we may be limited to using antibody fragments that we are able to independently develop which may limit 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
and jeopardize our ability to develop future product candidates as a commercially viable drug, which could result in delays in product
development and harm our business.
Co-administering our TRuC-T cell product candidates with other approved therapies or enhancing our TRuC-T cells with new
constructs may increase the risk of severe adverse events, including cytokine release syndrome and other toxicities, which could
interrupt, delay, or halt our clinical trials.
We believe that co-administration and/or enhancing our TRuC-T cell product candidates may lead to better efficacy, durability and patient
outcomes. However, enhancements and co-administration may increase the occurrence of severe adverse side effects, such as cytokine
release syndrome (CRS). Undesirable side effects caused by our product candidates could cause us or regulatory authorities, including
IRBs, to interrupt, delay, or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the
FDA or other comparable foreign regulatory authorities.
We are evaluating gavo-cel in combination with the checkpoint inhibitor Opdivo® (nivolumab), an anti-PD-1 checkpoint inhibitor, and Yervoy®
(ipilimumab), an anti-CTLA-4 checkpoint inhibitor, in the planned Phase 2 portion of our Phase 1/2 clinical trial. Nivolumab and ipilimumab
are FDA approved therapies, but each has its own risks and side effects. Providing these therapies in combination with gavo-cel may
increase gavo-cel’s efficacy, but it may also increase undesirable side effects from gavo-cel, nivolumab or ipilimumab.
Our first enhanced TRuC-T cell is TC-510, which is a TRuC-T cell targeting mesothelin-expressing solid tumors which incorporates a PD-
1:CD28 chimeric switch receptor (PD-1 Switch). The PD-1 Switch is designed to translate the inhibition of a cancer cell’s PD-1 signal into a
costimulatory CD28 signal, causing cell activity to increase rather than be suppressed by the hostile tumor microenvironment. Based on our
preclinical studies, we believe that TC-510’s unique way of engaging and powering T cells could lead to improved T cell function and
persistence and result in better clinical outcomes for patients. However, increased T cell function may also lead to greater risk of severe
adverse side effects. We have observed adverse side effects with gavo-cel in the Phase 1 portion of our Phase 1/2 clinical trial, including
several patients that developed grade 3 or higher CRS, one patient with Grade 3 pneumonitis that resolved with anti-cytokine therapy, and
one patient with Grade 5 bronchoalveolar hemorrhage. It is possible that TC-510, which is similar to gavo-cel plus the PD-1 Switch, will have
a greater risk of triggering CRS and other undesirable side effects.
We may not be successful in our efforts to identify or discover additional product candidates.
The success of our business depends primarily upon our ability to identify, develop and commercialize products based on our TRuC-T cell
platform. Our research programs may fail to identify other potential product candidates for clinical development for a number of reasons. We
may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmful side
effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval. Research
programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and
resources on potential programs or product candidates that ultimately prove to be unsuccessful. If any of these events occur, we may be
forced to abandon our research, development or commercialization efforts for a program or programs, which would have a material adverse
effect on our business and could potentially cause us to cease operations.
Risks Related to Manufacturing
Manufacturing and administering our product candidates are complex and we may encounter difficulties in production, particularly
with respect to process development or scaling up of our manufacturing capabilities. If we encounter such difficulties, our ability
to provide supply of our TRuC-T cells for clinical trials or for commercial purposes could be delayed or stopped.
The process of manufacturing and administering our product candidates is complex and highly regulated. The manufacture of our product
candidates involves complex processes, including the manufacture of a lentiviral delivery vector containing the genetic information for our
TRuC construct and manufacturing T cells containing the TRuC construct for the final product candidates. More
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specifically, the manufacture of our product candidates includes harvesting white blood cells from the patient, isolating certain T cells from the
white blood cells, combining patient T 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 manufacturing and supply costs are likely to be higher than those at more traditional manufacturing
processes and the manufacturing process is less reliable and more difficult to reproduce. Additionally, the number of facilities that are
capable of harvesting patients’ cells for the manufacture of our product candidates and other autologous cell therapy products and product
candidates is limited. As the number of autologous cell therapy products and product candidates increases, the limited number of facilities
capable of harvesting patients’ cells could result in delays in the manufacture and administration of our product candidates and/or require us
to prioritize among our clinical programs, potentially resulting in clinical trial delays.
We rely on third parties for the manufacture of our lentiviral vectors and our product candidates. These third-party manufacturers may
incorporate their own proprietary processes into our lentiviral vector and product candidate manufacturing processes. We have limited control
and oversight of a third party’s proprietary process and a third party may elect to modify its process without our consent or knowledge. These
modifications could negatively impact our manufacturing, including product loss or failure that requires additional manufacturing runs or a
change in manufacturer, both of which could significantly increase the cost of and significantly delay the manufacture of our product
candidates. In addition, these third parties may have limited manufacturing capacity and we have less control over production methods,
staffing and product quality when produced with third party manufacturers. In both cases, this can cause delays in planned manufacturing
runs, require remanufacture due to failed runs and limit our ability to manufacture lentiviral vector and our product candidates as needed,
resulting in delays for IND filings, clinical trials and non-clinical studies.
Our manufacturing process is and will be susceptible to product loss or failure due to logistical issues, including manufacturing issues
associated with the differences in patients’ white blood cells, interruptions in the manufacturing process, contamination, equipment or reagent
failure, power failures, supplier error and variability in patient characteristics. For example, in July 2018, a power failure that occurred during
a manufacturing run to produce virus for our Phase 1/2 clinical trial of gavo-cel caused us to abandon that run and resulted in a month-long
delay in the process of manufacturing the requisite virus to support our IND filing for gavo-cel and consequently a delay in the IND filing itself.
Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply
disruptions. If for any reason we lose a patient’s white blood cells, or such material gets contaminated or processing steps fail at any point,
the manufacturing process of the TRuC-T cells for that patient will need to be restarted and the resulting delay may adversely affect that
patient’s outcome. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in
which our product candidates are made or administered, 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 potential licensure and commercialization, it is
expected that various aspects of the manufacturing and administration process will be altered in an effort to optimize processes and results.
We have already identified 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. In addition, such changes may require amendments to be made to regulatory applications which may further delay the
timeframes under which modified manufacturing processes can be used 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 for
advanced clinical trials or commercialization, including, among others, increased costs, potential problems with process scale-out, process
reproducibility, stability issues, lot consistency and timely availability of reagents or raw materials. In addition, changes to our manufacturing
process may also require further review and approval by the FDA, leading to delays in our clinical trials. Competitors have had difficulty
reliably producing T-cell therapies in the commercial setting. If we experience similar challenges manufacturing product candidates to
approved specifications, this may limit our product candidates’ utilization and our ability to receive payment for these product candidates
once approved. We may ultimately be unable to reduce the expenses associated with our product candidates to levels that will allow us to
achieve a profitable return on investment.
We do not have our own clinical-scale manufacturing facility and are currently reliant on a limited number of manufacturers for our lentiviral
vector and TRuC-T cell product candidates. We will pursue additional manufacturing capacity to meet the patient demand for our product
candidates as needed, however third-party manufacturing providers may not be able to provide adequate resources or consistent capacity to
meet our clinical trial or commercial needs.
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We rely on third parties to manufacture our product candidates for our clinical trials.
We rely on third parties for the manufacture of our lentiviral vectors and our product candidates. We do not currently have a facility that can
be used as our clinical scale manufacturing facility for our product candidates or lentiviral vector and we expect to rely on outside vendors to
meet these manufacturing needs. The capacity of third party manufacturers may not be enough to support our clinical trials. In addition, since
we do not train or control the workforce of the third party manufacturers that we utilize, we have less control over the production methods and
procedures and the product quality. We have not yet caused any product candidates to be manufactured or processed 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 to optimize the manufacturing
process. For example, we may switch or be required to switch from research-grade materials to commercial-grade materials in order to get
regulatory approval of our product candidates. We cannot be sure that even minor changes in the process will result in therapies 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, as part of our BLA,
or other foreign regulatory authorities following inspections by the FDA or other foreign regulatory authorities. We do not control the
manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs and any other
regulatory requirements of the FDA or other regulatory authorities for the manufacture of our product candidates. We have no control over
the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a
comparable foreign regulatory authority finds deficiencies with or does not approve these facilities for the manufacture of our product
candidates or if it finds deficiencies or withdraws any approval in the future, we may need to find alternative manufacturing facilities, which
would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates. In addition, these third
parties may have limited manufacturing capacity and we have less control over production methods, staffing and product quality when
produced with third-party manufacturers. In both cases, this can cause delays in planned manufacturing runs, require remanufacture due to
failed runs and limit our ability to manufacture lentiviral vector and our product candidates as needed, resulting in delays for IND filings,
clinical trials and non-clinical studies.
We may in the future establish our own manufacturing facility and infrastructure in addition to or in lieu of relying on third parties
for the manufacture of our product candidates, which would be costly, time-consuming and which may not be successful.
As part of our manufacturing strategy and to mitigate our reliance on third-party vendors for the manufacture of TRuC-T cells, we may
determine in the future that we will internalize some or all of our manufacturing capacity by utilizing our own company-operated
manufacturing facility. The establishment of our own commercial manufacturing facility would be a costly and time-consuming process that
would require significant additional capital to fund, and it may be unsuccessful. We have no experience as a company in the set up and
building or management of a manufacturing facility or manufacturing suite and may never be successful in developing our own manufacturing
suite, manufacturing facility or manufacturing capability. We would need to hire additional personnel to manage our operations and facilities
and develop the necessary infrastructure to continue the research and development, and eventual commercialization, if approved, of our
product candidates. If we fail to recruit the required personnel and generally manage our growth effectively or fail to select the correct
location or otherwise determine that building or establishing our own manufacturing facility is no longer in line with our manufacturing
strategy, the development and production of our product candidates could be curtailed or delayed or we could incur costs associated with
closing down a manufacturing facility or with stopping development of our own manufacturing facility. For example, during the fourth quarter
of 2022, we determined that we would cease the build-out of our own commercial manufacturing facility in Rockville, Maryland.
Even if we are successful in establishing a manufacturing suite or manufacturing facility in the future, 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 from realizing 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 lot of any licensed product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the
FDA, the EMA or other foreign regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release.
Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in
the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or
clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Problems
in our manufacturing process could restrict our ability to meet market demand for our products. The establishment of our own commercial
manufacturing facility in the United States would result in our operations being subject to review and oversight by the FDA and the FDA could
object to our use of our
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manufacturing facility. We must first receive approval from the FDA prior to licensure to manufacture our product candidates, which we may
never obtain. Even if licensed, we would be subject to ongoing periodic unannounced inspection by the FDA and corresponding state
agencies to ensure strict compliance with cGMPs and other government regulations. Our license to manufacture product candidates will be
subject to continued regulatory review.
We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to
operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable
regulatory requirements.
Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including larger
pharmaceutical 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 patient
population 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 cells taken from our patient population, we may encounter unforeseen difficulties due to starting with material from donors who are not
healthy, including challenges 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
process due to the heterogeneity of the product starting material. However, we anticipate that during the early phases of our clinical trials we
will be able to adapt our process to account for these differences resulting in a more robust process. We cannot guarantee that any other
issues relating to the heterogeneity of the starting material will not impact our ability to commercially manufacturing our product candidates.
The viral vectors used to manufacture our TRuC-T cells may incorrectly modify the genetic material of a patient’s T cells,
potentially triggering 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. The TRuC construct is then integrated into the natural TCR complex and transported to the surface of the patient’s T cells. Because the
viral vector modifies 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 the patient 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 insert genetic 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 planned preclinical studies or clinical trials. There is also the potential risk of delayed adverse events
following exposure to gene therapy products due to persistent biological activity of the genetic material or other components of vectors used
to carry the genetic material. The FDA has stated that lentiviral vectors possess characteristics that may pose high risks of delayed adverse
events. If any such adverse events occur, further advancement of our preclinical studies or clinical trials could be halted or delayed, which
would have a material adverse effect on our business and operations.
Risks Related to Commercialization
The market opportunities for our product candidates may be relatively small as it will be limited to those patients who are ineligible
for or have failed prior treatments and our estimates of the prevalence of our target patient populations may be inaccurate.
Cancer therapies are sometimes characterized as first line, second line, or third line and the FDA often approves new therapies initially only
for a particular line of use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life
without a cure. 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 more chemotherapy, radiation, antibody drugs, tumor-targeted small molecules, or a combination of these. Third line
therapies can include hematopoietic stem cell transplantation in certain cancers, chemotherapy, antibody drugs and small molecule tumor-
targeted therapies, more invasive forms of surgery and new technologies. We expect to initially seek approval of our product candidates in
most instances at least as a second or third line therapy, for use in patients with relapsed or refractory metastatic cancer. Subsequently, for
those product candidates that we
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believe prove to be sufficiently safe 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 no guarantee that our product candidates, even if licensed as a second or third or subsequent line of therapy, would
be licensed for an earlier line of therapy and, prior to any such approvals, we may have to conduct additional clinical trials. Consequently, the
potentially addressable patient population 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 a
position to receive a particular line of therapy and who have the potential to benefit from treatment with our product candidates, are based on
our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics,
patient foundations or market research and may prove to be incorrect. Further, new therapies may change the estimated incidence or
prevalence of the cancers that we are targeting. Consequently, even if our product candidates are approved 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 to be much lower than expected.
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 other
products or drugs that are able to achieve similar or better results. Our potential competitors include larger biotechnology and pharmaceutical
companies with greater resources than us, academic institutions, governmental agencies, public and private research institutions and early
stage or smaller companies. Many of our competitors have substantially greater financial, technical and other resources, such as larger
research and development staff, experienced marketing and manufacturing organizations and well-established sales forces. In addition,
many of these competitors are active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of
technology that they have developed. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more
resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of
technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners,
may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily
commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may
need for the development of our technologies and products. We believe the key competitive factors that will affect the development and
commercial success of our product candidates are safety, potency, purity, tolerability, reliability, convenience of use, price and
reimbursement.
The market opportunity in oncology has led to a number of collaborations including 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)/Kite Pharma Inc. (Kite), Bristol Myers Squibb Co
(BMS)/Celgene Corporation (Celgene)/Juno Therapeutics, Inc. (Juno), Takeda Pharmaceutical Company Limited (Takeda)/GammaDelta
Therapeutics Limited (GammaDelta)), Astra Zeneca/Neogene Therapeutics Inc. (Neogene), Kite/Tmunity Therapeutics (Tmunity)) among
companies focused on cellular cancer therapies. If this trend continues, which we expect, we could see further consolidation of technical
expertise and human capital. This potentially provides a partnership opportunity for us but could also make it more challenging for us to
acquire complementary technology or products and recruit and retain qualified scientific and management personnel. In addition, this
competition could impact our ability to recruit clinical trial sites and patients in a timely manner for our clinical trials. Larger companies with
greater financial flexibility and global reach may be able to obtain regulatory approvals and gain widespread market acceptance before us,
which could impact our commercial launch and could make our products obsolete or non-competitive. Even if we obtain regulatory approval
of our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge
for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by
price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians
switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances. For additional
information regarding our competition, see “Business—Competition.”
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
candidates are accepted in the market, including:
•
the clinical indications for which our product candidates are licensed;
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•
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
and public 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 social
controversies surrounding the therapeutic use of such technologies and reported side effects from any clinical trials using these technologies
or the failure of such clinical trials to demonstrate that these therapies are safe and effective may limit market acceptance of our product
candidates. If our product candidates are licensed but fail to achieve market acceptance among physicians, patients, hospitals, cancer
treatment centers or others in the medical community, we will not be able to generate significant revenue.
In addition, although our product candidates differ in certain ways from other engineered TCR-T cell and CAR-T cell approaches, serious
adverse events 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 cell or 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 labeling requirements 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 or
technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.
Risks Related to Our Proposed Merger with Adaptimmune
Failure to complete, or delays in completing, the Merger with Adaptimmune announced on March 5, 2023 could materially and
adversely affect our results of operations, business, financial results and/or stock price.
On March 5, 2023, we entered into an agreement with Adaptimmune pursuant to which, if all of the conditions to closing are satisfied or
waived, we will become a wholly-owned indirect subsidiary of Adaptimmune. Consummation of the Merger is subject to certain closing
conditions, a number of which are not within our control. Any failure to satisfy these required conditions to closing may prevent, delay or
otherwise materially adversely affect the completion of the transaction. We cannot predict with certainty whether or when any of the required
closing conditions will be satisfied or if another uncertainty may arise and cannot assure you that we will be able to successfully consummate
the proposed Merger as currently contemplated under the Merger Agreement or at all.
Our efforts to complete the Merger could cause substantial disruptions in, and create uncertainty surrounding, our current
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and any planned future business plans, which may materially adversely affect our results of operation and our business. Uncertainty as to
whether the Merger will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees.
Employee retention may be particularly challenging while the transaction is pending because employees may experience uncertainty about
their roles following the transaction. Uncertainty as to our future could adversely affect our business and our relationship with customers,
collaborators, suppliers, vendors, regulators and other business partners. For example, vendors and other counterparties may defer
decisions about working with us or seek to change existing business relationships with us. Changes to, or termination of, existing business
relationships could adversely affect our results of operations and financial condition, as well as the market price of our common stock. The
adverse effects of the pendency of the
transaction could be exacerbated by any delays in completion of the transaction or termination of the Merger Agreement.
Risks related to the failure of the proposed Merger to be consummated include, but are not limited to, the following:
•
we would not realize any or all of the potential benefits of the Merger, including any synergies that could result from combining
our financial and proprietary resources with those of Adaptimmune, which could have a negative effect on our stock price;
•
under some circumstances, we may be required to pay a termination fee to Adaptimmune equal to $2.4 million;
•
we will remain liable for significant transaction costs, including legal, accounting, financial advisory and other costs relating to
the Merger regardless of whether the Merger is consummated;
•
the trading price of our common stock may decline to the extent that the current market price for our stock reflects a market
assumption that the Merger will be completed;
•
the attention of our management and employees may have been diverted to the Merger rather than to our own operations and
the pursuit of other opportunities that could have been beneficial to us;
•
we could be subject to litigation related to any failure to complete the Merger;
•
the potential loss of key personnel during the pendency of the Merger as employees and other service providers may
experience uncertainty about their future roles with us following completion of the Merger; and
•
under the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the
Merger, which restrictions could adversely affect our ability to conduct our business as we otherwise would have done if we were
not subject to these restrictions.
The occurrence of any of these events individually or in combination could materially and adversely affect our results of operations, business,
and our stock price.
We cannot be certain if or when the Merger will be completed.
The consummation of the Merger is subject to the satisfaction or waiver of various conditions, including the approval of the Merger by our
stockholders. We cannot guarantee that the closing conditions set forth in the Merger Agreement will be satisfied. If we are unable to satisfy
the closing conditions or if other mutual closing conditions are not satisfied, Adaptimmune will not be obligated to complete the Merger. Under
certain circumstances, we would be required to pay Adaptimmune a termination fee equal to $2.4 million.
If the Merger is not completed, our board of directors, in discharging its fiduciary obligations to our stockholders, will evaluate our options
which include pursuing other strategic alternatives or financing options that may be available, continuing our operations as they are currently
being conducted, or continuing our operations with a further narrowing of focus or other strategic adjustments, which options and alternatives
may not be as favorable to our stockholders as the Merger. Any future sale or merger, financing or other transaction may be subject to further
stockholder approval. We may also be unable to find, evaluate or complete other strategic alternatives, which may materially and adversely
affect our business.
Our efforts to complete the Merger could cause substantial disruptions in, and create uncertainty surrounding, our current and any planned
future business plans, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the Merger
will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention
may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following
the transaction. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the
transaction and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and
our relationship with collaborators, suppliers, vendors, regulators and other collaboration partners. For example, suppliers and other
counterparties may defer decisions concerning
55
working with us, or seek to change existing business relationships with us. Changes to, or termination of, existing business relationships
could adversely affect our results of operations and financial condition, as well as the market price of our common stock. The adverse effects
of the pendency of the transaction could be exacerbated by any delays in completion of the transaction or termination of the Merger
Agreement.
Until the Merger is completed, the Merger Agreement restricts Adaptimmune and us from taking specified actions without the consent of the
other party, and, in regards to us, requires us to operate in the ordinary course of business consistent with past practice in all material
respects. These restrictions may prevent Adaptimmune and us from making appropriate changes to our respective businesses or pursuing
attractive business opportunities that may arise prior to the completion of the Merger.
Because the Merger Agreement provides for a fixed exchange ratio for the number of shares of Adaptimmune American Depositary
Shares (“Adaptimmune ADSs”) that will be issued for each issued and outstanding share of our common stock, the consideration
received at the time of the Merger may be lower than the public trading value of shares of our common stock when we entered into
the Merger Agreement.
The Merger Agreement provides for a fixed exchange ratio for the number of shares of Adaptimmune ADSs that will be issued for each
issued and outstanding share of our common stock in the Merger (other than shares of our common stock held by us as treasury stock, or
shares of our common stock owned by Adaptimmune, Merger Sub or any direct or indirect wholly-owned subsidiaries of Adaptimmune),
including shares of our common stock underlying our restricted stock units that immediatly vest upon a change of control of the Company. If
the public trading value of shares of Adaptimmune ADSs declines over the period of time required to satisfy the Merger’s closing conditions,
the consideration received at the time of the Merger may be lower than the public trading value of shares of our common stock when we
entered into the Merger Agreement.
The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger, could discourage a potential
competing acquiror of us from making an alternative transaction proposal and, in specified circumstances, could require us to pay
a termination fee to Adaptimmune.
The Merger Agreement provides that we shall not, and requires us to refrain from permitting our representatives to, among other things,
solicit, participate in negotiations with respect to or approve or recommend any third party proposal for an alternative transaction, subject to
exceptions set forth in the Merger Agreement relating to the receipt of certain unsolicited proposals. If the Merger Agreement is terminated, in
certain circumstances, we may be required to pay Adaptimmune a termination fee equal to $2.4 million.
These provisions could discourage a potential third-party acquiror or merger partner that might have an interest in acquiring all or a
significant portion of us or pursuing an alternative transaction from considering or proposing such a transaction, even if it were prepared to
pay consideration with a higher per share cash or market value than the consideration in the Merger, or might result in a potential third-party
acquiror or merger partner proposing to pay a lower price to our stockholders than it might otherwise have proposed to pay because of the
added expense of the termination fee that may become payable in certain circumstances.
If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a
transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.
Lawsuits may be filed against us and the members of our board of directors arising out of the Merger, which may delay or prevent
the Merger.
Putative stockholder complaints, including stockholder class action complaints, and other complaints may be filed against us, our board of
directors, Adaptimmune, Adaptimmune’s board of directors and others in connection with the transactions contemplated by the Merger
Agreement. The outcome of litigation is inherently uncertain, and we may not be successful in defending against any such future claims.
Lawsuits that may be filed against us, our board of directors, Adaptimmune, or Adaptimmune’s board of directors could delay or prevent the
Merger, divert the attention of our management and employees from our day-to-day business and otherwise adversely affect us financially.
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Risks Related to Our Reliance On Third Parties
Third Party Risks Related to Our Product Development
We rely on third parties to conduct our clinical trials. If these third parties do not properly and successfully carry out their
contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product
candidates.
We utilize and depend upon independent investigators and collaborators, such as medical institutions, CROs, CMOs and strategic partners
to conduct our preclinical studies and clinical trials under agreements with us, and we plan to continue to do so. 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 over the course of our clinical trials and we control only certain aspects of their activities. As
a result, we 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 were relying entirely upon our own staff. Nevertheless, we are responsible for ensuring
that each of our studies is conducted in accordance with applicable protocol, legal and regulatory requirements and scientific standards and
our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with good
clinical practices (GCPs), which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for
product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors,
principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data
generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform
additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities
will determine that any of our clinical trials comply with the GCP regulations. In addition, our clinical trials must be conducted with biologic
product produced under cGMP regulations, including current good tissue practice (cGTP) regulations and will require a large number of test
patients. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may
require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of
these third parties violates federal or state fraud and abuse or false 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
agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing, clinical and
non-clinical product candidates. These third parties may also have relationships with other commercial entities, including our competitors, for
whom they may also be conducting clinical trials or other drug development activities, which could affect their performance on our behalf. If
these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced
or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory
requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete
development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the
commercial prospects for our product candidates would 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. In
addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct
bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in
demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials. Additionally, there is a natural
transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our
desired clinical development timelines.
If or until we develop our own manufacturing facility, we expect to rely on the use of manufacturing suites in third-party cGMP
facilities or third parties to manufacture our product candidates. Our business could be harmed if we are unable to use third-party
manufacturing suites or if the third-party manufacturers fail to provide us with sufficient quantities of our product candidates or
fail to do so at acceptable 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 on
outside vendors to manufacture and process our product candidates, which is and will need to be done on a patient-by-patient basis. Our
reliance on a limited number of third-party manufacturers exposes us to the following risks:
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•
we may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is
limited and the FDA must inspect any manufacturers for 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
product candidates, which can take several months or more and we will need to demonstrate to regulatory authorities that
clinical trial product manufactured at a new supplier is comparable to clinical trial product being produced by current
manufacturers;
•
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
processes required to manufacture our product candidates;
•
our third-party manufacturers might be unable to timely manufacture our product candidates or produce the quantity and quality
required to meet our clinical and commercial needs, if any;
•
contract manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements
appropriately, affecting quality of our product and requiring additional runs to remanufacture product that is suitable for use in
clinical trials;
•
our future contract manufacturers may not perform as agreed, may not devote sufficient resources to our product candidates or
may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully
produce, store and distribute our products, if any;
•
manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure
strict compliance 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 the manufacturing 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, may not 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, pandemics and natural or man-
made disasters; and
•
our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields and we have no
direct control 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,
result in higher costs or adversely impact commercialization of our product candidates. In addition, we will rely on third parties to perform
certain specification 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
of advanced manufacturing techniques and process controls. Manufacturers of biologic products often encounter difficulties in production,
particularly in scaling up or out, validating the production process and assuring high reliability of the manufacturing process (including the
absence of contamination). These problems include logistics and shipping, difficulties with production costs and yields, quality control,
including stability of the product, product testing, operator error and availability of qualified personnel, as well as compliance with strictly
enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in our supply of our product candidates or in the
manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the
contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our product candidates will 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
back to the patient. Logistical and shipment delays and problems caused by us, our vendors or other factors not in our control, such as
weather, could prevent or delay the delivery of product candidates to patients. Additionally, we have to maintain a complex chain of identity
and chain of custody with respect to patient material as it moves to the manufacturing facility, through
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the manufacturing process and back to the patient. Failure to maintain chain of identity and chain of custody could result in patient death,
loss of product or regulatory action.
Our manufacturing process needs to comply with FDA regulations relating to the quality and reliability of such processes. Any
failure to comply with relevant regulations could result in delays in or termination of our clinical programs and suspension or
withdrawal of any regulatory approvals.
In order to commercially produce our products at a third party’s facility, we will need to comply with the FDA’s cGMP regulations and
guidelines, including cGTPs. We may encounter difficulties in achieving quality control and quality assurance and may experience shortages
in qualified personnel. We are subject to inspections by the FDA and comparable foreign regulatory authorities to confirm compliance with
applicable regulatory requirements. Any failure to follow cGMP, cGTP or other regulatory requirements or delay, interruption or other issues
that arise in the manufacture, fill-finish, packaging, or storage of our TRuC-T cells as a result of a failure of the facilities or operations of third
parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and
commercialize our TRuC-T cell programs, including leading to significant delays in the availability of our TRuC-T cells for our clinical trials or
the termination 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 product candidates. Significant non-compliance could also result in the imposition of sanctions, including warning or untitled letters, fines,
injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our TRuC-T cell product candidates, delays,
suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions,
any of which could damage our reputation and our business.
If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law,
we may be liable for damages.
Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological
materials, by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United
States governing 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 eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination
or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business
operations. In the event of an accident, we could be held liable for damages or penalized with fines and the liability could exceed our
resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable
environmental laws and regulations is expensive and current or 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 Third Party Agreements
We have and may in the future form or seek collaborations or strategic alliances or enter into additional licensing arrangements in
the future and we may not realize the benefits of such collaborations, alliances or licensing arrangements.
We have and may in the future form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing
arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to
our product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-
recurring and other charges, increase our near and long-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 candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may
not view our product candidates as having the requisite potential to demonstrate safety and efficacy 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;
•
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or
renew development or commercialization of our product candidates based on clinical trial results, changes
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in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a
business combination that diverts resources 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
product candidates;
•
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their
marketing and distribution;
•
collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or
proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual
property or proprietary 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
commercialization of 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 or
commercialization 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
such cases, 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 to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company
culture, which could 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 strategic partnership agreements related to our product candidates could delay the development and commercialization of
our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and
results of operations.
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
and experience to support a commercial product. In addition, those suppliers normally support blood-based hospital businesses and
generally do not have the capacity to support commercial products manufactured under cGMP by biopharmaceutical firms. The suppliers
may be ill-equipped to support our needs, especially in non-routine circumstances like an FDA inspection or medical crisis, such as
widespread contamination. We also do 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 may experience 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. For example, the type of
cell culture media and cryopreservation buffer that we currently use in our manufacturing process for the TRuC-T cells for gavo-cel are each
only available from a single supplier. In addition, the cell processing equipment and tubing that we use in our current manufacturing process
is only available from a single supplier. We also use certain biologic materials, including certain activating antibodies, that are available from
multiple suppliers, but each version may perform differently, requiring us to characterize them and potentially modify some of our protocols if
we change suppliers. We cannot 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 is not interested in continuing to produce these materials for our intended purpose. If we have to
change suppliers, the materials may only be available from another supplier on terms that are less favorable to us than the terms under
which we currently obtain the materials. Accordingly, if we no longer have access to these suppliers, we may experience delays in our clinical
or commercial manufacturing which could harm our business or results of operations.
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Risks Related to Our Financial Condition and Capital Requirements
Risks Related to Operating History
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.
We are a clinical-stage cell therapy company with a limited operating history. We commenced operations in May 2015, and our operations to
date 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, establishing arrangements with
third parties for the manufacture of initial quantities of our product candidates and component materials and initiating and conducting our first
clinical trials. We have advanced three product candidates to Phase 1/2 clinical trials, with two product candidates currently in Phase 1/2
clinical trials, and our other product candidates are still in preclinical development. We have not yet demonstrated our ability to successfully
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 activities necessary for successful product commercialization. Consequently, any
predictions you make about our future success or viability may not be as accurate 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 unknown
factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting
commercial 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 a
variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods
as indications 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
to achieve or sustain revenues or profitability in the future.
Investment in biopharmaceutical product development is a highly speculative undertaking and entails substantial upfront capital expenditures
and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain
regulatory approval and become commercially viable. We are still in the early stages of development of our product candidates. We have no
products licensed for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant
research and development and other expenses related to our ongoing operations. We have financed our operations primarily through private
placements of our preferred stock, our initial public offering and subsequent public offerings.
We have incurred significant net losses in each period since our inception in May 2015. For the year-to-date period ended December 31,
2022, we incurred a net loss of $151.8 million. As of December 31 2022, we had an accumulated deficit of $501.3 million. We expect to
continue to incur significant losses for the foreseeable future, and we expect these losses to increase substantially if and as we:
•
conduct clinical trials and preclinical studies and clinical trials for our current and future product candidates based on our TRuC-
T cell platform;
•
continue our research and development efforts and submit IND applications for our lead product candidates;
•
establish and expand our 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
•
continue to operate as a public company.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict
the timing or amount of increased expenses we will incur or when, if ever, we will be able to achieve profitability.
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Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and
development and other expenditures to develop, 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, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and
expected future losses have had and will continue 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
product candidates. We do not expect to generate significant revenue unless or until we successfully complete clinical development and
obtain regulatory approval of, and then successfully commercialize, at least one of our product candidates. Other than gavo-cel and TC-510,
all of our product candidates are in the 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 any revenue from product sales. Gavo-cel, our most advanced mono TRuC-T cell product candidate targeting
mesothelin-positive solid tumors, is in the Phase 2 portion of a Phase 1/2 clinical trial and will require additional regulatory review and
approval, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can
generate any revenue from product sales. TC-510 is in the Phase 1 portion of a Phase 1/2 clinical trial and will require additional clinical
study, regulatory review and approval, substantial investment, access to sufficient commercial manufacturing capacity and significant
marketing efforts before we can generate any revenue from product sales. We are conducting IND-enabling activities for our preclinical
product candidate TC-520. Many of our other TRuC-T cell product candidates are in early preclinical stages. We face significant translational
risk as our product candidates advance to the 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
anticipate and 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 FDA or similar foreign regulatory authorities to conduct additional clinical trials or other studies
beyond those planned to support the approval and commercialization of our product candidates or any future product
candidates;
•
our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, potency, purity, of
which potency and purity the FDA interprets to mean effectiveness and acceptable 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
future product 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
candidates to 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
product candidates or any future product candidates, remain in good standing with regulatory authorities and develop, validate
and maintain commercially 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
product candidates in the United States and internationally, if licensed for marketing, reimbursement, sale and distribution in
such countries and territories, 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 obtaining
regulatory approvals or commercialize our product candidates. Even if we are able to commercialize our product candidates, we may not
achieve profitability soon after generating product sales, if ever. If we are unable to generate sufficient
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revenue through the sale of our product candidates or any future product candidates, we may be unable to continue operations without
continued funding.
Risks Related to Raising Additional Capital
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
net proceeds from public offerings of our common stock) to continue the clinical development of our product candidates, including our Phase
2 portion of the Phase 1/2 clinical trial of gavo-cel, our Phase 1/2 clinical trial of TC-510 and ongoing and planned IND-enabling studies for
our other product candidates. If licensed, we will require significant additional amounts in order to launch and commercialize our product
candidates.
In February 2019, we completed our initial public offering (IPO) raising gross proceeds of approximately $86.3 million, inclusive of the
exercise of the underwriters' overallotment option. On July 31, 2020, we completed a stock offering raising gross proceeds of approximately
$142.6 million. On January 22, 2021, we completed a stock offering raising gross proceeds of $140.0 million. As of December 31, 2022, we
had cash, cash equivalents and short-term investments of approximately $149.2 million. Our existing cash, 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 investments, including our net proceeds from the IPO and secondary offerings, will
be sufficient to fund our operations into early 2025. However, we have based this estimate on assumptions that may prove to be wrong.
Additionally, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to
spend more money than currently expected because of circumstances 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. Recent volatility in capital markets and lower market prices for our securities may affect our ability to access new capital
through sales of shares of our common stock or issuance of indebtedness, which may harm our liquidity or limit our ability to pursue our
clinical development plans. In addition, recent increases in interest rates may increase our borrowing costs, and may also affect our ability to
obtain working capital through borrowings such as bank credit lines and public or private sales of debt securities, which may result in lower
liquidity, reduced working capital and other adverse impacts on our business. If we are unable to raise additional capital in sufficient amounts
or on terms acceptable to us, we may have to significantly delay, scale back or discontinue our research and development initiatives. We
could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are
less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates 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
our common stock to decline.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights
to our technologies or product candidates.
We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and
alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities,
your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a
stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive
covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights
and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic
partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or
product candidates, or grant licenses on terms unfavorable to us.
We have in the past relied in part on sales of our common stock through our at-the-market (ATM) offering program. Increased volatility and
decreases in market prices of equity securities generally and of our common stock in particular may have an adverse impact on our
willingness and/or ability to continue to sell our common shares through our ATM offering. Decreases in these sales could affect the cost or
availability of equity capital, which could in turn have an adverse effect on our business, clinical development and research plans and the
market price of our common stock.
In March 2020, we commenced an at-the-market, or ATM, program to raise capital. Under our ATM Program, we have entered into a sales
agreement to sell common shares, up to a maximum aggregate market value of $100.0 million, through one or more at-the-market offerings.
Given the decrease in the market prices of our common stock and volatility in the capital markets, we may
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not be willing or able to continue to raise equity capital through our ATM Program. We may, therefore, need to turn to other sources of
funding that may have terms that are not favorable to us, or reduce our business operations given capital constraints.
Alternative financing arrangements, if we pursue any, could involve issuances of one or more types of securities, including common stock,
preferred stock, convertible debt, warrants to acquire common stock or other securities. These securities could be issued at or below the then
prevailing market price for our common stock. In addition, if we issue debt securities, the holders of the debt would have a claim to our assets
that would be superior to the rights of stockholders until the principal, accrued and unpaid interest and any premium or make-whole has been
paid. In addition, if we borrow funds and/or issue debt securities through a subsidiary, the lenders and/or holders of those debt securities
would have a right to payment that would be effectively senior to the company’s equity ownership in the subsidiary, which would adversely
affect the rights of holders of both the company’s equity securities and its debt and debt securities.
Interest on any newly-issued debt securities and/or newly-incurred borrowings would increase our operating costs and increase our net loss.
If the issuance of new securities results in diminished rights to holders of our common stock, the market price of our common stock could be
materially and adversely affected. Should the financing we require to sustain our working capital needs be unavailable or prohibitively
expensive when we require it, the consequences could/would result in a material adverse effect on our business, operating results, financial
condition and prospects.
Risks Related To Developments in the Financial Services Industry
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or
non-performance by financial institutions or transactional counterparties, could adversely affect the Company’s current and
projected business operations and its financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions,
transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or
rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.
For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and
Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 12, 2023, Signature Bank
was swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC stated all
depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit
accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other
financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. As of the date of this
Annual Report, we have less than $0.1 million of unrestricted cash, cash equivalents and investments and we have approximately $1.2
million of restricted cash as certificates of deposits for facility leases held at SVB, and we may not be able to access these funds due to the
receivership of SVB. We are not a borrower or party to any such instruments with Signature Bank or any other financial institution currently in
receivership, however, if any of our lenders or other counterparties to any such instruments were to be placed into receivership, we may be
unable to access such funds. In addition, counterparties to SVB credit agreements and arrangements, and third parties such as beneficiaries
of letters of credit (among others), may experience direct impacts from the closure of SVB and uncertainty remains over liquidity concerns in
the broader financial services industry. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.
Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with
interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have
announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by
financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or
other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program. There is no guarantee that the
U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the
closure of other banks or financial institutions, or that they would do so in a timely fashion.
Although we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit
arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly
impaired by certain factors that affect us, the financial institutions with which we have credit agreements or arrangements directly, or the
financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures,
the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in
the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial
services industry. These factors could involve financial
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institutions or financial services industry companies with which we have financial or business relationships, but could also include factors
involving financial markets or the financial services industry generally.
The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our
current and projected business operations and our financial condition and results of operations. These could include, but may not be limited
to, the following:
•
Delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets;
•
Loss of access to revolving existing credit facilities or other working capital sources and/or the inability to refund, roll over or
extend the maturity of, or enter into new credit facilities or other working capital resources;
•
Potential or actual breach of contractual obligations that require us to maintain letters or credit or other credit support
arrangements;
•
Potential or actual breach of financial covenants in our credit agreements or credit arrangements;
•
Potential or actual cross-defaults in other credit agreements, credit arrangements or operating or financing agreements; or
•
Termination of cash management arrangements and/or delays in accessing or actual loss of funds subject to cash management
arrangements.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms,
including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity
sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access
to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial
obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations or result in violations of federal or
state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar
factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and
financial condition and results of operations.
In addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our
customers or suppliers, which in turn, could have a material adverse effect on our current and/or projected business operations and results of
operations and financial condition. For example, a customer may fail to make payments when due, default under their agreements with us,
become insolvent or declare bankruptcy, or a supplier may determine that it will no longer deal with us as a customer. In addition, a customer
or supplier could be adversely affected by any of the liquidity or other risks that are described above as factors that could result in material
adverse impacts on the Company, including but not limited to delayed access or loss of access to uninsured deposits or loss of the ability to
draw on existing credit facilities involving a troubled or failed financial institution. Any customer or supplier bankruptcy or insolvency, or the
failure of any customer to make payments when due, or any breach or default by a customer or supplier, or the loss of any significant supplier
relationships, could result in material losses to the Company and may material adverse impacts on our business.
Risks Related to the Current Novel Coronavirus (COVID-19) Pandemic on the Company
The current COVID-19 pandemic has caused, and could continue to cause, severe disruptions in the U.S., regional and global
economies and could seriously harm our development efforts, increase our costs and expenses and have a material adverse effect
on our business, financial condition and results of operations.
Public health pandemics or outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus (COVID-19)
emerged in Wuhan, Hubei Province, China and has since spread to several other countries, including the United States and European
countries, with infections and deaths reported globally. To date, the ongoing COVID-19 pandemic has caused widespread disruptions to the
U.S. and global economy and has contributed to significant volatility and negative pressure in financial markets.
The extent to which the ongoing COVID-19 pandemic impacts our business, financial condition and results of operations will depend on
future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the
pandemic, the actions taken to contain the pandemic or mitigate its impact, as well as the effect of any relaxation of current restrictions within
the Cambridge community or regions in which our partners and clinical sites are located, and the direct and indirect economic effects of the
pandemic and containment measures, among others. The rapid development and fluidity of this situation precludes any prediction as to the
full adverse impact of the COVID-19 pandemic. Nevertheless, the
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ongoing COVID-19 pandemic may adversely affect our business, financial condition and results of operations, and it has had, and may
continue to have, the effect of heightening many of the risks described in this Annual Report, including but not limited to the below.
•
The ongoing COVID-19 pandemic has had, and will likely continue to have, an impact on various aspects of our ongoing clinical
trials. We remain in active dialog with our CROs, and clinical sites to minimize the impact of this pandemic to our gavo-cel
Phase 1/2 clinical trial and our TC-510 Phase 1/2 clinical trial without adversely impacting the safety of patients. Despite our
best efforts, it may prove difficult to continue to treat patients in a timely manner and activation of new sites could be delayed,
particularly for our clinical trial sites in areas with high rates of community spread.
•
As the COVID-19 pandemic evolves, patient dosing and study monitoring, which may be paused or delayed due to changes in
policies at various clinical sites and other aspects of our current and future clinical trials may be adversely affected, delayed or
interrupted, including, for example, site initiation, patient recruitment and enrollment, availability of clinical trial materials and
data analysis. Some patients and clinical investigators may not be able to comply with clinical trial protocols and patients may
choose to withdraw from our studies or we may have to pause enrollment or we may choose to or be required to pause
enrollment and or patient dosing in our ongoing clinical trials in order to preserve health resources and protect trial participants.
It is unknown how long these pauses or disruptions could continue.
•
We currently rely on third parties, including our CROs, and our contract manufacturing organizations, or CMOs, and other
contractors and consultants to, among other things, conduct our preclinical studies and clinical trials, manufacture raw materials,
manufacture and supply our product candidates, ship clinical trial samples, perform quality testing and supply other goods and
services to run our business. If any such third party is adversely impacted by restrictions resulting from the ongoing COVID-19
pandemic, including staffing shortages, production slowdowns and disruptions in delivery systems, our supply chain may be
disrupted, which could limit our ability to manufacture our product candidates for our clinical trials and conduct our research and
development operations.
•
Our employees may have limited or no access to our laboratory for an extended period of time and, as a result, this could delay
timely completion of preclinical activities, including conducting IND-enabling studies or our ability to select future development
candidates and initiation of additional clinical trials for our other product candidates.
•
Material shortages may affect our research and development and manufacturing activities and timelines. Increased demand for
personal protective equipment, plastics used for pipettes and other laboratory consumables, and other laboratory supplies has
led to shortages of some of these materials that we need for our research and development activities and that our third-party
manufacturers need to produce our product candidates. If we, our CROs, our vendors and our third-party manufacturers are not
able to obtain materials needed for our laboratory operations, our research and development and the manufacture of our
product candidates could be delayed.
•
The trading prices for our common stock and those of other biopharmaceutical companies have been highly volatile as a result
of the ongoing COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock or
such sales may be on unfavorable terms. In addition, a recession, depression or other sustained adverse market event resulting
from the COVID-19 pandemic could materially and adversely affect our business and the value of our common stock.
Risks Related to Our Intellectual Property
Risks Related to Protecting Our Intellectual Property
If we are unable to obtain and maintain patent protection for any products we develop and for our technology, or if the scope of the
patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology
similar or identical to ours, and our ability to commercialize any product candidates we may develop and our technology may be
adversely affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with
respect to our product candidates, their respective components, formulations, combination therapies, methods used to manufacture them
and methods of treatment and development that are important to our business. If we do not adequately protect our intellectual property rights,
competitors may be able to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve
profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel product
candidates that are important to our business; we may in the future also license or purchase patent applications filed by others. If we are
unable to secure or maintain patent protection with respect to our
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technology and any proprietary products and technology we develop, our business, financial condition, results of operations and prospects
could be materially harmed.
We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued
patents will include, claims with a scope sufficient to protect our current and future product candidates or otherwise provide any competitive
advantage. In addition, we license certain intellectual property and, to the extent that we license any additional intellectual property in the
future, we cannot assure you that those licenses will remain in force. In addition, the laws of foreign countries may not protect our rights to
the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration 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 it affords,
is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents
protecting such candidates might expire before or shortly after such candidates are commercialized.
Patent positions of life sciences companies can be uncertain and involve complex factual and legal questions. No consistent policy governing
the scope of claims allowable in the field of cellular therapy has emerged in the United States. The scope of patent protection in jurisdictions
outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in any jurisdiction that we seek patent
protection may diminish our ability to protect our inventions, maintain and enforce our intellectual property rights; and, more generally, may
affect the value of our intellectual 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. In
addition, we may not pursue or obtain patent protection in all relevant markets. It is possible that we will fail to identify important patentable
aspects of our research and development efforts in time to obtain appropriate or any patent protection. While we enter into non-disclosure
and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development efforts,
including for 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 lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically
not published until 18 months after filing, 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 claimed in our patents or pending patent applications.
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 the courts 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
or enforceability 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
enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. We may in the future,
become subject to a third-party pre-issuance submission of prior art or opposition, derivation, revocation, re-examination, post-grant and inter
partes review, or interference proceeding and other similar proceedings challenging our patent rights or the patent rights of others in the U.S.
Patent and Trademark Office (USPTO) or other foreign patent office. An unfavorable determination in any such submission, proceeding or
litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and
compete directly with us, without payment 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
protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may
not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Moreover, some of our owned
and in-licensed patents and patent applications are, and may in the future be, owned by or co-owned with third parties. Any of the foregoing
could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.
If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not
be able to compete effectively in our market.
Biotechnology and pharmaceutical companies generally, and we in particular, compete in a crowded competitive space characterized by
rapidly evolving technologies and aggressive defense of intellectual property. The USPTO and various foreign governmental patent agencies
require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are
situations in which noncompliance can result in abandonment or lapse of a patent or patent
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application, resulting in partial or complete loss of patent rights in the relevant 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 intellectual
property related to our technologies. Any disclosure to or misappropriation by third parties of our confidential proprietary information could
enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market. We,
or any future partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of development
and commercialization activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to
strengthen our 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
example with 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 or eliminated. If our partners, collaborators, licensees or licensors are not fully cooperative or disagree with us as to the
prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the
form, preparation, prosecution, or enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and
such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from
third parties, which may have an adverse impact 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
patent protection for our TRuC-T cell platform and product candidates by filing and prosecuting patent applications in the United States and
other countries as appropriate. The claims of our patent applications are directed toward various aspects of our product candidates and
research programs including compositions of matter, methods of use, and processes. These patent applications, if issued, are expected to
expire on various dates from 2036 through 2042, in each case without taking into account any possible patent 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 cannot
predict:
•
if and when patents will be issued;
•
the degree and range of protection any issued patents will afford us against competitors including whether third parties will find
ways to invalidate or otherwise circumvent our patents;
•
whether any of our intellectual property will provide any competitive advantage;
•
whether any of our patents that may be issued may be challenged, invalidated, modified, revoked, circumvented, found to be
unenforceable 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 or lose.
Additionally, we cannot be certain that the claims in our pending patent applications covering composition of matter of our product candidates
will be considered patentable by the USPTO, or by patent offices in foreign countries, or that the claims in any of our issued patents will be
considered patentable by courts in the United States or foreign countries.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain.
The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses
thereof in the United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the validity,
enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if
they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from
designing around our claims. If the breadth or strength of protection provided by the patent applications we hold with respect to our product
candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our
product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market our product
candidates under patent protection would be reduced. Since
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patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we
were the first to file any patent application related to our product candidates.
Recent or future patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of our issued patents. In March 2013, under the recently enacted Leahy-Smith America Invents Act, or
America Invents Act, 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 for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention
regardless of whether another 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. The effects of these changes are currently unclear as the USPTO only recently developed new regulations and
procedures in connection with the America Invents Act and many of the substantive changes to patent law, including the “first-to-file”
provisions, only became effective in March 2013. In addition, the courts have yet to address many of these provisions and the applicability of
the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. However, the
America Invents Act and its implementation could increase 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
adequately protect 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 that are not covered by the claims of our patents;
•
the active biological ingredients in our current product candidates will eventually become commercially available in biosimilar
drug products, 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
patents and 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 our or 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 claims
covering 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 laws of 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
held invalid 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 or processes which design around our patents, or become hostile to us or the patents or patent applications on which
they are named as inventors;
•
it is possible that our owned or in-licensed patents or patent applications omit individual(s) that should be listed as inventor(s) or
include individual(s) that should not be listed as inventor(s), which may cause these patents or patents issuing from these patent
applications to be held invalid or unenforceable;
•
we have engaged in scientific collaborations in the past and will continue to do so in the future, and such collaborators may
develop adjacent 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;
69
•
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 to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other
elements of our product discovery and development processes that involve proprietary know-how, information, or technology that is not
covered by patents. 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 require all of our employees to assign their inventions to us, and require all of our employees,
consultants, advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into
confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or
that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and
techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as
the laws of the United States. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will
not be able to establish or maintain a competitive advantage in our market, which could 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
using any 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 and consultants, third parties may independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our 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 scientific
collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or
consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs
developed or 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 third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by
the individual, and which are related to our current or planned business or research and development or made during normal working hours,
on our premises or using our equipment or proprietary information, are our exclusive property. In addition, we take other appropriate
precautions, such as physical and technological security measures, to guard against misappropriation of our proprietary technology by third
parties. We have also adopted policies and conduct training that provides guidance on our expectations, and our advice for best practices, in
protecting our trade secrets.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our marks
of interest 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. We rely on both registration and common law protection for our trademarks. We may not be able to protect our rights to these
trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or
customers in our markets of interest. 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 the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to
oppose pending trademark applications and/or to seek the cancellation of registered trademarks. Opposition or cancellation proceedings may
be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unable to establish name recognition based
on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.
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Risks Related to Third Party Intellectual Property
We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of
significant 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 gavo-cel and TC-510 from Harpoon. Harpoon has the
ability to terminate our license in the event we materially breach our agreement with Harpoon and fail to cure this breach within sixty days. If
the license with Harpoon is terminated, we would need to partner for another mesothelin binder or independently develop our own mesothelin
binder. In addition, we cannot prevent Harpoon from also licensing the mesothelin binder we use in gavo-cel and TC-510 to a third-party. If
Harpoon licenses the mesothelin binder to another immuno-oncology company, that company could develop a competitive product to gavo-
cel and/or TC-510.
We are currently, and expect in the future to be, party to material license or collaboration agreements. These agreements typically impose
numerous obligations, such as diligence and payment obligations. Any termination of these licenses could result in the loss of significant
rights and could harm our ability to commercialize our product candidates. These licenses do and future licenses may include provisions that
impose obligations and restrictions on us. This could delay or otherwise negatively impact a transaction that we may wish to enter into.
Disputes 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 the licensing 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 our product 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 our partners.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on
acceptable 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
intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our
ability to commercialize 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
to our 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 of our product candidates. This existing license imposes various diligence, milestone payment, royalty, insurance and other obligations
on us. If we fail to comply with these obligations, Harpoon may have the right to terminate the license, in which event we would not be able to
develop or market 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 we license from them and may continue to do so in the future. We have limited control over these activities or any other intellectual
property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors
have been or will be conducted 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 intellectual property rights, or defend certain of the intellectual property that is licensed to us. It is possible that any
licensors’ infringement proceeding or defense activities may be less vigorous than had we conducted them ourselves.
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Third-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
substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as
well as administrative proceedings for challenging patents, including interference, reexamination, and post grant review proceedings before
the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. We may be exposed to, or threatened with, future
litigation by third parties having patent or other intellectual property rights alleging that our product candidates and/or proprietary technologies
infringe their intellectual property rights. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by
third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries
expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent
rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of drugs, products or
their methods of use or manufacture. Thus, because of the large number of patents issued and patent applications filed in our fields, there
may be a risk that third parties may allege they have patent rights encompassing our product candidates, technologies or methods.
Third parties may assert that we are employing their proprietary technology without authorization. Generally, conducting preclinical and
clinical trials and other development activities in the United States is not considered an act of infringement. If gavo-cel, TC-510 or another
product candidate 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 do not 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 the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and
convincing,” a heightened standard of proof. There may be issued third-party patents of which we are currently unaware with claims to
compositions, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates.
Patent applications can take many years to issue. There may be currently pending patent applications which may later result in issued
patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our
technologies infringes upon these patents. Moreover, we may fail to identify relevant patents or incorrectly conclude that a patent is invalid,
not enforceable, exhausted, or not infringed by our activities. If any third-party patents were held by a court of competent jurisdiction to cover
the manufacturing process of our product candidates, constructs or molecules used in or formed during the manufacturing process, or any
final product itself, the holders of any such patents may be able to block our ability to commercialize the product candidate unless we
obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or
unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations,
processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent
may be able to block our ability to develop and commercialize the product candidate unless we obtained a license or until such patent expires
or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable
terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to
commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business. Even if we obtain a
license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, if the breadth or
strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us
to license, develop or commercialize current or future product candidates.
Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further
develop and commercialize our product candidates. Defense of these claims, regardless of their merit, could involve substantial litigation
expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement
against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or
more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and
monetary expenditure. We cannot 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 allow commercialization of our product candidates. We may fail to obtain any of these licenses at a
reasonable cost or on reasonable terms, if at all. In that 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
development pipeline 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 gavo-cel, TC-510 and certain other product candidates. Because additional product candidates may
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require the use of proprietary rights held 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. In addition, while we have patent rights directed to certain TRuC constructs we may not be able to
obtain intellectual property to broad TRuC-T cell or engineered 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 owned by third parties. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party
intellectual property rights from third parties that we identify as necessary or important to our business operations. We may fail to obtain any
of these licenses at a reasonable cost or on reasonable terms, if at all, which would harm our business. We may need to cease use of the
compositions or methods covered by such third-party intellectual property rights, and may need to seek to develop alternative approaches
that do not infringe on such intellectual property rights which may entail additional costs and development delays, even if we were able to
develop such alternatives, which may not be feasible. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to
develop or license replacement technology. Moreover, the specific antibodies that will be used with 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
agreements with these institutions. In certain cases, these institutions provide us with an option to negotiate a license to any of the
institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within
the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property
rights to others, potentially blocking our ability to pursue our program. If we are unable to successfully obtain rights to required third-party
intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of such program
and our business and financial condition could suffer.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies, which may be more established,
or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we
may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive
advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.
Risks Related to Intellectual Property Litigation
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 file
infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or
more of 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 our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of
our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not
issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion
of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial
damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or
redesign our infringing products, which may be impossible or require substantial time and monetary expenditure.
Post-grant proceedings provoked by third parties or brought by the USPTO may be necessary to determine the validity or priority of
inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our
current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party.
Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation or post-grant
proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our
management and other employees. 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 of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities
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analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Risks Related to Intellectual Property Laws
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee
payment and 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
will become an issued patent. There may be events that cause withdrawal of the allowance of a patent application. For example, after a
patent application 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 be certain that the USPTO will re-allow the application in view of the new material. Further, periodic maintenance fees
on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The
USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other similar provisions during the patent application 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 by other means in accordance with the applicable rules, there are situations in which
noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in
the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are
not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and
submit formal documents. In such an event, our competitors might be able to enter the 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, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable.
In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are
numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims
before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination,
inter partes review, post grant review and equivalent proceedings in foreign jurisdictions (such as opposition proceedings). Such proceedings
could result in revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome
following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be
certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a
defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise unable to adequately protect our
rights, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could
have a material adverse impact on our business and our ability to commercialize or license our technology and product candidates.
Changes to patent law in the United States and in foreign jurisdictions could diminish the value of patents in general, thereby
impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly,
time-consuming and inherently uncertain. In addition, the United States continues to adapt to wide-ranging patent reform legislation that
became effective starting in 2012. Moreover, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in
certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our
ability to obtain patents in the future, 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 weaken our 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 we do 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 decisions by the courts, Congress or the USPTO may impact the value of our patents.
Similarly, any adverse changes in the patent laws of other jurisdictions could have a material adverse effect on our business and financial
condition. Changes in the laws and regulations governing patents in other jurisdictions could similarly have an adverse effect on our ability to
obtain and effectively enforce our patent rights.
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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
United States, 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 intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition,
the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from
selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our
technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise
infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These
products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent
them from competing. Most of our patent portfolio is at the very early stage. We will need to decide whether and in which jurisdictions to
pursue protection for the various inventions in our portfolio prior to applicable deadlines.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other
intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the
infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business,
could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke
third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if
any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we develop 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.
These agreements 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 some circumstances, where we are unable to negotiate for such ownership rights. Disputes regarding ownership or inventorship of
intellectual property can also arise in other contexts, such as collaborations and sponsored research. If we are subject to a dispute
challenging our rights in or to patents or other intellectual property, such a dispute could be expensive and time consuming. If we were
unsuccessful, we could lose valuable rights 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
are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could
have a material adverse effect on the success of our business. We are aware of certain third-party patents and third-party patent applications
in this landscape 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
confidential information of third parties.
We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously
employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or
independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’
former employers or our consultants’ or contractors’ current or former clients or customers. Litigation may be necessary to defend against
these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our
management and employees. If we are not successful, we could lose access or exclusive access to valuable intellectual property.
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We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade
secrets of 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
some cases until recently. We may be subject to claims that we or our employees have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of these former employers or competitors. In addition, we have been and may in the future be subject
to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be
necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial
costs and could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, we may lose
valuable intellectual property rights or personnel. Any litigation or the threat thereof may adversely affect our ability to hire employees. A loss
of key personnel or their work 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 be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any of our current or future product candidates, one or
more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act
of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as
compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a
patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the
approved drug, a method for using it, or a method for manufacturing it may be extended. However, we may not be granted an extension
because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within
applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover,
the applicable time period or the scope of patent protection afforded 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, our competitors may obtain approval of competing products following our
patent expiration, and our business, financial condition, results of operations, and prospects could be materially harmed.
Risks Related to Government Regulation
Risks Related to Regulatory Approval
The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical
development and regulatory approval of our product candidates.
We have not previously submitted a BLA to the FDA or similar licensure applications to comparable foreign regulatory authorities. A BLA
must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety, purity and potency
for each desired indication. The BLA must also include significant information regarding the manufacturing controls for the product. We
expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. Accordingly, the regulatory
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
extensive negotiation 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
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•
manufacturing sufficient quantities of qualified materials under cGMPs, including cGTPs, and applying them 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
product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be
suspended or terminated by us, the IRBs for the institutions in which such trials are being conducted, the Data Monitoring Committee for
such trial, or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance
with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory
authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from
using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for
our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in completing our
clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence
product sales and generate revenue.
Securing regulatory approval also requires the submission of information about the biologic manufacturing process and inspection of
manufacturing facilities by the relevant regulatory authority. The FDA or comparable foreign regulatory authorities may find deficiencies or fail
to approve our manufacturing processes or facilities, whether run by us or our CMOs. In addition, if we make manufacturing changes to our
product candidates in the future, we may need to conduct additional preclinical studies to bridge our modified product candidates to earlier
versions.
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 of
regulatory approval of our product candidates.
Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and
continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to
comply with regulatory requirements or experience unanticipated problems with our product candidates.
Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety and efficacy of the product
candidate. Under FDORA, sponsors of approved drugs and biologics must provide 6 months’ notice to the FDA of any changes in marketing
status, such as the withdrawal of a drug, and failure to do so could result in the FDA placing the product on a list of discontinued products,
which would revoke the product’s ability to be marketed. The FDA may also require a risk evaluation and mitigation strategy, or REMS,
program in order to license our product candidates, which could entail requirements for a medication guide, physician communication plans
or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In
addition, if the FDA or a comparable foreign regulatory authority approves 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. These requirements include submissions of safety and other post-
marketing information and reports, registration, as well as continued compliance with cGMPs, cGTPs and GCPs for any clinical trials that we
conduct post-licensure. Manufacturers and manufacturer’ facilities are required to comply with extensive FDA and comparable regulatory
authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations and applicable
product tracking and tracing requirements. Later discovery of previously unknown problems with our product candidates, including adverse
events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing 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
or mandatory product recalls;
•
revisions to the labeling, including limitation on approved uses or the addition of additional warnings, contraindications or other
safety information, including boxed warnings;
•
imposition of a 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 of license approvals;
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•
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 or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that
may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes
in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose
any marketing approval that we may have obtained and we may not achieve or sustain profitability.
We may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements. The denial
or delay of any such approval would delay commercialization of our product candidates and adversely impact our potential to
generate revenue, our business and our results of operations.
The research, testing, manufacturing, labeling, licensure, sale, marketing and distribution of biologic products are subject to extensive
regulation by the FDA and other regulatory authorities in the United States and other countries, and such regulations differ from country to
country. We are not permitted to market our product candidates in the United States or in any foreign countries until they receive the requisite
licensure from the applicable 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
candidates are 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
preclinical studies or clinical trials;
•
our inability to demonstrate that the clinical and other benefits of any of our product candidates outweigh any safety or other
perceived risks;
•
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 regulatory
authorities for licensure;
•
the FDA’s or the applicable foreign regulatory agency’s findings of deficiencies or failure to approve the manufacturing
processes or facilities of third-party manufacturers upon which we rely;
•
the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable
foreign regulatory authorities to support the submission of a BLA or other comparable submission in foreign jurisdictions or to
obtain licensure of our 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
manner rendering 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
product candidates, which would significantly harm our business, results of operations, and prospects. Of the large number of biological
products in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are
commercialized. Even if we eventually complete clinical testing and receive licensure from the FDA or applicable foreign regulatory
authorities for any of our product candidates, the FDA or the applicable foreign regulatory agency may grant licensure contingent on the
performance of costly additional clinical trials which may be required after licensure. The FDA or the applicable foreign regulatory agency
also may license our product candidates for a more limited indication or a narrower patient population than we originally requested, and the
FDA, or applicable foreign regulatory agency, may not license our product candidates 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 could be required before we submit our product candidates for approval. To the extent that the results of the clinical trials are not
satisfactory to the FDA or comparable foreign regulatory authorities for support of a
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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 of potential 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 and would materially adversely impact our business and prospects.
A variety of risks associated with marketing our product candidates, if approved, 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 to additional 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 to doing 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
protect intellectual 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 have obtained orphan drug designation for gavo-cel in certain indications and in the future we may pursue orphan drug
designation for some of our other future product candidates. We may be unable to obtain such future designations or to maintain
the benefits associated with the orphan drug designations we obtain, including market exclusivity, which may cause our revenue,
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 a disease 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 United States when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United
States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before
submitting a BLA. In the United 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 use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten
the duration of, the regulatory review and approval process.
If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease
for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other
applications, including a BLA, to market the same biologic for the same indication for seven years, except in limited circumstances such as a
showing of clinical superiority to the product with orphan drug exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not
shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition
for which the drug was designated. As a result, even if one of our product
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candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the
same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our
product.
We received orphan drug designation from the FDA for the treatment of mesothelioma and cholangiocarcinoma with gavo-cel. We may seek
orphan drug designation for some or all of our other future product candidates in additional orphan indications in which there is a medically
plausible basis for the use of these products. Even when we obtain orphan drug designation, exclusive marketing rights in the United States
may be limited if we seek licensure for an indication broader than the orphan designated indication and may be lost if the FDA later
determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the
product to meet the needs of patients with the rare disease or condition. In addition, although we intend to seek orphan drug designation for
other product candidates, we may never receive such designations.
The FDA may further reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change
the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what
changes 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
development or regulatory review or approval process and it does not increase the likelihood that our product candidates will
receive marketing approval.
We may seek a Breakthrough Therapy designation for gavo-cel and may seek Breakthrough Therapy designation for some or all of our
current and future product candidates. A Breakthrough Therapy is defined as a drug or biologic that is intended, alone or in combination with
one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that
the drug, or biologic, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such
as substantial treatment effects observed early in clinical development. For product candidates that have been designated as Breakthrough
Therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical
development while minimizing the number of patients placed in ineffective control regimens. Biologics designated as Breakthrough Therapies
by the FDA may also be eligible 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 the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such designation. In
any event, the receipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development process, review
or licensure compared to candidate products considered for licensure under non-expedited FDA review procedures and does not assure
ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as Breakthrough Therapies, the FDA may
later decide that the product no longer meets the conditions for qualification. Thus, even though we intend to seek Breakthrough Therapy
designation for gavo-cel and some or all of our future product candidates for the treatment of various cancers, there can be no assurance
that we will receive Breakthrough Therapy designation.
A Fast Track designation by the FDA, even if granted for gavo-cel or any other future product candidate(s), may not lead to a faster
development or regulatory review or approval process, and does not increase the likelihood that our product candidates will
receive marketing 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
medical needs for this condition, the drug sponsor may apply to FDA for Fast Track designation for a particular indication. We may seek Fast
Track designation for gavo-cel and may seek Fast Track designation for certain of our future product candidates, but there is no assurance
that the FDA will grant this status to any of our proposed product candidates. Marketing applications filed by sponsors of products in Fast
Track development may qualify for priority review under the policies and procedures offered by the FDA, but the Fast Track designation does
not assure any such qualification or ultimate marketing approval by the FDA. The FDA has broad discretion whether or not to grant Fast
Track designation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the
FDA would decide to grant it. Even if we do receive Fast Track designation, we may not experience a faster development process, review or
licensure compared to conventional FDA procedures, and receiving a Fast Track designation does not provide assurance of ultimate FDA
approval. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our
clinical development program. In addition, the FDA may withdraw any Fast Track designation at any time.
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Accelerated approval by the FDA, even if granted for gavo-cel or any other future product candidates, may not lead to a faster
development or regulatory review or approval process and it does not increase the likelihood that our product candidates will
receive marketing approval.
We may seek approval of gavo-cel, 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
advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict
clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality (IMM) that is reasonably likely to
predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug or biologic
receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. These confirmatory trials must be
completed with due diligence. Under FDORA, the FDA is permitted to require, as appropriate, that a post-approval confirmatory study or
studies be underway prior to approval or within a specified time period after the date of accelerated approval was granted. FDORA also
requires sponsors to send updates to the FDA every 180 days on the status of such studies, including progress toward enrollment targets,
and the FDA must promptly post this information publicly. FDORA also gives the FDA increased authority to withdraw approval of a drug or
biologic granted accelerated approval on an expedited basis if the sponsor fails to conduct such studies in a timely manner, send the
necessary updates to the FDA, or if such post-approval studies fail to verify the drug’s predicted clinical benefit. Under FDORA, the FDA is
empowered to take action, such as issuing fines, against companies that fail to conduct with due diligence any post-approval confirmatory
study or submit timely reports to the agency on their progress. In addition, the FDA currently requires, unless otherwise informed by the
agency, pre-approval of promotional materials for products receiving accelerated approval, which could adversely impact the timing of the
commercial launch of the product. Thus, even if we seek to utilize accelerated approval pathway, we may not be able to obtain accelerated
approval and, even if we do, we may not experience a faster development, regulatory review or approval process for that product. In addition,
receiving accelerated approval does not assure that the product's accelerated approval will eventually be converted to traditional approval.
Regulatory requirements in the United States and abroad governing cell therapy products have changed frequently and may
continue to change in the future, which could negatively impact our ability to complete clinical trials and commercialize our
product candidates in a timely manner, if at all.
Regulatory requirements in the United States and abroad governing cell therapy products have changed frequently and may continue to
change in the future. In 2016, the FDA established the Office of Tissues and Advanced Therapies (OTAT) within its Center for Biologics
Evaluation and Research to consolidate 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. In September 2022, the FDA announced retitling of OTAT to the Office
of Therapeutic Products (OTP) and elevation of OTP to a “Super Office” to meet its growing cell and gene therapy workload. In addition,
under guidelines issued by the NIH, gene therapy clinical trials are also subject to review and oversight by an institutional biosafety
committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid
molecules at that institution. Before a clinical trial can begin at any institution, that institution’s institutional review board, or IRB, and its IBC
assesses the safety of the research and identifies any potential risk to public health or the environment. While the NIH guidelines are not
mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or
synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily
follow them. Moreover, serious adverse events or developments in clinical trials of gene therapy product candidates conducted by others may
cause the FDA or other regulatory bodies to initiate a clinical hold on our clinical trials or otherwise change the requirements for approval of
any of our product candidates. Although the FDA decides whether individual cell and gene therapy protocols may proceed, the review
process and determinations of other reviewing bodies can impede or delay the initiation of a clinical trial, even if the FDA has reviewed the
trial and approved its initiation.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could
make it difficult 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
coverage and reimbursement from third-party payors. In addition, because our product candidates represent new approaches to the
treatment of cancer, we cannot accurately estimate the potential revenue from our product candidates. For more information, see the section
entitled, “Business — Government Regulation — Pharmaceutical Insurance Coverage and Reimbursement.”
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs
associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and
Medicaid, and commercial payors is critical to new product acceptance.
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Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which
drugs and treatments 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;
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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
process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products.
Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or
sustain profitability or may require co-payments that patients find unacceptably high. Patients are unlikely to use our product candidates
unless coverage is provided and reimbursement 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
and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-
consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor
separately, with no 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
licensure in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In
some foreign countries, particularly those in the European Union (EU), the pricing of biologics is subject to governmental control. In these
countries, pricing negotiations 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 from third-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
controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and
regulatory changes to the healthcare system that could impact our ability to sell our products profitably.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product
access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures
to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs.
These measures could reduce 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
that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product
candidates or additional pricing pressures.
The impact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending on us
is currently 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
highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions,
related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our
business, operations and financial condition. For more information, see the section entitled, “Business — Government Regulation —Health
Care Reform.”
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There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at
broadening the availability of healthcare and containing or lowering the cost of healthcare. For example, on July 9, 2021, President Biden
issued an executive order directing the FDA to, among other things, continue to clarify and improve the approval framework for biosimilars,
including the standards for interchangeability of biological products, facilitate the development and approval of biosimilar and interchangeable
products, clarify existing requirements and procedures related to the review and submission of BLAs, and identify and address any efforts to
impede biosimilar competition. We cannot predict the initiatives that may be adopted in the future, including repeal, replacement or significant
revisions to the ACA. In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. The IRA includes several
provisions that will impact our business to varying degrees, including provisions that create a $2,000 out-of-pocket cap for Medicare Part D
beneficiaries, impose new manufacturer financial liability on all drugs in Medicare Part D, allow the U.S. government to negotiate Medicare
Part B and Part D pricing for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay
rebates to Medicare for drug prices that increase faster than inflation, and delay the rebate rule that would require pass through of pharmacy
benefit manager rebates to beneficiaries. The effect of IRA on our business and the healthcare industry in general is not yet known.
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 may adversely affect:
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the demand for our product candidates, if we obtain regulatory approval;
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our ability to set a price that we believe is fair for our products;
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our ability to obtain coverage and reimbursement approval for a product;
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our ability to generate revenue and achieve or maintain profitability;
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the level of taxes that we are required to pay; and
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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.
Disruptions at the FDA, the SEC and other government agencies caused by funding shortages or global health concerns could
hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed
or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which
the operation of our business may rely, which could negatively impact 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 funding
levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average
review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government
agencies on which our operations may rely, including those that fund research and development activities is subject to the political process,
which is inherently fluid 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 necessary
government agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut
down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other
government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the
FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our
operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary
capital in order to properly capitalize and continue our operations.
Since March 2020 when foreign and domestic inspections were largely placed on hold, the FDA has been working to resume pre-pandemic
levels of inspection activities, including routine surveillance, bioresearch monitoring and pre-approval inspections. Should FDA determine that
an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, and the
FDA does not determine a remote interactive evaluation to be adequate, the FDA has stated that it generally intends to issue, depending on
the circumstances, a complete response letter or defer action on the application until an inspection can be completed. During the COVID-19
public health emergency, a number of companies announces receipt of complete response letters due to the FDA’s inability to complete
requires inspections for their applications. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in
response to the ongoing COVID-19 pandemic and may experience delays in their regulatory activities.
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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or
incur costs 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 the
handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and
flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products.
We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury
from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any
resulting damages, and 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 employees
resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not
maintain insurance 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 in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many
countries, the pricing review period begins after marketing or product licensing approval is granted. To obtain reimbursement or pricing
approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to
other available therapies. In some foreign markets, 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 our commercial launch of the product, possibly for lengthy time periods, and negatively impact the
revenues, if any, we are able to generate from the sale 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 adequate
reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers and
other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance
organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry
and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and
the amount of reimbursement for particular medications. Increasingly, government authorities and third-party payors are requiring that drug
companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products.
Coverage and reimbursement may not 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 and maintaining adequate reimbursement for our products may be difficult. We may be required to
conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other
therapies. If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able
to successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than
the purposes for which the drug is approved by the FDA or similar regulatory authorities outside of the United States. Moreover, eligibility for
coverage and 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 be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the
drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be
incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by
government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries
where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment
limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequate reimbursement rates from both
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government-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.
Risks Related to Government Regulations Internationally
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be
successful in obtaining 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
or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have
a negative 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 in those countries. Approval and licensure procedures vary among jurisdictions and can involve requirements and
administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical
trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions
outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In
some cases, the price that we intend to charge 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 have
requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign
regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and
could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in
international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full
market potential of our product candidates will be harmed.
Risks Related to Employee Matters and Managing Growth
Risks Related to Employee Matters
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel,
we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain
highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical
personnel, including our Chief Executive Officer and President, our Chief Financial Officer, our Chief Medical Officer, our Chief Technical
Officer, our Chief Business and Strategy Officer and our Chief People Officer. The loss of the services of any of our executive officers, other
key employees and other scientific and medical advisors, and an inability to find suitable replacements 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
companies and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability
to hire and retain highly qualified personnel on acceptable terms or at all. Changes to U.S. immigration and work authorization laws and
regulations, including those that restrain the flow of scientific and professional talent, can be significantly affected by political forces and
levels of economic activity. Our business may be materially adversely affected if legislative or administrative changes to immigration or visa
laws and regulations impair our hiring processes and goals or projects involving personnel who are not U.S. citizens.
In addition, the workforce reduction in connection with the 2023 Restructuring may decrease productivity due to employee distraction and
unanticipated employee turnover, or affect our ability to attract or retain and motivate key employees.
To encourage valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options and
restricted stock units that vest over time. The value to employees of stock options and restricted stock units that vest over time may be
significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more
lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and
development teams may terminate their employment with us on short notice. Although we have employment agreements with our key
employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our
employment at any time, with or without notice. Our success also depends on our
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ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior
scientific and medical personnel.
Our 2023 strategic reprioritization may be disruptive to our operations and harm our business and may not be successful,
On January 5, 2023, we announced the reprioritization of our clinical and research priorities and a corresponding reduction in workforce and
adjustment to our manufacturing network, designed to reduce costs and reallocate resources while maintaining the personnel needed to
support our key programs and refocused pipeline (the “2023 Restructuring”). We may take similar steps in the future as we seek to realize
operating synergies, optimize our operations to achieve our target operating model, respond to market forces or better reflect changes in the
strategic direction of our business. Disruptions in operations may occur as a result of taking these actions. Taking these actions may also
result in significant expense for us, including with respect to workforce reductions, as well as decreased productivity due to employee
distraction and unanticipated employee turnover. Substantial expense or business disruptions resulting from restructuring and reorganization
activities could adversely affect our operating results. In addition, if there are unforeseen expenses associated with such realignments in our
business strategies, and we incur unanticipated charges or liabilities, then we may not be able to effectively realize the expected cost savings
or other benefits of such actions which could result in total costs and expenses that are greater than expected, or we may prioritize the wrong
drug candidates or wrong indications to study for those drug candidates, any of which could have an adverse effect on our business,
operating results and financial condition.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other
improper activities, 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
partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the
regulations of the FDA and other similar foreign regulatory authorities, provide true, complete and accurate information to the FDA and other
similar foreign regulatory authorities, comply with manufacturing standards we have established, comply with healthcare fraud and abuse
laws in the United States 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 exposure under such laws and regulations will increase significantly, and our costs associated with compliance
with such laws and regulations are also likely to increase. These laws may impact, among other things, our current activities with principal
investigators and research patients, as well as proposed 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 and promotion, structuring and commission(s), certain customer incentive programs
and other business arrangements generally. For more information, see the section entitled, “Business — Government Regulation —
Healthcare Law and Regulation.”
The distribution of biotechnology and biopharmaceutical products is subject to additional requirements and regulations, including extensive
record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of biotechnology and
biopharmaceutical products.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform,
especially in light of the lack of applicable precedent and regulations. Ensuring business arrangements comply with applicable healthcare
laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a
company’s attention from other aspects of its business.
We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the
precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or
in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or
regulations.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is
possible that some of our business activities could be subject to challenge under one or more of such laws. It is possible that governmental
authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving
applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any
other governmental regulations that may apply to us, we may be subject to significant
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criminal, civil and administrative sanctions including monetary penalties, damages, fines, disgorgement, diminished profits and future
earnings, individual imprisonment, and exclusion from participation in government funded healthcare programs, such as Medicare and
Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to
resolve allegations of non-compliance with these laws, reputational harm, and we may be required to curtail or restructure our operations,
any of which could adversely affect our ability to operate our business and our results of operations.
The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions
with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of
the requirements. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur
significant legal expenses and divert our management’s attention from the operation of our business.
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 national anti-bribery laws of EU Member States, such as the U.K. Bribery Act 2010, or the Bribery Act. Infringement of these laws could
result in substantial 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
competent professional organization and/or the regulatory authorities of the individual EU Member States. These requirements are provided
in the national laws, industry codes or professional codes of conduct, applicable in the EU Member States. Failure to comply with these
requirements could result in 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,
is subject to the EU General Data Protection Regulation (GDPR), which became effective on May 25, 2018. The GDPR is wide-ranging in
scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health
and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals
regarding data processing 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 to countries 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 action on data subjects and consumer associations to lodge complaints with supervisory authorities,
seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR will be a
rigorous and time-intensive process that may increase our cost 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 fines and penalties, litigation, and reputational harm in connection with our European
activities. This and other future developments regarding the flow of data across borders could increase the cost and complexity of delivering
our products, if approved, in some markets and may lead to governmental enforcement actions, litigation, fines and penalties or adverse
publicity, which could have an adverse effect on our reputation and business.
Risks Related to Growing Our Organization
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of March 5, 2023, we had 66 full-time employees. As our development and commercialization plans and strategies develop, we expect to
need additional managerial, operational, sales, marketing, financial and other personnel in the future, as well as additional facilities to expand
our operations. Future growth would impose significant added responsibilities on members of management, including:
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identifying, recruiting, integrating, maintaining and motivating additional employees;
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managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates,
while complying with our contractual obligations to contractors and other third parties; and
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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
manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day
activities in order to devote a substantial amount of time to managing these growth activities.
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We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and
consultants 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 timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage
our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials
may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise
advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside
contractors and consultants on economically reasonable terms, or at all.
Further, we anticipate growth in our future business operations as we advance our product candidates, which could necessitate the addition
of new laboratory and/or office space. This future growth could create strain on our organizational, administrative, and operational
infrastructure, including laboratory operations and quality control. There is no guarantee that we will be able to manage the expansion of our
facilities and operations, or that our systems, procedures or controls will be adequate to support our expanded facilities and operations.
There is also no guarantee that we will be able to build out, acquire, or enter into agreements to lease facilities to support our growth.
If we are not able to effectively expand our organization to meet our needs by hiring new employees and expanding our groups of
consultants and contractors, or we are not able to effectively build out new facilities to accommodate this expansion, we may not be able to
successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve
our research, development and commercialization goals.
We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to
establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if
licensed, we may 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-
house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will
have to compete 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 arrangements
regarding the sales and marketing of our products, if licensed. However, there can be no assurance that we will be able to establish or
maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will
depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales
efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates
ourselves. We also face competition 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
with third-party collaborators to commercialize any product in the United States or overseas.
Risks Related to our Common Stock
Risks Related to Volatility in the Trading of Our Common Stock
Our stock price has been and will likely continue to be volatile. Securities class action or other litigation involving our company or
members of our management team could also substantially harm our business, financial condition and results of operations.
The trading price of our common stock is likely to be highly volatile. The stock market in general and the market for smaller pharmaceutical
and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of
particular companies. The market price of our common stock may be influenced by many factors, including:
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the timing and results of clinical trials of gavo-cel, TC-510 and any other product candidates and our ongoing, planned or any
future preclinical studies, clinical trials or clinical development programs;
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the commencement, enrollment, or results of clinical trials of our product candidates or any future clinical trials we may conduct,
or changes in the development status of our product candidates;
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•
adverse results or delays in preclinical studies and clinical trials;
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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
product candidates;
•
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;
•
publication of research reports about us or our industry, or immunotherapy in particular, or positive or negative recommendations
or withdrawal 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 patent
protection 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
experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these
companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual
operating performance. If the market price of our common stock does not exceed your purchase price, you may not realize any return on
your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of a company’s
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securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources,
which would harm our business, operating results, or financial condition.
An active, liquid and orderly trading market for our common stock may not be sustained.
In February 2019, we closed our IPO and our common stock began trading on The Nasdaq Global Select Market. Prior to our IPO, there was
no public trading market for shares of our common stock. Although we completed our IPO and our common stock is listed and trading on The
Nasdaq Global Select Market, an active trading market for our shares may not be sustained. If an active market for our common stock does
not continue, it may be difficult for our stockholders to sell their shares without depressing 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 the time they would like to sell. Any inactive trading market
for our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares of our common stock
and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as
consideration.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our
stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market the trading
price of our common stock could decline. As of December 31, 2022, we have a total of 39,203,366 shares of common stock outstanding. In
addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our 2018 Plan, our
2018 Employee Stock Purchase Plan and our 2022 Inducement Plan will become eligible for sale in the public market to the extent permitted
by the provisions of various vesting schedules, 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 trading price of our
common stock could decline.
The holders of 7,421,847 shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities
Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the
Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our common stock.
Risks Related to Our Status as an “Emerging Growth Company” and a Smaller Reporting Company
We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging
growth companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (JOBS Act) enacted in April 2012. For as long
as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are
applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act), reduced disclosure
obligations regarding executive compensation in our Annual Report, our other periodic reports and proxy statements, and exemptions from
the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute
payments not previously approved. We could be an emerging growth company for up to five years following our IPO, although circumstances
could cause us to lose that status earlier. We will remain an 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) in which we have total annual gross revenue of at least $1.235 billion or (c) in
which we are deemed to be a large accelerated filer, which requires the market 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 have issued 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
standards apply 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
to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in
our Annual Report, our other periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive
because we may rely on these exemptions. If some investors find our common
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stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We are a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting companies may
make our common stock less attractive to investors.
We are considered a “smaller reporting company” under Rule 12b-2 of the Exchange Act. We are therefore entitled to rely on certain reduced
disclosure requirements, such as an exemption from providing selected financial data and executive compensation information. These
exemptions and reduced disclosures in our SEC filings due to our status as a smaller reporting company also mean our auditors are not
required to review our internal control over financial reporting and may make it harder for investors to analyze our results of operations and
financial prospects. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If
some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our
common stock prices may be more volatile. We will remain a smaller reporting company until our public float exceeds $250 million if or our
annual revenues are $100 million or more, or until our public float exceeds $700 million if our annual revenues are less than $100 million.
Risks Related to Insider Control
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant
influence over matters subject to stockholder approval.
As of March 5, 2023, our executive officers, directors, and 5% stockholders beneficially owned approximately 30% 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 matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors,
amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may
prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of
our stockholders.
Risks Related to Operating as a Public Company
We incur significant increased costs as a result of operating as a public company, and our management devotes substantial time
to new compliance initiatives.
As a public company, we have incurred and will continue to incur significant legal, accounting, and other expenses that we did not incur as a
private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which require, among
other things, that we file with the Securities and Exchange Commission (SEC), annual, quarterly, and current reports with respect to our
business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The Nasdaq
Global Select Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including
requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.
Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was enacted. There are
significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt
additional rules and regulations in these areas, such as “say on pay” and proxy access. Recent legislation permits emerging growth
companies to implement many of these requirements over a longer period and up to five years from the pricing of our IPO. We are taking
advantage of this legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or
planned and thereby incur unexpected expenses. Stockholder activism, the current political environment, and the current high level of
government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to
additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
The rules and regulations applicable to public companies have substantially increased our legal and financial compliance costs and made
some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other
business concerns, they could have a material adverse effect on our business, financial condition, and results of operations. The increased
costs increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or
services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate
the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it
more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees, or as executive officers.
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Risks Related to Our Charter and Bylaws
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control, which could
limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our
current management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a
change of control 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 elected at one time;
•
a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of
our stockholders;
•
a requirement that special meetings of stockholders be called only by the chairperson of the Board of Directors, the chief
executive officer, 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,
in addition to any other vote required by law, upon the approval of not less than two-thirds of all outstanding shares of our voting
stock then entitled 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
stockholder action 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 approval and 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-
takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could
make it more difficult for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by
the then-current Board of Directors and could also delay or impede a merger, tender offer, or proxy contest involving our company. These
provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing
or cause us to take other corporate actions you desire.
Any delay or prevention of a change of control transaction or changes in our Board of Directors could cause the market price of our common
stock to decline.
Our amended bylaws designate certain courts as the exclusive forum for certain litigation that may be initiated by our
stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our amended bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of
Delaware is the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought 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 or our stockholders, (iii) any action
asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of
incorporation or our amended and restated bylaws (including the interpretation, validity or enforceability thereof) or (iv) any action asserting a
claim that is governed by the internal affairs doctrine (Delaware Forum Provision). The Delaware Forum Provision will not apply to any
causes of action arising under the Securities Act or the Exchange Act. In addition, our amended and restated bylaws will further provide that
unless we consent in writing to the selection of an alternate forum, the federal district courts of the United States shall be the sole and
exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (Federal Forum Provision). In
addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our
common stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided,
however, that stockholders cannot and will not be deemed to have waived our compliance with U.S. federal securities laws and the rules and
regulations thereunder.
We recognize that the Delaware Forum Provision and the Federal Forum Provision in our amended and restated bylaws may impose
additional litigation costs on stockholders in pursuing any such claims. Additionally, the forum selection clauses in our
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amended and restated bylaws may limit our stockholders’ ability to bring a claim in a forum that they find favorable for disputes with us or our
directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an
action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum
selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law,
there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be
unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose
additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of
Delaware and the federal district courts of the United States may also reach different judgments or results than would other courts, including
courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be
more or less favorable to us than our stockholders.
Risks Related to Tax and Accounting
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”
(generally defined 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 net operating loss carryforwards and other pre-change tax attributes to offset its post-change taxable income may be limited.
As a result of our most recent 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. As of December 31, 2022, we have cumulative net operating loss carryforwards of approximately
$276.1 million and $269.5 million available to reduce federal and state taxable income, respectively, of which $272.0 million of federal net
operating losses will carryforward indefinitely, with the remaining federal and state losses beginning to expire in 2035. In addition, we have
cumulative federal and state tax credit carryforwards of $11.7 million and $3.9 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 under Sections 382 and 383 of the Code. This limits the annual amount
of these tax attributes that can be utilized to offset future taxable 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.
Under the Tax Cuts and Jobs Act, federal net operating losses generated after December 31, 2017 will not be subject to expiration.
If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our
ability to operate our business could be harmed.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate
disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties
encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in
connection with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, or any subsequent testing by our
independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be
material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further
attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which
could have a negative effect on the trading price of our stock.
We will be required to disclose changes made in our internal controls and procedures on a quarterly basis and our management will be
required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the
Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012, our independent registered public accounting firm will not be
required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We
could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal controls over
financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal
controls over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.
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General Risk Factors
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
anticipate declaring or paying any cash dividends for the foreseeable future. In addition, we may enter into agreements that prohibit us from
paying cash dividends without prior written consent from our contracting parties, or which other terms prohibiting or limiting the amount of
dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited to the appreciation of their
stock, which may never occur.
Unstable global market, economic and political conditions may have serious adverse consequences on our business, financial
condition and stock price.
As widely reported, global credit and financial markets have experienced extreme volatility and disruptions in the past several years,
including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, high inflation,
increases in interest rates, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that
further deterioration in credit and financial markets and in global economic and political conditions will not occur. Our general business
strategy may be adversely affected by any future economic downturn, political unrest, volatile business environment or continued
unpredictable and unstable market conditions. For instance, the current military conflict between Russia and Ukraine could disrupt or
otherwise adversely impact our operations and those of third parties upon which we rely. Related sanctions, export controls or other actions
that may be initiated by nations including the U.S., the European Union or Russia (e.g., potential cyberattacks, disruption of energy flows,
etc.), which could adversely affect our business and/or our supply chain, our CROs, CMOs and other third parties with which we conduct
business. Further, state-sponsored cyberattacks could expand as part of the conflict, which would adversely affect our and our suppliers'
ability to maintain or enhance key cyber security and data protection measures.
If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult,
more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material
adverse effect on our growth strategy, financial performance and stock price and could 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 operating goals on schedule and on budget.
In February 2019, we raised aggregate net cash proceeds of approximately $77.1 million in our IPO. On July 31, 2020, we completed the
sale of 9.2 million shares of stock in at a public offering price of $15.50 per share. We raised net cash proceeds of approximately $133.6
million from the offering. On January 22, 2021, we completed the sale of approximately 4.6 million shares of common stock in at a public
offering price of $30.50 per share. We raised net cash proceeds of approximately $131.3 million from the offering. As of December 31, 2022,
we had cash, cash equivalents and short-term investments of $149.2 million. While we are not aware of any downgrades, material losses, or
other significant deterioration in the fair value of our cash equivalents and short-term investments since September 30, 2022, no assurance
can be given that deterioration of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents
or our ability to meet our financing objectives. Furthermore, our stock price may decline due in part to the volatility of the stock market and
the general economic downturn.
Changes in tax law could adversely affect our business and financial condition.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative
process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive
application) could adversely affect us or holders of our common stock. We urge investors to consult with their legal and tax advisers
regarding the implications of potential changes in tax laws on an investment in our common stock.
Our internal computer systems, or those used by our third-party CROs or other contractors or consultants, may fail or suffer
security breaches, 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
contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, and
telecommunication and electrical failures. Cyber-attacks, denial-of-service attacks, ransomware attacks, business email compromises,
computer malware, viruses, and social engineering (including phishing) are prevalent in our industry, as well as many others. In addition, we
may experience attacks, unavailable systems, unauthorized access to systems or data or disclosure
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due to employee theft or misuse, denial-of-service attacks, sophisticated nation-state and nation-state supported actors, and advanced
persistent threat intrusions. Electronic security attacks designed to gain access to personal, sensitive or confidential data are constantly
evolving, and such attacks continue to grow in sophistication. The techniques used to sabotage or to obtain unauthorized access to our
platform, systems, networks, or physical facilities in which data is stored or through which data is transmitted change frequently, and we may
be unable to implement adequate preventative measures or stop security breaches while they are occurring. Despite our efforts, we may in
future become, the target of cyber-attacks by third parties seeking unauthorized access to our data or to disrupt our operations or ability to
conduct our business. While we have not experienced any such material system failure or security breach to date, if such an event were to
occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business
operations. For example, the loss of data from completed or future preclinical studies and clinical trials could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of
our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse
effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications,
or inappropriate disclosure of confidential or proprietary information, we could incur liability 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 pandemics or
epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence
of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We
rely on third-party manufacturers to produce and process our product candidates on a patient-by-patient basis. Our ability to obtain clinical
supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or
other business interruption.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit
commercialization of our 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 if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are
found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include
allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a
breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even
successful defense would require significant financial 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.
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Failure to obtain or retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could
prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Although we have clinical trial
insurance, our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no
coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that
are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements
with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate
should any claim arise.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
stock price 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
or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or
industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event
securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or
fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to
decline.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties.
List of material office locations as of December 31, 2022.
Location
Use of Space
Square Feet
Expiration
Cambridge, Massachusetts
Office and lab
23,000 July 2025
Cambridge, Massachusetts
Office
5,000 September 2024
Cambridge, Massachusetts
Office and lab
14,000 January 2024
Rockville, Maryland
Manufacturing facility
84,300 June 2036
We believe that our office and laboratory space is sufficient to meet our needs for the foreseeable future.
Item 3. Legal Proceedings
From 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
such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial
condition or results of operations.
Item 4. Mine Safety Disclosures
Not Applicable.
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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
Certain Information Regarding the Trading of Our Common Stock
Our 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 Stock
As of March 5, 2023, there were approximately 14 holders of record of shares of our common stock. This number does not include
stockholders for whom shares are held in “nominee” or “street” name.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the
development and expansion of our business and therefore we do not anticipate paying cash dividends on our common stock in the
foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our results
of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part
III of this Annual Report.
Recent sales of unregistered securities
None.
Issuer Purchases of Equity Securities
None.
Item 6. Reserved
Not applicable.
97
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated
financial statements and related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and
strategy for our business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including
those factors set forth in the ‘‘Risk Factors’’ section of this Annual Report on Form 10-K, our actual results could differ materially from the
results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage cell therapy company developing a pipeline of novel T cell therapies for cancer patients suffering from solid tumors by
powering the T cell receptor (TCR) with our proprietary, first-in-class TCR Fusion Construct T cells (TRuC-T cells). Designed to overcome the
limitations of current cell therapy modalities, our TRuC-T cells, an HLA-independent T cell therapy platform, recognize and kill cancer cells by
harnessing the entire TCR signaling complex, which we believe is essential for T cell therapies to be effective in patients with solid tumors.
In September 2022, we announced a refocused pipeline designed to maximize the delivery of near-term clinical data in a capital efficient
manner. The refocused pipeline funds the following programs:
•
gavo-cel: our lead, first-in-class TRuC-T cell targeting mesothelin-expressing solid tumors (gavocabtagene autoleucel, formerly
TC-210)
•
TC-510: our first enhanced TRuC-T cell targeting mesothelin-expressing solid tumors which incorporates a PD-1:CD28 chimeric
switch receptor
•
TC-520: our first TRuC-T cell targeting CD-70-expressing solid and liquid tumors which incorporates IL-15 pathway
enhancements designed to improve T cell persistence
In January 2023, we announced that we had narrowed the focus of our development of gavo-cel to ovarian cancer in combination with
Opdivo® (nivolumab) and redosing strategies which we believe may increase the duration of benefit in patients. We expect preliminary
durability data from the ovarian cancer cohort in the second half of 2023.
Proposed Transaction with Adaptimmune
On March 5, 2023, we entered into the Merger Agreement with Adaptimmune and Merger Sub, pursuant to which, upon the terms and
subject to the conditions thereof, we will become a wholly-owned indirect subsidiary of Adaptimmune. The combined company will create a
preeminent cell therapy company focused on treating solid tumors. The combination provides extensive advantages for clinical development
and product delivery supported by complementary technology platforms. The lead clinical franchises for the combined company utilize
engineered T-cell therapies targeting MAGE A4 and mesothelin. These targets are expressed on a broad range of solid tumors and are
supported by compelling early- and late-stage clinical data. The combined company also has a preclinical pipeline of additional target
opportunities with development initially focused on PRAME and CD70.
The Merger Agreement was approved by our board of directors (the “Board”), and the Board resolved to recommend approval of the Merger
Agreement to our stockholders. In connection with the execution of the Merger Agreement, certain of our stockholders and certain
shareholders of Adaptimmune entered into voting and support agreements with us and Adaptimmune, pursuant to which they have agreed,
among other things, and subject to the terms and conditions of the agreements, to vote their
shares in favor of the Merger Agreement and the Merger, in accordance with the recommendation of the respective boards of directors of
Adaptimmune and the Company.
Subject to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share
of our common stock (other than shares of our common stock held as treasury stock, or shares of our common stock owned by
Adaptimmune, Merger Sub, or any direct or indirect wholly-owned subsidiaries of Adaptimmune), including shares of our common stock
underlying our restricted stock units that immediatly vest upon a change of control of us, will be converted into the right to receive 1.5117
American Depositary Shares of Adaptimmune (“Parent ADS”) with each Parent ADS representing six ordinary shares of Adaptimmune.
Following the closing of the Merger, Adaptimmune shareholders will own approximately 75% of the combined company and our stockholders
will own approximately 25% of the combined company.
98
Subject to approval by our stockholders and the shareholders of Adaptimmune and satisfaction or waiver of other closing conditions, the
transaction is expected to close in the second quarter of 2023.
gavo-cel
We have completed the Phase 1 portion of our Phase 1/2 clinical trial for gavo-cel to treat patients with ovarian cancer, non-small cell lung
cancer (NSCLC), malignant pleural/peritoneal mesothelioma or cholangiocarcinoma.
•
Based on the topline data readout presented on September 28, 2022 from patients in dose escalation in the Phase 1 portion of
our Phase 1/2 clinical trial as of the September 9, 2022 data cutoff, gavo-cel has demonstrated consistent clinical benefit, with
28 of 30 patients evaluable for efficacy experiencing tumor regression, clinical activity observed in all three mesothelin-
expressing tumor types treated (i.e. ovarian cancer, mesothelioma and cholangiocarcinoma) and an 77% disease control rate
(DCR).
•
We have observed a 22% Overall Response Rate (ORR) in patients infused with gavo-cel following lymphodepletion with six
(four mesothelioma, two ovarian cancer) RECIST partial responses (PRs) by independent assessment. The ORR was 29% in
ovarian cancer and 21% in mesothelioma.
•
The median overall survival (OS) for patients with ovarian cancer was 8.1 months, whereas the median progression-free survival
(PFS) for patients with ovarian cancer was 5.8 months. The median OS for patients with MPM was 11.2 months, whereas the
median PFS for patients with MPM was 5.6 months.
We designed the Phase 2 portion of our Phase 1/2 clinical trial to assess gavo-cel in patients with ovarian cancer, NSCLC, malignant
pleural/peritoneal mesothelioma or cholangiocarcinoma. In January 2023, we announced that we had narrowed the focus of our development
of gavo-cel to ovarian cancer in combination with Opdivo® (nivolumab) and redosing strategies which we believe may increase the duration
of benefit in patients. We expect preliminary durability data from the ovarian cancer cohort in the second half of 2023.
TC-510
We are conducting our Phase 1/2 clinical trial for TC-510 to treat patients with mesothelin-expressing MPM, ovarian cancer, pancreatic
cancer, colorectal cancer or triple negative breast cancer. We estimate the patient population for TC-510 in the five indications which we are
exploring in our clinical trial is up to 148,000 patients in the United States alone.
In the first half of 2022, we announced that the U.S. Food and Drug Administration (FDA) cleared the investigational new drug (IND)
application, and we initiated the Phase 1 dose escalation portion of the Phase 1/2 clinical trial of TC-510. The Phase 1/2 clinical trial is
evaluating the safety and efficacy of TC-510 in patients with mesothelin-expressing solid tumors. Enrollment is ongoing.
In preclinical studies of TC-510, we observed enhanced signaling, increased proliferation, reduced exhaustion and improved in vivo efficacy
against tumors with high PD-L1 expression. Based on these preclinical studies, we believe TC-510 can improve on the efficacy of gavo-cel in
specific hostile solid tumor microenvironment settings and potentially expand into new solid tumor indications.
We expect to share initial data from the Phase 1 portion of the Phase 1/2 clinical trial for TC-510 in the second half of 2023.
TC-520
We are conducting IND-enabling activities for TC-520 to treat patients with hematological malignancies and solid tumors, specifically renal
cell carcinoma and acute myeloid leukemia. Due to the high expression of CD70 across many cancer types, we estimate that up to 141,000
patients express CD70 in the United States alone.
In our preclinical studies, we observed TRuC-T cells targeting CD70 enhanced with IL-15 resulted in a significant increase in TC-520 cells
with a naïve/TSCM (memory stem T cells) phenotype, improved autonomous persistence as well as increased expansion following repeated
rounds of tumor challenge with no evidence of fratricide.
We continue to invest in our clinical and commercial manufacturing network in a capital efficient manner which will provide capacity in a
regulated timeline that aligns with preparation for a commercial launch for gavo-cel. We are devoting resources in process development and
manufacturing to optimize the reliability of our product candidates and reduce manufacturing costs and time.
99
Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability
will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. As of
December 31, 2022, we had an accumulated deficit of $501.3 million. We expect to continue to incur significant expenses and increasing
operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in
connection with our ongoing activities, particularly if and as we:
•
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;
•
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
development and planned future commercialization efforts and our operations as a public reporting company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory
approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a
commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to
support product sales, marketing and distribution.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time
as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity
offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to
raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise
capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development
and commercialization of one or more of our product candidates.
Impact of the COVID-19 Pandemic
Since the outbreak of a novel strain of virus named SARS-CoV-2 (severe acute respiratory syndrome 2), or coronavirus (COVID-19) in
December 2019, we have been carefully monitoring the COVID-19 pandemic and its actual and potential impact on our business and have
taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19 in our communities
while balancing our commitment to conduct our clinical trials. We have implemented safety measures designed to comply with applicable
federal, state and local guidelines instituted in response to the ongoing COVID-19 pandemic. We have also maintained efficient
communication with our partners and clinical sites as the COVID-19 situation has progressed. We have taken these precautionary steps
while maintaining business continuity so that we can continue to progress our programs. COVID-19 has significantly impacted the global
healthcare system, including the conduct of clinical trials as medical institutions prioritize the treatment of those afflicted with COVID-19. We
continue to closely monitor the adverse impact of the ongoing COVID-19 pandemic on our operations and ongoing clinical and preclinical
development.
The COVID-19 pandemic has impacted our development timelines for gavo-cel and TC-510; however, we believe that we have been able, as
of the date of this Annual Report, to mitigate some of the impact from the COVID-19 pandemic on our ongoing clinical programs. The future
impact of the ongoing COVID-19 pandemic on our industry, the healthcare system, clinical trials and our current and future operations and
financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the
scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, as well as the effect of any
relaxation of current restrictions within our local community or regions in which our partners and clinical sites are located, and the direct and
indirect economic effects of the pandemic and containment measures, among others. See “Item 1A. Risk Factors” for a discussion of the
potential adverse impact of COVID-19 on our business, results of operations and financial condition.
100
Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and
the development of our product candidates, which include:
•
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 with third 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 as consultants, 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
and insurance; and
•
payments made under third-party licensing agreements.
We expense research and development costs as incurred. Any non-refundable advance payments that we make for goods or services to be
received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed
as the related goods are delivered or the services are performed.
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical
development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development
expenses will increase substantially in connection with our planned preclinical and clinical development and manufacturing activities in the
near term and in the future. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be
necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and
commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product
development and commercialization, including the following:
•
the timing and progress of our preclinical studies and clinical trials, which may be significantly slower or cost more than we
currently anticipate and will depend substantially upon the performance of third-party contractors;
•
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 IND enabling studies and successfully submit IND or comparable applications;
•
whether we are required by the FDA or similar foreign regulatory authorities to conduct additional clinical trials or other studies
beyond those planned to support the approval and commercialization of our product candidates or any future product
candidates;
•
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
product candidates or any future product candidates, remain in good standing with regulatory agencies and develop, validate
and maintain commercially viable manufacturing processes that are compliant with cGMP;
•
our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, potency, purity and
acceptable risk to benefit profile of our product candidates or any future product candidates;
•
the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or
future product candidates, if any;
•
our ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates;
101
•
our ability to successfully develop a commercial strategy and thereafter commercialize our product candidates or any future
product candidates in the United States and internationally, if licensed for marketing, reimbursement, sale and distribution in
such countries and territories, 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 product
candidates 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 the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory
approval for any of our product candidates.
Impairment and Restructuring Expenses
Impairment and restructuring expenses consist of severance, personal property assets, construction-in-progress assets, right-of-use assets
and associated professional fees. Impairment expenses consist primarily of the write-down of long-lived assets classified as held for sale
related to the Rockville, Maryland manufacturing facility as of December 31, 2022.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in
executive, finance, legal, and administrative functions. General and administrative expenses also include direct and allocated facility-related
costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We anticipate that
our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities
and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance,
and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Interest Income, net
Interest income, net, consists of interest earned on our cash equivalents and investment balances, net of investment charges.
Income Tax Expense
Income tax expense is generated by investment income of our investment portfolio and the profit margin on our UK operations, which we
began winding down in the fourth quarter of 2021.
Consolidated Statements of Operations
(in thousands)
For the Years Ended December 31,
2022
2021
Change
Operating expenses
Research and development
$
98,643 $
73,578 $
25,065
Impairments and restructuring charges
30,417
3,661
26,756
General and administrative
24,439
22,503
1,936
Total operating expenses
153,499
99,742
53,757
Loss from operations
(153,499 )
(99,742 )
(53,757 )
Interest income, net
1,938
224
1,714
Loss before income taxes
$
(151,561 ) $
(99,518 ) $
(52,043 )
102
Comparison of the Years Ended December 31, 2022 and 2021
Research and Development Expenses
Research and development expenses were $98.6 million for the year ended December 31, 2022 compared to $73.6 million for the year
ended December 31, 2021. The following table summarizes our research and development expenses for the years ended December 31,
2022 and 2021.
(in thousands)
For the Years Ended December 31,
2022
2021
Change
Clinical program expenses
$
40,899
$
13,771 $
27,128
Platform development expenses
3,536
7,427
(3,891 )
Personnel expenses
36,417
34,638
1,779
Allocated facility expenses
14,424
14,379
45
Other expenses
3,367
3,363
4
$
98,643
$
73,578 $
25,065
Our clinical trial program expenses increased $27.1 million for the year ended December 31, 2022 compared to the year ended December
31, 2021 as our gavo-cel and TC-510 trials have progressed and expanded. Platform development expenses decreased by $3.9 million as
we narrowed the focus of our product development. Personnel expenses increased during the year ended December 31, 2022 as we
increased personnel during the first half of 2022.
Impairment and Restructuring Expenses
During the year ended December 31, 2022, we recognized an impairment charge for the write-down of long-lived assets classified as held for
sale related to right-of-use assets, construction-in-progress assets and personal property assets of $28.5 million. In addition, during the year
ended December 31, 2022, we incurred other impairment and restructuring charges of $1.9 million consisting of the write-down of certain
laboratory equipment, the write-down of a right-of-use asset currently being held and used, and restructuring expenses related to the wind
down of UK operations.
During the year ended December 31, 2021, we incurred $3.7 million in restructuring costs related to the wind down of our UK operations.
General and Administrative Expenses
General and administrative expenses were $24.4 million for the year ended December 31, 2022, compared to $22.5 million for the year
ended December 31, 2021. The increase in general and administrative expenses was primarily due to an increase in personnel costs of $1.0
million due to our increase in headcount and increased stock-based compensation expense. Legal costs and other consulting costs under
general and administration expenses increased by $0.9 million.
Interest Income, net
Interest income, net was $1.9 million for the year ended December 31, 2022, compared to $0.2 million for the year ended December 31,
2021. The difference in interest income, net compared to the year ended December 31, 2021 was due to a significant increase in the interest
paid on our investment balances during 2022 as a result of increased interest rates.
Liquidity and Capital Resources
Since our inception, we have incurred net losses and generated negative cash flows from operations and have funded our operations with
proceeds from the sale of our stock. During 2021, we raised $131.3 million in net proceeds from the sale of stock. Since our inception, we
have received gross proceeds of $541.7 million from the sale of our stock. As of December 31, 2022, we had cash, cash equivalents and
investments of $149.2 million.
During January 2023, the Company announced a reprioritization of the Company’s clinical and research priorities and a corresponding
reduction in workforce and adjustment to the Company’s manufacturing network, designed to reduce costs and reallocate resources while
maintaining the personnel needed to support the Company’s key programs and refocused pipeline. The reduction in personnel was
substantially completed during January 2023. The Company took steps to reduce its manufacturing costs by terminating the ElevateBio
manufacturing agreement and is seeking to exit its lease related to the Rockville, Maryland manufacturing facility. See Note 14 for further
information.
103
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
(in thousands)
For the Years Ended December 31,
2022
2021
Operating activities
$
(101,461 )
$
(81,603 )
Investing activities
(88,486 )
78,447
Financing activities
125
132,138
Operating Activities
During the year ended December 31, 2022, we used $101.5 million of cash in operating activities, resulting primarily from our net loss of
$151.8 million partially offset by non-cash charges of $40.8 million, which primarily related to impairment and restructuring costs of $27.5
million, $3.0 million of depreciation and amortization and $11.4 million of stock-based compensation. Changes in operating assets increased
cash flow from operations by $9.5 million.
During the year ended December 31, 2021, we used $81.6 million of cash in operating activities, resulting primarily from our net loss of $99.8
million partially offset by non-cash charges of $19.0 million, which primarily related to depreciation and amortization of $2.8 million,
restructuring of $3.0 million and stock-based compensation of $12.3 million. Noncash charges have increased during the year ended
December 31, 2022 primarily as a result of the increase in impairment and restructuring expenses incurred during the current year as
compared to the prior year.
Investing Activities
During the year ended December 31, 2022, cash used by investing activities was $88.5 million, consisting primarily of purchases of
investments net of proceeds from the sale or maturity of investments of $73.0 million and purchases of property and equipment and
capitalized software costs of $15.5 million.
During the year ended December 31, 2021, cash provided by investing activities was $78.4 million, consisting primarily of proceeds from the
sale or maturities of investments net of purchases of $89.9 million, partially offset by purchases of property and equipment and capitalized
software costs of $11.5 million.
Financing Activities
During the year ended December 31, 2022, net cash provided by financing activities was $0.3 million representing proceeds from the sale of
our stock through stock option exercises and the employee stock purchase plan, partially offset by deferred offering costs.
During the year ended December 31, 2021, net cash provided by financing activities was $132.1 million, which represents the proceeds
received from the sale of our stock through a public offering and stock option exercises, partially offset by deferred offering costs.
Funding Requirements
During January 2023, the Company announced a reprioritization of the Company’s clinical and research priorities and a corresponding
reduction in workforce and adjustment to the Company’s manufacturing network, designed to reduce costs and reallocate resources while
maintaining the personnel needed to support the Company’s key programs and refocused pipeline. The reduction in personnel was
substantially completed during January 2023. The Company took steps to reduce its manufacturing costs by terminating the ElevateBio
manufacturing agreement and is seeking to exit its lease related to the Rockville, Maryland manufacturing facility. See Note 14 for further
information.
As of December 31, 2022, we had cash, cash equivalents and investments of $149.2 million. We believe that our existing cash, cash
equivalents and investments, will enable us to fund our operating expenses and capital expenditure requirements at least into early 2025. We
have based 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
104
faster than we currently anticipate and we may need to spend more money than currently expected because of circumstances beyond our
control.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity
offerings, debt financings, collaborations, strategic alliances and marketing, distribution, or licensing arrangements. To the extent that we
raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted and the terms of these
securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and
preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making acquisitions or capital expenditures, or declaring dividends. If we raise additional funds
through collaborations, strategic alliances, or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not
be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may
be required to delay, limit, reduce, or terminate our research, product development, or future commercialization efforts, or grant rights to
develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States
(GAAP). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated
financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual
results may differ from these estimates under 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 this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the
preparation of our consolidated financial statements.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We
expense research and development costs as incurred.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development
expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify
services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the
service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears
for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments.
We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and
circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make
adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
•
vendors in connection with preclinical development activities;
•
CMOs in connection with the production of preclinical and clinical trial materials; and
•
CROs in connection with preclinical studies and clinical trials.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended
pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies on our behalf. The
financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There
may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the
expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in
each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or prepaid
expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of
the status and timing of services performed relative to
105
the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular
period.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees based on their fair value on the date of the grant and
recognize compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective
award. We apply the straight-line method of expense recognition to all awards with service-based vesting conditions. For stock-based awards
granted to non-employees, compensation expense is recognized over the period during which services are rendered by such non-employees
until completed.
We estimate the fair value of restricted stock at the then-current fair value of our common stock and for other stock-based awards we use the
Black-Scholes option-pricing model, which requires subjective assumptions, including the fair value of our common stock, volatility, the
expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock
options and our expected dividend yield. The assumptions used in our Black-Scholes option-pricing model represent management’s best
estimates and involve a number of variables, uncertainties and assumptions and the application of management’s judgment, as they are
inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future.
We do not estimate and apply a forfeiture rate as we have elected to account for forfeitures as they occur.
These assumptions are estimated as follows:
•
Fair Market Value of Common Stock. The Company's stock is traded on The Nasdaq Global Select Market. Fair market value of our
stock is considered the quoted market price on NASDAQ.
•
Volatility. The expected volatility is based on the historical stock volatility of ours and several comparable publicly traded companies
over a sufficient period of time equal to the expected term of the options, as we do not have sufficient trading history to use the
volatility of our own common stock.
•
Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We calculated the
expected term using the simplified method based on the average of each option’s vesting term and the contractual period during
which the option can be exercised, which is typically 10 years following the date of grant.
•
Risk-Free Interest Rate. The risk-free interest rate was based on the yields of U.S. Treasury securities with maturities
commensurate with the expected term of the award.
•
Expected Dividend Yield. We have not paid dividends on our common stock nor do we expect to pay dividends in the foreseeable
future.
Royalty Transfer Agreement
In connection with the sale of Series A redeemable convertible preferred stock prior to our IPO, certain investors are entitled to receive, in the
aggregate, a royalty from us equal to one percent of: (i) all global net sales of any of our products; and (ii) any license income on intellectual
property that was in existence at the time of the Series A preferred stock financing. We have elected to account for this liability at fair value
with changes recognized in the Statement of Operations. Given the nature of the underlying technology and inherent risks associated with
obtaining regulatory approval and achieving commercialization, we ascribed no value to the royalty agreement at inception and at December
31, 2022 and 2021. We continue to evaluate our scientific progress to assess our obligations under this agreement. There is substantial
judgment involved in our assessment.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is
disclosed in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act), and are eligible to take
advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging
growth companies. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards issued subsequent
to the enactment of the JOBS Act until such time as those standards apply to private companies. Section 107 of the JOBS Act provides that
we can elect to opt out of the extended transition period at any
106
time, which election is irrevocable. We have elected to avail ourselves of this exemption from complying with new or revised accounting
standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not
emerging growth companies.
We rely on exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth
company, we may rely on certain of these exemptions, including without limitation (i) providing an auditor’s attestation report on our system of
internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that
may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the consolidated financial statements, known as the 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 we have 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 the completion of our
initial public offering; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; 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 Risk
Information required by this Item is not applicable as we are electing scaled disclosure requirements available to Smaller Reporting
Companies with respect to this Item.
107
Item 8. Financial Statements
TCR2 THERAPEUTICS INC.
Audited Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm
109
Consolidated Balance Sheets as of December 31, 2022 and 2021
110
Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
111
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021
112
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
113
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
114
Notes to the Consolidated Financial Statements
115
1. Organization and Description of Business
115
2. Liquidity
116
3. Summary of Significant Accounting Policies
116
4. Investments and Fair Value Measurements
121
5. Property and Equipment
122
6. Accrued Expenses and Other Current Liabilities
123
7. Commitments and Contingencies
123
8. Leases
123
9. 401(k) Savings Plan
125
10. Stock-Based Compensation
126
11. Income tax expense
129
12. Related party transactions
131
13. Restructuring
131
14. Subsequent Event
133
108
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
TCR2 Therapeutics Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TCR2 Therapeutics Inc. and subsidiaries (the Company) as of December
31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years
then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws 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
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2017.
Boston, Massachusetts
March 23, 2023
109
TCR2 THERAPEUTICS INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
December 31,
2022
December 31,
2021
Assets
Current assets
Cash and cash equivalents
$
32,746 $
222,564
Investments
116,433
43,029
Prepaid expenses and other current assets
5,155
10,534
Assets held for sale
23,287
-
Total current assets
177,621
276,127
Property and equipment, net
6,166
17,075
Right-of-use assets, operating leases
22,510
28,283
Restricted cash
1,152
1,156
Other assets, non-current
787
730
Total assets
$
208,236 $
323,371
Liabilities and stockholders’ equity
Accounts payable
$
2,793 $
2,144
Accrued expenses and other current liabilities
10,823
13,094
Operating lease liabilities
21,834
3,367
Operating lease liabilities related to assets held for sale
28,611
-
Total current liabilities
64,061
18,605
Operating lease liabilities, non-current
3,316
22,996
Other liabilities
-
293
Total liabilities
67,377
41,894
Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued or outstanding as of December
31, 2022 and December 31, 2021, respectively.
-
-
Common stock, $0.0001 par value; 150,000,000 shares authorized; 39,203,366 and 38,496,484 shares issued and
outstanding as of December 31, 2022 and December 31, 2021, respectively.
4
4
Additional paid-in capital
642,644
631,008
Accumulated other comprehensive income (loss)
(445 )
(13 )
Accumulated deficit
(501,344 )
(349,522 )
Total stockholders’ equity
140,859
281,477
Total liabilities and stockholders’ equity
$
208,236 $
323,371
See notes to consolidated financial statements
110
TCR2 THERAPEUTICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
Years Ended December 31,
2022
2021
Operating expenses
Research and development
$
98,643
$
73,578
Impairments and restructuring charges
30,417
3,661
General and administrative
24,439
22,503
Total operating expenses
153,499
99,742
Loss from operations
(153,499 )
(99,742 )
Interest income, net
1,938
224
Loss before income tax expense
(151,561 )
(99,518 )
Income tax expense
261
289
Net loss
$
(151,822 )
$
(99,807 )
Per share information
Net loss per share of common stock, basic and diluted
$
(3.93 )
$
(2.63 )
Weighted average shares outstanding, basic and diluted
38,628,105
37,935,554
See notes to consolidated financial statements
111
TCR2 THERAPEUTICS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(amounts in thousands)
Years Ended December 31,
2022
2021
Net loss
$
(151,822 ) $
(99,807 )
Unrealized loss on investments, net
(432 )
(76 )
Comprehensive loss
$
(152,254 ) $
(99,883 )
See notes to consolidated financial statements
112
TCR2 THERAPEUTICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands, except share data)
Accumulated
Common Stock
Additional
Paid-In
Accumulated
Other
Comprehensive
Total
Stockholders'
Shares
Amount
Capital
Deficit
Income (Loss)
Equity
Balance at December 31, 2020
33,516,795 $
3 $
486,197 $
(249,715 ) $
63 $
236,548
Issuance of common stock, net of issuance costs
4,590,164
1
131,329
-
-
131,330
Exercise of stock options including ESPP shares issued
389,525
-
1,217
-
-
1,217
Stock-based compensation expense
-
-
12,265
-
-
12,265
Unrealized loss on investments
-
-
-
-
(76 )
(76 )
Net loss
-
-
(99,807 )
-
(99,807 )
Balance at December 31, 2021
38,496,484 $
4 $
631,008 $
(349,522 ) $
(13 ) $
281,477
Issuance of common stock, net of issuance costs
10,498
-
-
-
-
-
Exercise of stock options
49,581
-
32
-
-
32
Vesting of restricted stock units
548,212
-
-
-
-
Issuance of common stock related to ESPP
98,591
-
224
-
224
Stock-based compensation expense
-
-
11,380
-
-
11,380
Unrealized loss on investments
-
-
-
-
(432 )
(432 )
Net loss
-
-
-
(151,822 )
-
(151,822 )
Balance at December 31, 2022
39,203,366 $
4 $
642,644 $
(501,344 ) $
(445 ) $
140,859
See notes to consolidated financial statements
113
TCR2 THERAPEUTICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Twelve Months Ended December 31,
2022
2021
Operating activities
Net loss
$
(151,822 )
$
(99,807 )
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization
3,046
2,827
Impairment and restructuring charges
27,450
2,960
Stock-based compensation expense
11,380
12,265
(Accretion) / Amortization on investments
(802 )
837
Deferred tax liabilities
(293 )
99
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
5,557
(2,496 )
Operating leases, net
2,680
(2,416 )
Accounts payable
1,166
(771 )
Accrued expenses and other liabilities
177
4,899
Cash used in operating activities
(101,461 )
(81,603 )
Investing activities
Purchases of equipment
(15,122 )
(11,098 )
Software development costs
(330 )
(351 )
Purchases of investments
(267,522 )
(50,726 )
Proceeds from sale or maturity of investments
194,488
140,622
Cash provided by (used in) investing activities
(88,486 )
78,447
Financing activities
Proceeds from public offering of common stock, net of issuance costs
-
131,330
Proceeds from the exercise of stock options
256
1,217
Payment of deferred offering costs
(131 )
(409 )
Cash provided by financing activities
125
132,138
Net change in cash, cash equivalents, and restricted cash
(189,822 )
128,982
Cash, cash equivalents, and restricted cash at beginning of year
223,720
94,738
Cash, cash equivalents, and restricted cash at end of period
$
33,898
$
223,720
Supplemental disclosure of noncash activities
Property and equipment additions in accounts payable and accrued expenses
$
-
$
517
Right-of-use assets obtained in exchange for operating lease liabilities
$
40,628
$
21,315
Operating cash flows used in operating leases
$
21,238
$
11,291
See notes to consolidated financial statements
114
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
1. Organization and Description of Business
TCR2 Therapeutics Inc. (the Company) is a clinical-stage immunotherapy company developing the next generation of novel T cell therapies
for patients suffering from cancer. The Company was incorporated under the laws of the State of Delaware on May 29, 2015 under the name
TCR2, Inc. In November 2016, the Company changed its name to TCR2 Therapeutics Inc. The Company’s principal operations are located in
Cambridge, Massachusetts.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated.
Proposed Transaction with Adaptimmune
On March 5, 2023, the Company entered into a definitive agreement with Adaptimmune Therapeutics plc ("Adaptimmune"), pursuant to
which, upon the terms and subject to the conditions thereof, the Company will become a wholly-owned subsidiary of Adaptimmune (the
“Merger Agreement” and such transaction, the “Merger”). The combined company will create a preeminent cell therapy company focused on
treating solid tumors. The combination provides extensive advantages for clinical development and product delivery supported by
complementary technology platforms. The lead clinical franchises for the combined company utilize engineered T-cell therapies targeting
MAGE A4 and mesothelin. These targets are expressed on a broad range of solid tumors and are supported by compelling early- and late-
stage clinical data. The combined company also has a preclinical pipeline of additional target opportunities with development initially focused
on PRAME and CD70.
The Merger Agreement was approved by its board of directors (the “Board”), and the Board resolved to recommend approval of the Merger
Agreement to our stockholders. The closing of the Merger is subject to approval of its stockholders and the satisfaction of customary closing
conditions. In connection with the execution of the Merger Agreement, certain of its stockholders and certain shareholders of Adaptimmune
entered into voting and support agreements with Adaptimmune, pursuant to which they have agreed, among other things, and subject to the
terms and conditions of the agreements, to vote their shares in favor of the Merger Agreement and the Merger, in accordance with the
recommendation of the respective boards of directors of Adaptimmune and the Company.
Subject to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share
of the Company's common stock (other than shares of our common stock held as treasury stock, or shares of our common stock owned by
Adaptimmune or any direct or indirect wholly-owned subsidiaries of Adaptimmune), including shares of our common stock underlying our
restricted stock units that vest upon a change of control, will be converted into the right to receive 1.5117 American Depositary Shares of
Adaptimmune (“Parent ADS”) with each Parent ADS representing six ordinary shares of Adaptimmune. Following the closing of the Merger,
Adaptimmune shareholders will own approximately 75% of the combined company and the Company's stockholders will own approximately
25% of the combined company.
Shelf registration statement
On March 16, 2021, the Company filed an automatic shelf registration statement on Form S-3 (the Shelf), with the Securities and Exchange
Commission (SEC), which covers the offering, issuance and sale of an indeterminate amount of the Company’s common stock, preferred
stock, debt securities, warrants and/or units of any combination thereof. The Shelf was automatically effective when filed. On March 22,
2022, the Company amended the Shelf to cover the offering, issuance and sale of up to an aggregate of $300.0 million of the Company's
common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. The amendment to the Shelf was declared
effective by the SEC on March 23, 2022. The Company previously entered into a sales agreement with Jefferies LLC, as sales agent, to
provide for the issuance and sale by the Company of up to $100.0 million of our common stock from time to time in “at-the-market” offerings
under the Shelf, which the Company refers to as the ATM Program.
Equity offerings
On January 22, 2021, the Company closed a public offering of its common stock pursuant to which it issued and sold 4,590,164 shares of its
common stock at a price to the public of $30.50 per share. The aggregate net proceeds received by the Company
115
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
from the offering were approximately $131.3 million after deducting $8.7 million relating to underwriting discounts and commissions and
offering expenses.
2. Liquidity
The Company’s operations to date have focused on organization and staffing, business planning, raising capital, acquiring technology and
assets, manufacturing and conducting clinical and preclinical studies. The Company does not have any product candidates approved for sale
and has not generated any revenue from product sales. The Company’s product candidates are subject to long development cycles and the
Company may be unsuccessful in its efforts to develop, obtain regulatory approval for or market its product candidates.
The Company is subject to a number of risks including, but not limited to, the need to obtain adequate additional funding for the ongoing and
planned clinical development of its product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical
products and development, the Company is unable to accurately predict the timing or amount of funds required to complete development of
its product candidates, and costs could exceed the Company’s expectations for a number of reasons, including reasons beyond the
Company’s control. The Company is also subject to a number of other risks including possible failure of preclinical studies or clinical trials,
the need to obtain marketing approval for its product candidates, the development of new technological innovations by competitors, the need
to successfully commercialize and gain market acceptance of any of the Company’s products that are approved and uncertainty around
intellectual property matters. If the Company does not successfully commercialize any of its products, it will be unable to generate product
revenue or achieve profitability.
During January 2023, the Company announced a reprioritization of the Company’s clinical and research priorities and a corresponding
reduction in workforce and adjustment to the Company’s manufacturing network, designed to reduce costs and reallocate resources while
maintaining the personnel needed to support the Company’s key programs and refocused pipeline. The reduction in personnel was
substantially completed during January 2023. The Company took steps to reduce its manufacturing costs by terminating the ElevateBio
manufacturing agreement and is seeking to exit its lease related to the Rockville, Maryland manufacturing facility. See Note 14 for further
information.
The Company has incurred net losses from operations since inception. The Company expects to continue to generate losses for the
foreseeable future. The Company expects that its cash, cash equivalents and investments as of December 31, 2022 of $149.2 million will be
sufficient to fund its operating expenses and capital expenditure requirements through at least twelve months from the date of issuance of
these consolidated financial statements.
3. Summary of Significant Accounting Policies
Principles of consolidation and basis of presentation
The 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).
Financial statement presentation
Certain reclassifications have been made to prior periods to conform with the current period presentation. On the consolidated statement of
operations, the Company reclassified amounts for impairments and restructuring charges for the year ended December 31, 2021 from
research and development expenses to a separate financial statement line item within operating expenses to conform to current period
presentation of impairments and restructuring charges.
Use of estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates and
assumptions reflected in these consolidated financial statements include, but are not limited to,
116
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
the measurement of right-of-use assets and lease liabilities and held for sale assets and liabilities, accrued expenses related to research and
development activities, the fair value of the royalty transfer agreement obligations and the fair value of stock-based compensation awards
granted under the Company’s equity-based compensation plans. Due to the uncertainty of factors surrounding the estimates or judgments
used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates. Estimates and
assumptions are periodically reviewed, and the effects of revisions are reflected in the consolidated financial statements in the period they
are determined to be necessary.
Concentrations of credit risk and of manufacturing risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and
investments. The Company’s cash, cash equivalents and investments are held by financial institutions in the United States. Amounts on
deposit may at times exceed federally insured limits. Management believes that the financial institutions are financially sound, and
accordingly, minimal credit risk exists with respect to the financial institutions.
As of December 31, 2022, the Company had manufacturing arrangements with vendors for the supply of materials for use in preclinical and
clinical studies. If the Company were to experience any disruptions in the vendors' ability or willingness to continue to provide manufacturing
services, the Company may experience significant delays in its product development timelines and may incur substantial costs to secure
alternative sources of manufacturing.
Cash equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As
of December 31, 2022 and 2021, cash equivalents consisted of U.S treasuries, corporate bonds and government-backed money market
funds.
Investments
As of December 31, 2022, all investments were classified as available-for-sale and were carried at their estimated fair value. Unrealized
gains and losses are recorded as a component of accumulated other comprehensive income (loss) until realized. The Company determines
the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determination at each
balance sheet date. The Company periodically reviews its investments in debt securities for impairment and adjusts these investments to
their fair value when a decline in market value is deemed to be other than temporary. If losses on these securities are considered to be other
than temporary, the loss is recognized in the statement of operations. The Company classifies its available-for-sale marketable securities as
current or non-current based on each instrument’s underlying effective maturity date and for which the Company has the intent and ability to
hold the investment for a period of greater than 12 months. Marketable securities with maturities of less than 12 months are classified as
current and are included in investments in the consolidated balance sheets. Marketable securities with maturities greater than 12 months for
which the Company has the intent and ability to hold the investment for greater than 12 months are classified as non-current and are
included in investments, non-current in the consolidated balance sheets.
Fair value of financial instruments
As of December 31, 2022 and 2021, the Company’s financial instruments consist of money market funds, commercial paper, agency and
corporate bonds and asset-backed securities are included in investments. The carrying value of investments is the estimated fair value. Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization are determined using the straight-line method over the
estimated useful lives. Expenditures for maintenance and repairs are expensed as incurred while renewals and betterments
117
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated
from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations.
Estimated Useful Lives
Laboratory equipment
5 years
Computer hardware and equipment
3 years
Furniture and fixtures
5 - 7 years
Leasehold improvements
Lesser of lease term or estimated
useful life.
Assets not placed in service
Assets not placed in service include direct costs related to the acquisition of property including leasehold improvements, and primarily relate
to the Rockville manufacturing facility. Such costs are not depreciated until the asset is completed and placed into service. As of December
31, 2022, the Rockville, Maryland manufacturing facility, including corresponding right-of-use assets, property and equipment, and assets not
placed in service, met the criteria to be presented as assets held for sale. As a result, these assets have been removed from their respective
categories on the balance sheet as of December 31, 2022 and have been presented separately in the current asset section of the balance
sheet. See Note 13 for further information.
Impairment of long-lived assets
Long-lived assets classified as held and used are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to be generated. Impairment charges are recognized at the
amount by which the carrying amount of an asset exceeds the fair value of the asset.
A long-lived asset or disposal group classified as held for sale is measured at the lower of its carrying amount or fair value less cost to sell.
An impairment loss is recognized for any initial or subsequent write-down to fair value less cost to sell. A gain is recognized for any
subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized for the long-lived asset or
disposal group.
Impairment charges are presented in the statements of operations in a separate line item within operating expenses with other restructuring
charges recognized during the respective periods. During the year ended December 31, 2022, the Company recognized an impairment
charge for the write-down of long-lived assets classified as held for sale related to right-of-use assets, construction-in-progress assets and
personal property assets of $28.5 million. In addition, during the year ended December 31, 2022, the Company incurred other impairment
and restructuring charges of $1.9 million consisting of the write-down of certain laboratory equipment, the write-down of a right-of-use asset
currently being held and used, and restructuring expenses related to the wind down of UK operations. During the year ended December 31,
2021, the Company recognized a charge for impairment of long-lived assets and restructuring expenses related to the wind down of the UK
manufacturing operations. See Note 13 for further information.
Restricted cash
Cash accounts that are restricted as to withdrawal or usage are presented as restricted cash in the Company's balance sheets. Restricted
cash includes amounts held as a security deposit in the form of a letter of credit for the Company’s leased facilities.
Deferred offering costs
The Company capitalizes costs that are directly associated with in-process equity financings until such financings are consummated at which
time such costs are recorded against the gross proceeds of the offering. Should the in-process equity financing be abandoned, the deferred
offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations.
118
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
Assets held for sale
The Company records assets and corresponding liabilities as held for sale that meet the criteria outlined for this designation in ASC 360,
Property, Plant, and Equipment. A long-lived asset or disposal group classified as held for sale is measured at the lower of its carrying
amount or fair value less cost to sell. Assets and liabilities held for sale are included in a separate financial statement line item in the balance
sheets for the periods they meet this designation.
Stock-based compensation
The Company measures employee stock-based awards at grant-date fair value and records compensation expense on a straight-line basis
over the requisite service period, which is generally the vesting period of the respective award. Predominately, the Company issues awards
with only service-based vesting conditions. Occasionally, the Company issues awards with performance obligations. The Company
recognizes stock-based compensation for performance awards during the performance period based on expected performance at the end of
the performance period. 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.
Estimating the fair value of stock options and warrants requires the input of subjective assumptions, including the expected life of the
instrument and stock price volatility. The Company uses the value of its stock price as quoted on the Nasdaq Global Select Market to
determine fair value of the Company’s common stock. The Company uses the Black-Scholes option pricing model to value its stock option
awards and warrants. The assumptions used in calculating the fair value of stock-based awards represent management’s estimates and
involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different
assumptions, stock-based compensation expense could be materially different for future awards.
The Company classifies stock-based compensation expense in its statements of operations in the same manner in which the award
recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and
circumstances present in the arrangement. Leases are classified at their commencement date, which is defined as the date on which the
lessor makes the underlying asset available for use by the lessee, as either operating or finance leases based on the economic substance of
the agreement. The Company recognizes lease right-of-use assets and related liabilities in its consolidated balance sheets for both operating
and finance leases. Lease liabilities are measured at the lease commencement date as the present value of the future lease payments using
the interest rate implicit in the lease, or the incremental borrowing rate if the rate implicit in the lease is not readily determinable. Lease right-
of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. The lease term is
the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will
be exercised. The Company recognizes operating lease costs in operating expenses in its consolidated statements of operations, inclusive of
rent escalation provisions and rent holidays, on a straight-line basis over the respective lease term.
Research and development expenses
Research and development costs are expensed as incurred and consist primarily of funds for employee wages and funds paid to third parties
for the provision of services for product candidate development, clinical and preclinical development and related supply and manufacturing
costs, and regulatory compliance costs. At the end of the reporting period, the Company compares payments made to third party service
providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as
additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company
estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these
costs.
Upfront milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed
as services are rendered.
119
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A
reduction in the carrying value of the deferred tax assets is required when it is not more likely than not that such deferred tax assets will be
realizable.
Net loss per share
Basic and diluted net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-
average shares of common stock outstanding during the period. Dilutive shares of common stock are not assumed to have been issued if
their effect is anti-dilutive. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net
loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since
dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. Therefore, the weighted-average shares
used to calculate both basic and diluted loss per share are the same.
The following potentially dilutive securities, on an as converted basis have been excluded from the computation of diluted weighted-average
shares outstanding as of December 31, 2022 and 2021, as they would be antidilutive:
As of December 31,
2022
2021
Stock options outstanding
3,354,632
6,181,335
Common stock warrants
203,676
203,676
Unvested restricted stock units
1,470,889
66,000
Employee stock purchase plan
59,334
24,513
Total
5,088,531
6,475,524
Comprehensive loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources (which excludes investments from owners). The Company’s only element of other comprehensive
loss is unrealized gains and losses on investments.
Common stock
Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.
Preferred stock
The Board of Directors or any authorized committee thereof is expressly authorized, to the fullest extent permitted by law, to provide by
resolution or resolutions for, out of the unissued shares of Undesignated Preferred Stock, the issuance of the shares of Undesignated
Preferred Stock in one or more series of such stock, and by filing a certificate of designations pursuant to applicable law of the State of
Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including
voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights of the shares of
each series and any qualifications, limitations and restrictions thereof. As of December 31, 2022 and 2021, there are no preferred shares
issued.
120
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
Reconciliation of cash, cash equivalents and restricted cash as presented in the statements of cash flows
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to
the total of the same such amounts shown in the consolidated statements of cash flows for the years ended December 31, 2022 and 2021.
As of December 31,
2022
2021
Cash and cash equivalents
$
32,746
$
222,564
Restricted cash
1,152
1,156
Cash, cash equivalents and restricted cash shown in the statements of cash flows
$
33,898
$
223,720
Segment information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the
chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The
Company views its operations and manages its business in one consolidated operating segment.
JOBS Act accounting election
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the
JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the
JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for
complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the
date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period
provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the
new or revised accounting pronouncements as of public company effective dates.
4. Investments and Fair Value Measurements
As of December 31, 2022, investments were comprised of the following:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
U.S. Treasury securities
$
116,878 $
- $
(445 ) $
116,433
As of December 31, 2021, investments were comprised of the following:
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Corporate bonds
$
33,048
$
-
$
(11 )
$
33,037
U.S. Treasury securities
9,994
-
(2 )
9,992
Total
$
43,042
$
-
$
(13 )
$
43,029
The Company follows FASB’s accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring
basis. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing
parties. Where available, fair value is based on observable market prices, or parameters derived from such prices. Where observable prices
or inputs are not available, valuation models are applied. This hierarchy requires the use of observable market data when available and to
minimize the use of unobservable inputs when determining fair value. These valuation techniques involve some level of management
estimation and judgment. The degree of management estimation and judgment is dependent on the price transparency for the instruments,
or market, and the instruments’ complexity.
The guidance requires fair value measurements to be classified and disclosed in one of the following three categories:
Level 1 — Quoted prices (unadjusted in active markets for identical assets or liabilities)
121
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
Level 2 — Inputs other than quoted prices in active markets that are observable either directly or indirectly
Level 3 — Unobservable inputs in which there is little or no market data, which require the Company to develop its own
assumptions
The Company has classified assets measured at fair value on a recurring basis as follows as of December 31, 2022:
Fair Value Measurement Based on
Amortized
Quoted
Prices in
Active
Market
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Cost
Fair Value
(Level 1)
(Level 2)
(Level 3)
Cash equivalents
$
30,820
$
30,820
$
30,820
$
-
$
-
U.S. Treasury securities
116,878
116,433
-
116,433
-
Total
$
147,698
$
147,253
$
30,820
$
116,433
$
-
Includes cash sweep accounts, U.S. Treasury money market mutual fund, bank certificates of deposit and U.S. Treasury bills that have a maturity of three months or less
from the original acquisition date.
The Company has classified assets measured at fair value on a recurring basis as follows as of December 31, 2021:
Fair Value Measurement Based on
Amortized
Quoted
Prices in
Active
Market
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Cost
Fair Value
(Level 1)
(Level 2)
(Level 3)
Cash equivalents
$
219,162
$
219,162
$
219,162
$
-
$
-
Corporate bonds
33,048
33,037
-
33,037
-
U.S. Treasury securities
9,994
9,992
-
9,992
-
Total
$
262,204
$
262,191
$
219,162
$
43,029
$
-
Includes cash sweep accounts, U.S. Treasury money market mutual fund, bank certificates of deposit and U.S. Treasury bills that have a maturity of three months or less
from the original acquisition date.
During the years ended December 31, 2022 and 2021, there were no transfers among the Level 1, Level 2 and Level 3 categories.
5. Property and Equipment
Property and equipment, net, consisted of:
As of
December 31, 2022
December 31, 2021
Laboratory equipment
$
10,580
$
13,115
Computer hardware and equipment
-
54
Furniture and fixtures
326
376
Leasehold improvements
476
551
Assets not placed in service
887
7,592
12,269
21,688
Less: accumulated depreciation
(6,103 )
(4,613 )
$
6,166
$
17,075
The decrease in property and equipment, net as of December 31, 2022 is primarily driven by certain Rockville, Maryland assets not placed in
service and laboratory equipment being classified as held for sale as of December 31, 2022. See Note 13 for details.
Depreciation expense was $2,645 and $2,827 for the years ended December 31, 2022 and 2021, respectively.
122
(1)
(1)
(1)
(1)
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of:
As of
December 31, 2022
December 31, 2021
Employee compensation and related benefits
$
4,858
$
4,631
Professional fees
533
413
Contract manufacturing organization fees
873
1,261
Contract research organization fees
3,725
2,810
Property received not yet invoiced
9
748
Accrued restructuring charges
-
2,401
Other
825
830
$
10,823
$
13,094
7. Commitments and Contingencies
Litigation
The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a
potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance
that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.
Royalty transfer agreement
In connection with the sale of Series A redeemable convertible preferred stock prior to the Company's IPO, certain investors are entitled to
receive, in the aggregate, a royalty from the Company equal to one percent of (i) all global net sales of any Company products and (ii) any
license income on intellectual property that was in existence at the time of the Series A preferred stock financing. The Company has elected
to account for this liability at fair value with changes recognized in the statement of operations. Given the early-stage nature of the underlying
technology and inherent risks associated with obtaining regulatory approval and achieving commercialization, the Company ascribed no
value to the royalty agreement at inception and for the years ended December 31, 2022 and 2021. The Company currently does not have
any net sales or license income and as a result has paid no royalties under this obligation as of December 31, 2022 and 2021 nor has the
Company accrued any liability as of December 31, 2022 and 2021.
8. Leases
The Company leases all of its offices and facilities under operating leases. The Company has entered into various non-cancellable lease
arrangements for facilities expiring at various times through 2036. Certain of these arrangements have free rent periods or escalating rent
payment provisions. None of the Company's leases include residual value guarantees.
Fixed fees for use of property or equipment and other services are included in the right-of-use assets and lease liabilities. Rent expense is
recognized on a straight-line basis for total rent over the lease period. Variable service costs are included in the lease expense as incurred.
The Company is generally obligated for the cost of property taxes, insurance, common area maintenance, and other administrative fees
relating to its leases, which are considered variable lease costs and are expensed as incurred. In addition, the Company enters into contracts
that have different service obligations. These contracts are considered multiple-element service contracts. When leases are embedded in
multiple-element service contracts, all contract services are accounted for as a single lease component since the Company elected the
practical expedient to not separate lease components and non-lease components.
123
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
Operating Leases
Office space and lab facility, Cambridge, Massachusetts
In March 2018, the Company entered into a lease for office and laboratory facilities that expires in July 2025. Under the terms of the lease,
the Company placed a $0.3 million letter of credit into a restricted cash account as security for the facility.
Office space, Cambridge, Massachusetts
In September 2019, the Company entered into a lease for office facilities that expires in August 2024. Under the terms of the lease, the
Company placed a $0.1 million letter of credit into a restricted cash account as security for the facility.
Lab facility, Cambridge Massachusetts
In November 2020, the Company entered into a lease for office and laboratory facilities that expires in January 2024. Under the terms of the
lease, the Company placed a $0.2 million letter of credit into a restricted cash account as security for the facility.
Manufacturing facility, Waltham, Massachusetts
In November 2020, the Company entered into a manufacturing agreement with ElevateBio LLC (ElevateBio) which includes identified space
dedicated to the Company. The Company determined that the agreement contained an embedded lease. The lease began in February 2021
when the Company obtained control of the dedicated manufacturing space and was for a contractual period ended July 2022.
In February 2022, the Company executed an agreement that expanded its partnership with ElevateBio by obtaining a second GMP
manufacturing suite at ElevateBio BaseCamp in Waltham, Massachusetts through December 2023, and also updated terms in the original
agreement including extending the contractual period through December 2023. As a result of this agreement, the Company recorded
additional right-of-use assets and operating lease liabilities of approximately $29.2 million to reflect this new agreement during the period
ending March 31, 2022.
During January 2023, the Company notified ElevateBio that it was terminating the agreement. The agreement provides for a three-month
notice period and a $10.0 million payment upon termination. The agreement will terminate in April 2023.
Manufacturing facility, Rockville, Maryland
In March 2021, the Company entered into a lease for a new manufacturing facility for an initial term of 15 years through June 2036. The
Company also has an option to extend the term of the lease for two consecutive terms of five years each. The Company placed a $0.6 million
letter of credit into a restricted cash account as security for the facility.
During the second quarter of 2022, our right-of-use asset and associated lease liabilities related to the Rockville, Maryland facility increased
by $11.8 million due to a change in expected reimbursements.
In December 2022, the Company began to actively market the Rockville, Maryland manufacturing facility in an effort to find a third party to
assume the lease arrangement with the landlord. As part of this action, the Company also began to seek selling alternatives for construction-
in-progress assets and personal property assets at the Rockville, Maryland manufacturing facility through either the prospective third party
assuming the lease arrangement or after-market selling channels. As such, the Rockville, Maryland manufacturing facility long-lived assets,
which consist of operating lease right-of-use assets, construction-in-progress assets and personal property assets, have been reclassified as
held for sale as of December 31, 2022. In addition, operating lease liabilities which directly related to Rockville, Maryland right-of-use assets
have also been reclassified as held for sale as of December 31, 2022. The Rockville, Maryland disposal group has thus been removed from
those respective balance sheet categories and has been presented separately as assets and liabilities held for sale in the balance sheet,
measured at the lower of their carrying amount or fair value less cost to sell as of December 31, 2022. See Note 13 for further information.
124
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
Right-of-use assets and lease liabilities as of December 31, 2022 and 2021, were as follows:
December 31,
2022
December 31,
2021
Assets:
Right-of-use assets, operating leases
$
22,510
$
28,283
Right-of-use assets, operating leases included in assets held for sale
17,463
-
$
39,973
$
28,283
Liabilities
Operating lease liabilities
$
21,834
$
3,367
Operating lease liabilities, non-current
3,316
22,996
Operating lease liabilities related to assets held for sale
28,611
-
Total lease liabilities
$
53,761
$
26,363
The components of the lease costs for the year ended December 31, 2022 and 2021 were as follows:
December 31,
2022
December 31,
2021
Operating lease costs
$
23,181
$
8,031
Short-term lease costs
688
548
Variable lease costs
5,828
5,937
Total lease costs
$
29,697
$
14,516
Total lease costs above are recognized in the consolidated statements of operation for the years ended December 31, 2022 and 2021.
Variable lease costs include the $1,501 cost associated with the Company’s decision to cease manufacturing operations at the Catapult
facility during the year ended December31, 2021. Variable lease costs include all costs related to the use of the ElevateBio facilities in the
manufacture of clinical and non-clinical products.
Weighted average remaining lease term and discount rate as of December 31, 2022 were as follows:
December 31,
2022
Weighted-average remaining lease term (in years)
Operating leases
1.3
Weighted-average discount rate:
Operating leases
15.3 %
The following table presents future minimum lease payments under for operating leases as of December 31, 2022:
December 31, 2022
2023
$
23,859
2024
2,538
2025
1,054
Total minimum payments required
27,451
Less amounts representing imputed interest
(2,301 )
Present value of lease liabilities
$
25,150
The table above does not include future minimum lease payments for the Rockville, Maryland facility due to its reclassification as held for
sale as of December 31, 2022. The operating lease liabilities for the Rockville, Maryland facility have been presented separately on the
balance sheet as operating lease liabilities related to assets held for sale, and the liabilities are expected to be transferred to a third party
assuming the lease arrangement within a year.
9. 401(k) Savings Plan
The Company maintains a defined contribution 401(k) plan in which employees may contribute a portion of their compensation, subject to
statutory maximum contribution amounts. For the years ended December 31, 2022 and 2021, the matching contribution expense was $633
and $376, respectively.
125
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
10. Stock-Based Compensation
In February 2019, the Company’s Board of Directors and stockholders approved the 2018 Stock Option and Incentive Plan (the 2018 Plan),
which replaced the 2015 Plan. The shares under the 2015 Plan which were not issued, were rolled into the 2018 Plan. The number of shares
of our common stock reserved for issuance under the 2018 Plan shall be cumulatively increased on January 1, 2020 and each January 1
thereafter by 4% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year or a lesser
number of shares determined by our Board of Directors.
The 2018 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units,
stock appreciation rights and other stock-based awards. The Company’s officers, employees, directors and other key persons (including
consultants) are eligible to receive awards under the 2018 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 issued under the Plan was 7,057,244.
As of December 31, 2022, there were 2,805,240 shares of common stock available for future issuance. The term of the options may be up to
10 years, and options are exercisable in cash or as otherwise determined by the Board of Directors. Generally, options vest over a four-year
period and restricted stock awards vest over a two, three or four-year period.
2022 Inducement Plan
On February 11, 2022, the Company's Board of Directors approved the TCR2 Therapeutics Inc. 2022 Inducement Plan (Inducement Plan)
pursuant to Listing Rule 5635(c)(4) of the corporate governance rules of the NASDAQ Stock Market, and reserved 1,400,000 shares of our
Common Stock for issuance employees of the Company under the Inducement Plan. The Inducement Plan provides for the grant of non-
qualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, and dividend
equivalent rights. The purpose of the Inducement Plan is to encourage and enable the Company to grant equity awards to induce highly
qualified prospective officers and employees to accept employment and provide them a proprietary interest in the Company. The maximum
number of authorized shares to be issued under the Inducement Plan is 1,400,000 shares of common stock. The amount, terms of grants,
and exercisability provisions are determined and set by the Compensation Committee of the Company’s Board of Directors. The term of the
options may be up to 10 years, and options are exercisable in cash or as otherwise determined by the Board of Directors.
As of December 31, 2022, there were 851,319 shares of common stock available for future issuance under the Inducement Plan. Generally,
options vest over a four-year period. No RSUs have been issued from the Inducement Plan.
The Company recorded stock-based compensation expense in the following expense categories of its accompanying consolidated
statements of operations:
For the Years Ended December 31,
2022
2021
Research and development
$
4,715 $
5,592
General and administrative
6,665
6,673
$
11,380 $
12,265
126
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
Stock options
The following table summarizes the activity related to stock option grants to employees and non-employees for the years ended December
31, 2022 and 2021:
Shares
Weighted
Average
Exercise
Price
Per Share
Weighted
Average
Remaining
Contractual
Life
(in Years)
Balance as of January 1, 2021
5,011,349 $
14.99
8.4
Granted
2,094,554 $
9.32
Exercised
(371,636 ) $
2.55
Forfeited
(552,932 ) $
21.63
Balance as of December 31, 2021
6,181,335 $
13.31
6.1
Granted
1,809,185 $
1.90
Exercised
(49,581 ) $
0.74
Options cancelled in exchange for RSUs from tender offer
(2,553,598 ) $
19.24
Forfeited
(1,492,045 ) $
12.95
Balance as of December 31, 2022
3,895,296 $
4.43
8.3
Exercisable as of December 31, 2022
1,111,691 $
6.46
5.5
Vested and expected to vest as of December 31, 2022
3,895,296 $
4.43
During the year ended December 31, 2022, the Company offered employees with option grants that had strike prices of greater than $10 per
share the opportunity to exchange those options for restricted stock units. The exchange rate was based on the current stock price compared
to the strike price on the date of the offer, November 16, 2022. Vesting for the RSUs was largely based on the original grant date of the
option. In the aggregate, 2,553,598 options were exchanged for 751,532 RSUs.
As of December 31, 2022, there was $5.3 million in unrecognized compensation cost that is expected to be recognized over an estimated
weighted-average amortization period of 2.7 years. The aggregate intrinsic value of options outstanding and options exercisable as of
December 31, 2022 was $108.0. The aggregate intrinsic values of options exercised during the year ended December 31, 2022 was $93.
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 fair value of each grant of options during the years ended December 31, 2022 and 2021 was determined using the methods and
assumptions discussed below:
▪
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 the option due to the Company’s lack of sufficient historical data. The expected term of non-employee options is equal to the
contractual term.
▪
The expected volatility is based on historical volatilities of similar entities within the Company’s industry which were commensurate
with the 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 foreseeable
future to pay, a dividend on its common stock.
▪
The Company is traded on the Nasdaq Select Market. Fair value is determined by the stock price quoted on the Nasdaq.
127
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
For the years ended December 31, 2022 and 2021, 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:
For the Years Ended December 31,
2022
2021
Risk-free interest rate
3.2 %
1.2 %
Expected term (in years)
2.9
6.1
Expected volatility
72.8 %
70.2 %
Annual dividend yield
0 %
0 %
Fair value of common stock
$
1.22 $
9.42
Restricted stock units
The following table summarizes the activity related to restricted stock unit grants to employees and non-employees for the twelve months
ended December 31, 2022
Restricted Stock Units
Weighted Average
Price Per Share
Balance as of January 1, 2021
-
$
-
Granted
66,000
$
4.80
Vested
-
$
-
Forfeited
-
$
-
Balance as of December 31, 2021
66,000
$
4.80
Granted
1,269,269
$
2.34
RSUs granted in exchange for options cancelled from tender offer
751,532
$
1.33
Vested
(548,973 )
$
2.44
Forfeited
(66,939 )
$
3.28
Balance as of December 31, 2022
1,470,889
$
2.22
During the year ended December 31, 2022, the Company granted 373,255 performance-based RSUs (PRSUs). Performance is based upon
attaining specified operational metrics. The performance criteria measurement dates are December 31, 2022 and March 31, 2023. There
were no PRSUs issued for the December 31, 2022 measurement date. In addition, the PRSUs also have service-based vesting criteria for
two years after the measurement date for issued PRSUs.
As of December 31, 2022, there was $2.5 million of unrecognized compensation cost related to unvested employee RSUs. This amount is
expected to be recognized over a weighted-average period of 2.7 years.
Warrants
Warrants 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 warrants have an exercise price of $0.74 per share and will expire at the earlier of ten years from the date of issuance or a change in
control event as defined in the warrant agreements.
As of December 31, 2022 and 2021, there were 203,676 warrants outstanding. During the years ending December 31, 2022 and 2021, the
Company granted no warrants, there were no forfeitures, and there were no exercises.
Employee stock purchase plan (ESPP)
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-month offering 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 offering period, whichever is lower. Eligible employees generally included all employees. Offering 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 each year. Share purchases are funded
through payroll deductions of up to 15% of an employee’s eligible compensation for each payroll period, or $25 each calendar year.
128
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
During the years ended December 31, 2022 and 2021, there were 98,591 and 17,889 shares issued under the 2018 ESPP, respectively.
11. Income Tax Expense
Income (loss) before income tax expense for the years ended December 31, 2022 and 2021 consisted of the following:
For the Years Ended December 31,
2022
2021
United States
$
(151,742 ) $
(100,607 )
Foreign
181
1,089
Loss before income taxes
$
(151,561 ) $
(99,518 )
The income tax expense for the years ended December 31, 2022 and 2021 consisted of the following components:
For the Years Ended December 31,
2022
2021
Current tax
State
$
22 $
17
Foreign
532
181
Total current tax
554
198
Deferred tax
Foreign
(293 )
91
Total deferred tax
(293 )
91
Income tax expense
$
261 $
289
Subject to the limitations described below, at December 31, 2022, the Company has cumulative federal and state net operating loss
carryforwards of approximately $4.1 million and $269.5 million available to reduce future federal and state taxable income, respectively,
which begin to expire in 2035. Additionally, the Company has $272.0 million of federal net operating loss carryforwards which carryforward
indefinitely. The Company has cumulative federal and state tax credit carry forwards of $11.7 million and $3.9 million, respectively, available
to reduce future federal and state income taxes which begin to expire in 2035 and 2031, respectively.
Section 382 of the Internal Revenue Code of 1986, as amended (the Code) provides for limitation on the use of net operating loss and
research and development tax credit carryforwards following certain ownership changes (as defined in Code) that could limit the Company’s
ability to utilize these carryforwards. Pursuant to Section 382 of the Code, an ownership change occurs when the stock ownership of a 5%
stockholder increases by more than 50% over a three-year testing period. The Company may have experienced various ownership changes,
as defined by the Code, as a result of past financings and may in the future experience an ownership change. Accordingly, the Company’s
ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards
may be applied against future taxes. The Company has not performed an Internal Revenue Code Section 382 study in connection with
changes in control.
129
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
The components of net deferred income tax assets (liabilities) as of December 31, 2022 and 2021 are as follows:
As of December 31,
2022
2021
Deferred tax assets:
Net operating loss carryforwards
$
79,503
$
59,771
Research and development credits
14,754
10,574
Equity-based compensation
2,492
1,810
Capitalized costs
25,040
5,029
Operating lease liabilities
6,754
7,124
Accrued expenses and other temporary differences
2,196
921
Fixed assets
146
-
Total deferred tax assets
130,885
85,229
Deferred tax liabilities:
Fixed assets
-
(489 )
Right-of-use assets, operating leases
(6,045 )
(7,643 )
Total deferred tax liabilities
(6,045 )
(8,132 )
Less: valuation allowance
(124,840 )
(77,391 )
Total net deferred tax assets (liabilities)
$
-
$
(294 )
In assessing the realizability of the net deferred tax assets, the Company considers all relevant positive and negative evidence in determining
whether 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 gross
deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net
operating loss carryforwards. Management believes that it is more likely than not that the Company’s U.S. deferred income tax assets will not
be realized. As such, there is a full valuation allowance against the net U.S. deferred tax assets as of December 31, 2022 and 2021. The
valuation allowance in the U.S. increased by approximately $47.4 million during the year ended December 31, 2022 primarily as a result of
the increase in net operating loss carryforwards and deferred tax assets related to capitalized research and experimental expenditures(1). The
valuation allowance increased by approximately $25.7 million during the year ended December 31, 2021 primarily as a result of the increase
in net operating loss carryforwards.
(1) The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. Under the Act, research and experimental expenditures incurred for tax years beginning after
December 31, 2021 must be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. Effective
January 1, 2022, the Company has complied with the mandatory capitalization and amortization of research and experimentation expenditures.
The Company did not have unrecognized tax benefits as of December 31, 2022 or 2021. The Company recognizes interest and penalties
accrued on any unrecognized tax benefits as a component of income tax expense.
A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements is as
follows:
As of December 31,
2022
2021
Statutory Federal income tax rate
21.0 %
21.0 %
State income tax, net of federal benefit
5.6 %
5.1 %
Stock compensation
-1.1 %
-3.1 %
Permanent differences
0.0 %
-0.2 %
Research and development credit benefit
2.8 %
2.7 %
Other
-0.1 %
0.0 %
Change in valuation allowance
-28.4 %
-25.8 %
Effective income tax rate
-0.2 %
-0.3 %
The Company’s remains subject to examination by U.S. Federal, state, local, and foreign tax authorities for tax years 2019 through 2022. We
are no longer subject to U.S. Federal, state, local, and foreign examinations by tax authorities for the tax year 2018 and prior. However, net
operating losses from the tax year 2018 and prior would be subject to examination if and when used in a future tax return to offset taxable
income.
The Company believes that the Company does not have any uncertain tax positions that would result in a material impact on the Company’s
financial statements. The Company files income tax returns in the above jurisdictions as well as the applicable state jurisdictions in the United
States. There are currently no income tax examinations ongoing. If and when applicable, the Company will recognize interest and penalties
on uncertain tax positions as income tax expense.
130
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
12. Related Party Transactions
Manufacturing agreement
During November 2020, the Company entered into a manufacturing partnership with ElevateBio, which was amended in February 2022. Dr.
Ansbert Gadicke is a member of the board of directors at the Company and ElevateBio. The agreement is to establish a manufacturing
partnership with ElevateBio for production of the Company’s clinical trial products. During the twelve months ended December 31, 2022, the
Company has incurred $20.3 million in expenses and has incurred additional costs of $0.1 million for equipment owned by the Company for
use by ElevateBio. During the twelve months ended December 31, 2021, the Company incurred $1.8 million in expenses and incurred
additional costs of $0.3 million for equipment owned by the Company for use by ElevateBio.
During January 2023, the Company notified ElevateBio that it was terminating the agreement. The agreement provides for a three-month
notice period and a $10.0 million payment upon termination. The agreement will terminate in April 2023.
13. Impairments and Restructuring Charges
In December 2022, the Company began to actively market the Rockville, Maryland manufacturing facility in an effort to find a third party to
assume the lease arrangement with the landlord. As part of this action, the Company also began to seek selling alternatives for construction-
in-progress assets and personal property assets at the Rockville, Maryland manufacturing facility through either the prospective third party
assuming the lease arrangement or after-market selling channels. These actions were commenced in order to gain capital efficiencies in the
manufacturing activities currently supporting the Company’s clinical timelines. As such, Rockville, Maryland manufacturing facility long-lived
assets, which consist of operating lease right-of-use assets, construction-in-progress assets and personal property assets, have been
reclassified as held for sale as of December 31, 2022. The Company expects all sales related to the Rockville, Maryland assets held for sale
to be completed within a year. An impairment charge was recognized as of December 31, 2022 in order to write-down these Rockville,
Maryland manufacturing facility long-lived assets to fair value less costs to sell. In addition, operating lease liabilities which directly relate to
Rockville, Maryland right-of-use assets have also been reclassified as held for sale as of December 31, 2022.
For the year ended December 31, 2022, the Company recognized an impairment charge of $0.5 million associated with a right-of-use asset
currently being held and used as the carrying value of the asset of $0.8 million exceeded its fair value.
During December 2021, the Company decided to wind down its operations in the United Kingdom and consolidated manufacturing
operations in the United States. The Company completed the restructuring during the second quarter of 2022. Restructuring charges related
to this action were recognized in the years ended December 31, 2022 and 2021 of $0.5 million and $3.7 million, respectively.
Restructuring expenses
In December 2021, the Company elected to cease manufacturing operations at its Catapult facility. As a result, the Company recognized a
$1.5 million variable lease cost as of December 31, 2021 reflecting its estimated obligation for the 12-month termination period associated
with the Catapult lease agreement, as well as other restructuring related expenses incurred as a result of the decision to cease
manufacturing operations at Catapult. During the twelve months ended December 31, 2022 and 2021, the Company incurred the following
expenses associated with these restructuring activities which are included in impairments and restructuring charges on the statements of
operations.
For the Twelve Months Ended December 31, 2022 and 2021
Severance and
Related Costs
Lease and Other
costs
Asset Impairment
Costs
Total
For the twelve months ended December 31, 2022
$
306 $
228 $
- $
534
For the twelve months ended December 31, 2021
885
2,217
559
3,661
131
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
Accrued restructuring expenses
Balances related to this restructuring included in accrued expenses on the balance sheet are as follows:
Accrued Expenses
Severance and Related Costs
Lease and Other costs
Total
Balance as of January 1, 2021
$
-
$
-
$
-
Expenses
885
2,217
3,102
Cash payments
(701 )
-
(701 )
Balance as of December 31, 2021
184
2,217
2,401
Expenses
306
285
591
Adjustment of expenses
-
(57 )
(57 )
Cash payments
(490 )
(2,445 )
(2,935 )
Balance as of December 31, 2022
$
-
$
-
$
-
Impairment charges on assets held for sale
A long-lived asset or disposal group classified as held for sale is measured at the lower of its carrying amount or fair value less cost to sell.
The Company recognizes an impairment loss for any initial or subsequent write-down of the assets held for sale to fair value less cost to sell.
In December 2022, the Company reclassified long-lived assets at the Rockville, Maryland manufacturing facility, which consist of operating
lease right-of-use assets, construction-in-progress assets, and personal property assets, as held for sale as of December 31, 2022. An
impairment charge was recognized as of December 31, 2022 in order to write-down these Rockville, Maryland manufacturing facility long-
lived assets to fair value less costs to sell, as follows:
As of December 31, 2022
Asset
Carrying Value
Fair Value Less Costs to
Sell
Impairment Amount
Right-of-use assets, operating leases
$
30,007 $
17,463 $
12,544
Assets not placed in service
21,760
5,824
15,936
Laboratory equipment
888
-
888
Total impairment charge
$
29,368
Rockville, Maryland operating lease right-of-use asset
The Company obtained a third-party valuation report to assist in estimating the fair value of the Rockville, Maryland operating lease right-of-
use asset as of December 31, 2022. The Company considered market information, recent comparable leases and offerings of comparable
office space in the geographical market, the estimated time to identify a third party to assume the lease arrangement, and costs to sell
comprised of broker commissions and closing costs. Based on this analysis, the Company determined that the Rockville, Maryland operating
lese right-of-use asset fair value less cost to sell was $17.5 million, and a resulting impairment charge of $12.5 million was recorded to
impairments and restructuring charges for the year ended December 31, 2022.
Rockville, Maryland assets not placed in service
The Company has various long-lived assets not placed in service at the Rockville, Maryland manufacturing facility. These assets are
comprised of leasehold improvements and other assets associated with the in-process build-out of the Rockville, Maryland facility, as well as
certain other personal property assets such as equipment that has not yet been placed into service. At the time of the Company’s
determination that the Rockville, Maryland manufacturing facility long-lived assets would be actively marketed and held for sale, the total
carrying value of these assets not placed in service was $21.8 million. The Company has pursued different selling alternatives for assets not
placed in service through either a prospective third party to assume the lease arrangement or after-market selling channels. The Company
considered the nature of the long-lived assets not placed in service, current market conditions, information obtained from after-market selling
channels and appraisals, actual sales that have occurred subsequent to year-end, and estimated costs to sell, in determining the fair value of
these assets to be $5.8 million as of
132
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
December 31, 2022. The resulting impairment charge of $15.9 million was recorded to impairments and restructuring charges for the year
ended December 31, 2022.
Rockville, Maryland assets held for sale
As of December 31, 2022, the following assets and liabilities related to the Rockville, Maryland manufacturing facility are classified as held for
sale at their fair value less cost to sell and are presented as held for sale in the Company’s consolidated balance sheet as of December 31,
2022:
Assets
As of December 31, 2022
Right-of-use assets, operating leases included in assets held for sale
$
17,463
Assets not placed in service
5,824
Total
$
23,287
Liabilities
Operating lease liabilities related to assets held for sale
$
28,611
14. Subsequent Events
2023 Restructuring
On January 5, 2023, the Company announced a reprioritization of the Company’s clinical and research priorities and a corresponding
reduction in workforce and adjustment to the Company’s manufacturing network, designed to reduce costs and reallocate resources while
maintaining the personnel needed to support the Company’s key programs and refocused pipeline. The 2023 restructuring reduced the
Company’s workforce by approximately 40%, and the reductions in personnel were substantially completed at the end of January 2023.
The Company estimates that it will incur aggregate pre-tax charges of approximately $3.0 million in connection with the 2023 restructuring,
which includes one-time employee severance and termination payments and other disposal and other charges. The Company has incurred
$2.4 million through the first quarter of 2023. The Company anticipates that these one-time charges will be completed in the third quarter of
2023.
During January 2023, the Company notified ElevateBio that it was terminating the agreement. The agreement provides for a three-month
notice period and a $10.0 million payment upon termination. The agreement will terminate in April 2023.
Silicon Valley Bank Exposure
As of March 23, 2023, the Company had less than $0.1 million of unrestricted cash, cash equivalents and investments and approximately
$1.2 million of restricted cash as certificates of deposits related to facility leases held at Silicon Valley Bank. On March 13, 2023, the Federal
Deposit Insurance Corporation ("FDIC") stated it has transferred all of the deposits, both insured and uninsured, and substantially all of the
assets of Silicon Valley Bank to the Silicon Valley Bridge Bank, N.A., a bridge bank that will be operated by the FDIC.
The Proposed Transaction with Adaptimmune
On March 5, 2023, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Adaptimmune Therapeutics
plc, a public limited company incorporated in England and Wales ("Adaptimmune") and CM Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Adaptimmune ("Merger Sub"), pursuant to which, upon the terms and subject to the conditions thereof, Merger
Sub will be merged with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly-owned subsidiary of
Adaptimmune.
Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, at the effective time of the Merger (the
“Effective Time”), each issued and outstanding share of the Company's common stock, par value $0.0001 per share (the “TCR2 Common
Stock") (other than shares of TCR2 Common Stock held by TCR2 as treasury stock, or shares of TCR2 Common Stock owned by
Adaptimmune, Merger Sub or any direct or indirect wholly-owned subsidiaries of Adaptimmune), including shares
133
TCR2 Therapeutics Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(Amounts in thousands, excluding share and per share items or as otherwise noted)
of the Company's Common Stock underlying the Company's restricted stock units that vest upon a change of control, will be converted into
the right to receive 1.5117 (the “Exchange Ratio”) Adaptimmune American Depositary Shares (“Adaptimmune ADSs”).
Each option to acquire shares of the Company's Common Stock that is outstanding and unexercised immediately prior to the Effective Time,
whether or not vested, will be assumed and substituted for an option to purchase a number of Adaptimmune ordinary shares or
Adaptimmune ADSs, as determined by Adaptimmune, based on a calculation equal to the product of (i) the total number of shares of the
Company's Common Stock subject to such of the Company's option immediately prior to the Effective Time multiplied by (ii) six times the
Exchange Ratio (the “Ordinary Share Exchange Ratio”). Each award of restricted stock units with respect to shares of TCR2 Common Stock
(other than restricted stock units that vest upon a change of control) will be assumed and substituted for a restricted stock unit-style option to
purchase a number of Adaptimmune ordinary shares or Adaptimmune ADSs, as determined by Adaptimmune, based on a calculation equal
to the product of (i) the total number of shares of TCR2 Common Stock subject to such TCR2 restricted stock unit and (ii) the Ordinary Share
Exchange Ratio.
The Merger Agreement contains customary representations, warranties and covenants given by Adaptimmune, the Company and Merger
Sub. The Merger Agreement also contains customary pre-closing covenants, including covenants by each of the parties relating to conduct of
their respective business prior to the closing of the Merger. In addition, the parties have agreed to use their respective reasonable best
efforts to take all actions necessary, proper or advisable to complete the Merger and the other transactions contemplated by the Merger
Agreement as promptly as practicable, including making any required regulatory filings with respect to the Merger, except that Adaptimmune
is not required to divest any assets or businesses of the Company, Adaptimmune or any of their respective affiliates and subsidiaries.
The Merger Agreement also provides that, from the earlier of the Effective Time of the Merger and termination of the Merger Agreement,
each of Adaptimmune and the Company is subject to certain restrictions on its ability to solicit acquisition proposals from third parties, to
provide information to third parties and to engage in discussions with third parties regarding acquisition proposals, subject to customary
exceptions. In addition, the board of directors of each of Adaptimmune and the Company are required to recommend that their respective
shareholders or stockholders vote in favor of the Merger, subject to exceptions for superior proposals and other situations where failure to
effect a recommendation change would be inconsistent with such board’s fiduciary duties.
Consummation of the Merger is subject to various conditions, including, among others, (i) approval of the Merger Agreement and Merger by
the Company’s stockholders, (ii) Adaptimmune’s shareholders authorizing Adaptimmune’s board of directors (or a duly authorized committee
thereof) to allot all Adaptimmune ordinary shares to be issued in connection with the Merger (to be represented by Adaptimmune ADSs), (iii)
the absence of any law or order prohibiting consummation of the Merger, (iv) Adaptimmune’s Registration Statement on Form S-4 (to be
issued in connection with the Merger) having been declared effective, (v) the Adaptimmune ADSs issuable to the Company's stockholders
having been authorized for listing on Nasdaq, (vi) accuracy of the other party’s representations and warranties (subject to certain materiality
standards set forth in the Merger Agreement), (vii) compliance by the other party in all material respects with such other party’s obligations
under the Merger Agreement; (viii) the absence of a material adverse effect on the other party since March 5, 2023, (ix) satisfaction of certain
regulatory clearances and (x) certain contingent liabilities of the Company being less than $10 million.
134
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or
financial disclosure required to be reported under this Item.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act), refers to controls and procedures that are designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive
and principal financial officers, 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
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls
and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system,
misstatements due to error or fraud may occur and not be detected.
Our management, with the participation of our Chief Executive Officer (who serves as our principal executive officer) and our Chief Financial
Officer (who serves as our principal financial officer and principal accounting officer), have evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable
assurance level.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers and effected by the company’s Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and
procedures that:
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of the company;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls
135
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control—Integrated Framework (2013 framework) (COSO). Based on its assessment, management concludes that, as of December 31,
2022, our internal control over financial reporting is effective based on those criteria.
Item 9B. Other Information
Not Applicable
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not Applicable
136
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth information about our directors, executive officers and other key employees as of March 5, 2023.
Name
Age
Position
Executive Officers
Garry E. Menzel
58
President, Chief Executive Officer and Director
Rosemary Harrison
40
Chief Business and Strategy Officer
Angela Justice
50
Chief People Officer
Peter Olagunju
45
Chief Operating Officer
Alfonso Quintas Cardama
52
Chief Medical Officer
Eric Sullivan
43
Chief Financial Officer
Non-Employee Directors
Andrew Allen (1)(2)(4)
56
Director
Ansbert Gadicke (3)(4)
65
Director
Neil W. Gibson (1)(2)
66
Director
Priti Hegde (3)
51
Director
Axel Hoos (3)
53
Director
Shawn Tomasello (2)(3)
64
Director
Stephen Webster (1)(4)
61
Chairman of the Board of Directors
(1)
Member of audit committee
(2)
Member of compensation committee
(3)
Member of corporate governance and nominating committee
(4)
Member of finance and strategy committee
Executive Officers
Garry Menzel, Ph.D. Dr. Menzel joined our company in 2016 as a director and Chief Executive Officer. Dr. Menzel has also served on the
Board of Directors and chairman of the audit committee of the oncology company Black Diamond Therapeutics Inc. since 2014 and has
served on the Board of Directors of Stoke Therapeutics Inc. since 2020. Previously, Dr. Menzel was the Chief Strategy Officer at Axcella
Health Inc. from 2015 to 2016, the Chief Financial Officer at DaVita Healthcare Partners Inc. from 2013 to 2015, and the Chief Operating
Officer at Regulus Therapeutics Inc. from 2008 to 2013. Dr. Menzel also had global leadership roles in running the biotechnology practices at
Goldman Sachs & Co. LLC from 1994 to 2004 and Credit Suisse Group AG from 2004 to 2008. In addition, he was a consultant with Bain &
Company and was a research assistant at SmithKline Beecham PLC (now GlaxoSmithKline PLC). Dr. Menzel received his Ph.D. from the
University of Cambridge, where he studied the regulation of oncogenes in immune cells, and his M.B.A. from the Stanford University
Graduate School of Business. We believe Dr. Menzel is qualified to serve as a member of our Board of Directors because of his scientific
background and corporate leadership experience.
Rosemary Harrison, Ph.D. Dr. Harrison joined our company in January 2022 as Chief Business and Strategy Officer. She brings nearly 20
years of global experience working on strategic planning, portfolio management and business development at both pharmaceutical and
biotechnology companies. Prior to joining the Company, she was Senior Vice President of Corporate Development and Strategy at Trillium
Therapeutics from October 2020 to November 2021 where she led its acquisition by Pfizer for $2.22 billion in November 2021. Before that,
Dr. Harrison served in strategic and research roles within RA Capital Management from June 2018 to June 2019, as Head of Rare Diseases
at Imbria Pharmaceuticals from June 2019 to March 2020, and as Head of Portfolio Management and Strategic Planning at the Novartis
Institutes for Biomedical Research from March 2015 to May 2018. Earlier in her career, Dr Harrison served as a consultant at Bain &
Company where she advised on corporate strategic and operational programs. Dr. Harrison holds a Bachelor of Biotechnology in Drug
Design and Development and a Ph.D. from The University of Queensland.
Angela Justice, Ph.D. Dr. Justice joined our company in October 2019 as Chief People Officer. From March 2018 to July 2019, Dr. Justice
was the Chief Human Resources Officer at Surgery Partners, Inc. From 2012 to February 2018, Dr. Justice held several positions at Biogen,
Inc., including serving as Chief Learning Officer from April 2015 to February 2018 and Senior Director of Global Medical Affairs for Biogen
from 2012 to 2015. Dr. Justice received her B.S. from Minnesota State University at Mankato and her Ph.D. from the University of Chicago.
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Peter Olagunju. Mr. Olagunju joined our company in July 2021 as Chief Technical Officer and was promoted to Chief Operating Officer as
January 1, 2023. He brings over 20 years of experience in cell and gene therapy, clinical development, program management, manufacturing
and technical operations. Prior to joining our company, from March 2020 to July 2021, Mr. Olagunju was Senior Vice President of Technical
Operations at FerGene Inc., where he led the technical operations function for the commercialization of a gene therapy for bladder cancer.
Before that, from 2015 to March 2020, Mr. Olagunju held several roles of increasing responsibility at bluebird bio, Inc., including serving as
Vice President of Global Patient Operations where he was the program lead and functional head of manufacturing supporting the European
approval for ZYNTEGLO®, a transformational gene therapy for Transfusion dependent Thalassemia. Earlier in his career, he held senior
positions in Commercial Technical Operations and served as the Head of Quality at Dendreon Corp. and ZymoGenetics, Inc. Mr. Olagunju
holds an M.B.A. from the University of Washington and a B.S. in Biology from the University of Illinois at Urbana-Champaign.
Alfonso Quintás Cardama, M.D. Dr. Quintás joined our company in 2017 as Chief Medical Officer. Dr. Quintás was the Clinical
Development Head of the Cell & Gene Therapies Unit at GlaxoSmithKline PLC in 2017. Between 2014 and 2016, he served as Global
Clinical Leader, Cell & Gene Therapy, at Novartis AG and was an Assistant Professor in the Department of Leukemia at The University of
Texas, MD Anderson Cancer Center from 2009 to 2014. Dr. Quintás received his M.D. from the Universidad de Santiago de Compostela
School of Medicine in Spain. He completed an internship and residency in the Department of Medicine of the Albert Einstein College of
Medicine—Yeshiva University and a hematology and oncology fellowship and a leukemia fellowship at The University of Texas, MD
Anderson Cancer Center.
Eric Sullivan. Mr. Sullivan joined our company in June 2022 as Chief Financial Officer. Prior to joining the Company, Mr. Sullivan was
President, Chief Financial Officer and Chief Operating Officer at Triplet Therapeutics from 2019 to 2021, where he led finance, business
development and corporate operations. Before that, between 2017 and 2019, Mr. Sullivan led finance as Senior Vice President at Gemini
Therapeutics and Oncorus. Earlier in his career, he held senior financial management positions at bluebird bio and Merrimack
Pharmaceuticals. Mr. Sullivan holds a B.S. in Accountancy from Bentley University and is a Certified Public Accountant (CPA).
Non-Employee Directors
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.,
and has served as its President and Chief Executive Officer since August 2015. Dr. Allen previously co-founded Clovis Oncology, Inc., a
public pharmaceutical development company, and served as its executive vice president of clinical and preclinical development and chief
medical officer from April 2009 to July 2015. Prior to that, he was chief medical officer at Pharmion Corporation from 2006 to 2008.
Previously, Dr. Allen served in clinical development leadership roles at Chiron Corporation and Abbott Laboratories, and worked at McKinsey
& Company, where he advised life science companies on strategic issues. He currently serves on the board of directors of Gritstone bio, Inc.
(public), TCR2 Therapeutics, Inc. (public), Revitope Oncology, Inc. (private) and Verge Genomics, Inc (private). Dr. Allen previously served
on the board of directors of Sierra Oncology (public) from 2018 until its acquisition by GSK in 2022, Epizyme, Inc. (public) from 2014 until
2021 and Cell Design Labs, a private biotechnology company, from November 2015 until its acquisition by Gilead Sciences, Inc. in December
2017. Dr. Allen qualified in medicine at Oxford University and received a Ph.D. in immunology from Imperial College of Science, Technology
and Medicine in London. We believe Dr. Allen is qualified to serve on our Board of Directors due to his educational experience and his
experience as a founder and senior executive of biotechnology and pharmaceutical companies.
Ansbert Gadicke, M.D. Dr. Gadicke joined our Board of Directors in May 2015. Dr. Gadicke co-founded MPM Capital’s venture investing
activities in 1997 and has since served as a Managing Director. Prior to that, Dr. Gadicke led MPM Capital’s Advisory and Investment
Banking business from 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 of Cullinan 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. We believe Dr. Gadicke is qualified to serve as a member of our Board of Directors because of his extensive
experience in the life sciences industry and in investment management.
Neil Gibson, Ph.D. Dr. Gibson joined our Board of Directors in February 2018. Dr. Gibson served as Senior Vice President to COI
Pharmaceuticals, Inc., an accelerator company focused on the creation and development of unique drug discover companies, from 2016 to
2021. As SVP for COI, Dr. Gibson served as President and CEO of Adanate from 2017 to 2021, and President and CEO of PDI Therapeutics
from 2017 to 2020. From 2015 to 2016, Dr. Gibson served as Senior Vice President and Chief Development Officer to BioAtla LLC. From
2011 to 2015, he served as Chief Scientific Officer of Regulus Therapeutics Inc., and from 2007 to 2011 he was Chief Scientific Officer of
Pfizer Oncology based in La Jolla, CA. Dr. Gibson is a member of the board of directors of Shattuck Labs, Inc. and Instill Bio, Inc. Dr. Gibson
received his Ph.D. from the University of Aston and his B.Sc.
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from the University of Strathclyde. We believe Dr. Gibson is qualified to serve on our Board of Directors because of his extensive experience
in the life sciences industry.
Priti Hegde, Ph.D. Dr. Hegde joined our Board of Directors in August 2021. Dr. Hegde has served as is Chief Scientific Officer of
Foundation Medicine Inc. since 2019, where she oversees clinical product development, cancer genomics, regulatory and early stage
research to advance their leading comprehensive genomic profiling portfolio. Previously, Dr. Hegde held roles of increasing responsibility at
Genentech for 12 years, including as Senior Director in Oncology Biomarker Development from 2016 to 2019, during which she established
and led the biomarker group accountable for translational science strategies in cancer immunotherapy and was responsible for clinical
translation strategies for more than 18 therapeutic programs in over 100 Phase I-III global clinical trials. Dr. Hegde was also instrumental in
the approvals for Tecentriq® (atezolizumab), a PD-L1 immunotherapy, in both the United States and European Union, as well as its
forthcoming diagnostic filings. Prior to joining Genentech, Dr. Hegde was the manager of disease and biomarker transcriptomics at
GlaxoSmithKline. She completed her post-doctoral fellowship at The Institute for Genomic Research and holds a Ph.D. in Biochemical
Pharmacology from SUNY Buffalo, as well as a B. Pharmacy degree from Mumbai University, India. We believe Dr. Hegde is qualified to
serve as a member of our Board of Directors because of her extensive scientific background and experience serving as an executive in the
life sciences industry.
Axel Hoos, MD, Ph.D. Dr. Axel Hoos joined our Board of Directors in April 2020. Dr. Hoos has served as Chief Executive Officer and a
member of the board of directors of Scorpion Therapeutics, Inc. since 2021. Dr. Hoos also serves as chairman of the Board of Trustees of
the Sabin Vaccine Institute, is Co-founder and director on the Board of Imugene, a biotech company, Co-director of the Cancer
Immunotherapy Consortium and Scientific Advisory Board Member of the Cancer Research Institute. Prior to Scorpion Therapeutics, Dr.
Hoos was Senior Vice President, R&D Governance Chair, and Therapeutic Area Head for Oncology at GlaxoSmithKline Pharmaceuticals
(GSK). He served as Therapeutic Area Head at GSK from 2012 to 2021 and was responsible for the Oncology business including discovery
and development with the four focus areas of immuno-oncology, epigenetics, cell & gene therapy and synthetic lethality. He served as R&D
Governance Chair at GSK from 2018 to 2021 where he oversaw technical and funding review committees. Prior to GSK, Dr. Hoos was the
Global Medical Lead in Immunology/Oncology at Bristol-Myers Squibb where he developed Yervoy (Ipilimumab) which was the first
checkpoint inhibitor drug in immuno-oncology. Dr. Hoos was also Senior Director of Clinical Development at Agenus Bio. Dr. Hoos holds an
MD from Ruprecht-Karls-University and a PhD in molecular oncology from the German Cancer Research Center (DKFZ). He trained in
surgery at the Technical University in Munich and at Memorial Sloan-Kettering Cancer Center in New York City (where he also studied
molecular pathology and tumor immunology). He is an alumnus of the Program for Leadership Development at Harvard Business School. We
believe Dr. Hoos is qualified to serve as a member of our Board of Directors because of his extensive background in oncology and
experience in the life sciences industry.
Shawn Tomasello. Ms. Tomasello joined our Board of Directors in February 2021. Ms. Tomasello served as the Chief Commercial Officer of
Kite Pharma, where she oversaw the global commercialization of Yescarta, from 2015 to 2018 including through its acquisition by Gilead for
$11.9 billion in October 2017. She was previously Chief Commercial Officer at Pharmacyclics, where she led commercial and medical affairs
activities for Imbruvica®, a first-in-class treatment for hematologic malignancies, from August 2014 until its acquisition by AbbVie for $21.0
billion in August 2015. Prior to Pharmacyclics, Ms. Tomasello served in leading commercial roles with multiple major pharmaceutical
companies, including Celgene as President of the Americas Hematology and Oncology, where she led the company through five successful
product launches encompassing 11 indications and played a critical role in acquisitions. Ms. Tomasello also serves as a director for UroGen
Pharma Ltd., Gamida Cell Ltd., Mesoblast Ltd., and 4D Molecular Therapeutics, Inc. Ms. Tomasello received her B.S. in Marketing from the
University of Cincinnati and her M.B.A. from Murray State University in Kentucky. We believe Ms. Tomasello is qualified to serve as a
member of our Board of Directors because of her experience serving in various commercial roles in the life sciences industry.
Stephen Webster. Mr. Webster joined our Board of Directors in May 2020 and became our Chairman in January of 2022. Mr. Webster
served as the Chief Financial Officer of Spark Therapeutics, a publicly traded gene therapy biotechnology company, from July 2014 until its
acquisition by Roche for $4.8 billion in December 2019. He was previously Senior Vice President (SVP) and Chief Financial Officer of
Optimer Pharmaceuticals, a publicly traded biotechnology company, from July 2012 until its acquisition by Cubist Pharmaceuticals in October
2013. Prior to joining Optimer, Mr. Webster served as SVP and Chief Financial Officer of Adolor Corporation, a biopharmaceutical company,
from 2008 until its acquisition by Cubist Pharmaceuticals in 2011. Mr. Webster also served in leadership positions in the investment banking
healthcare groups of Broadpoint Capital and PaineWebber Incorporated. Mr. Webster has served as a director of NextCure since April 2019,
Nabriva Therapeutics AG (formerly Nabriva Therapeutics plc) since August 2016 and Cullinan Oncology, Inc. since 2020. Mr. Webster
received an A.B. in Economics from Dartmouth College and an M.B.A. in Finance from The Wharton School of the University of
Pennsylvania. We believe Mr. Webster is qualified to serve as a member of our Board of Directors because of his extensive background in
finance and experience serving as an executive in the life sciences industry.
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Family Relationships
There are no family relationships among any of our directors or executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and beneficial owners of more than 10% of our equity securities
to file reports of holdings and transactions in securities of the Company with the SEC.
Based solely on a review of on Forms 3, 4 and 5 and any amendments thereto filed electronically with the Securities and Exchange
Commission with respect to the most recent fiscal year and written representations from the reporting persons, we believe all Section 16(a)
filing requirements were satisfied in 2022.
Code of Business Conduct and Ethics
Our Board of Directors has adopted a Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics applies to all of our
employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller or persons
performing similar functions), agents and representatives, including directors and consultants.
The 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 to certain provisions of our Code of Business Conduct and Ethics on our website. The inclusion of our website address in this
Annual Report does not include or incorporate by reference the information on our website into this Annual Report, and you should not
consider that information a part of this Annual Report.
Audit Committee
The members of our audit committee are Andrew Allen, Neil Gibson and Stephen Webster. Stephen Webster is the chair of the audit
committee. Our Board of Directors has determined that all members of our audit committee will meet the requirements for financial literacy
under the applicable rules and regulations of the SEC and the Nasdaq listing rules and that Stephen Webster is an “audit committee financial
expert” (within the meaning of applicable SEC regulations). Each of the members of the audit committee are independent pursuant to
applicable Nasdaq listing standards.
Recommendation of Director Nominees by Stockholders
There have been no material changes to the procedures by which our stockholders may recommend nominees to the Board of Directors.
Item 11. Executive Compensation
Executive Compensation Overview
As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting
companies,” as such term is defined in the rules promulgated under the Securities Act. This section provides an overview of the
compensation awarded to and earned by each individual who served as our principal executive officer at any time during our years ended
December 31, 2022 and to our next two most highly compensated executive officers in respect of their service to our company for our years
ended December 31, 2022. We refer to these individuals as our named executive officers. Our named executive officers are:
▪
Garry Menzel, our President and Chief Executive Officer;
▪
Alfonso Quintás Cardama, our Chief Medical Officer; and
▪
Rosemary Harrison, our Chief Business and Strategy Officer.
Our executive compensation program is based on a pay-for-performance philosophy. Compensation for our executive officers is composed
primarily of the following main components: base salary, bonus and equity incentives in the form of stock options. Our executive officers, like
all full-time employees, are eligible to participate in our health and welfare benefit plans. As a publicly traded company, we periodically re-
evaluate our compensation values and philosophy and compensation plans and arrangements as circumstances require.
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Summary Compensation Table
The following table sets forth information regarding compensation awarded to and earned by our named executive officers for services
rendered to us in all capacities during our years ended December 31, 2022 and 2021.
Name and principal position
Year
Salary($)
Bonus($)
Stock
Awards
Option
Awards
Non-equity
plan
compensatio
n
All other
compensatio
n
Total
Garry Menzel, President and Chief
Executive Officer
2022 $
602,800 $
-
$
666,160
$
154,705 $
312,000 $
9,150 $
1,744,815
2021
579,600
-
-
987,734
328,500
8,700
1,904,534
Alfonso Quintás Cardama, Chief
Medical Officer
2022
486,000
5,000
281,037
45,922
183,000
11,150
1,012,109
2021
467,303
-
-
370,481
192,600
8,700
1,039,084
Rosemary Harrison, Chief
Business & Strategy Officer
(6)
2022
372,083
-
12,437
531,582
140,000
10,461
1,066,563
1.
The amount reported reflects a one-time bonus upon achieving five years of service to the company.
2.
The amounts reported in the "Stock Awards" column reflect the aggregate grant date fair value of restricted stock units awarded during the indicated year
computed in accordance with the provisions of Financial Accounting Standards Board ASC Topic 718. Such awards were granted with performance-based
vesting conditions and such grant date fair value is computed assuming the probable outcome of such conditions, however, the grant date fair value of such
awards assuming maximum achievement is $436,708. See Note 10 to our consolidated financial statements appearing elsewhere in this Annual Report
regarding assumptions underlying the valuation of equity awards.
3.
The amounts reported in the “Option Awards” column reflects the aggregate grant date fair value of stock options awarded during the indicated year computed in
accordance with the provisions of Financial Accounting Standards Board ASC Topic 718. See Note 10 to our consolidated financial statements appearing
elsewhere in this Annual Report regarding assumptions underlying the valuation of equity awards.
4.
The amounts reported reflect annual bonuses earned based upon achievement of company and individual performance metrics. Amounts reflected are paid in
the year subsequent to the performance year.
5.
The amounts reported reflect 401(k) matching contributions made by the Company for each of our named executive officers and for Drs. Quintás Cardama and
Harrison, a life style benefit in the amount of $2,000 and $1,673, respectively.
6.
Dr. Harrison commenced employment with us in January 2022. The amount reported as salary reflects the amount actually earned following her
commencement of employment.
Narrative to the Summary Compensation Table
Base Salary
We use base salaries to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our named
executive officers. Base salaries are reviewed annually, typically in connection with our annual performance review process, and adjusted
from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience.
Non-Equity Incentive Plan Compensation
We have a formal performance-based bonus plan under our senior executive cash bonus plan. Our employment arrangements with our
named executive officers provide that the executive may be eligible to earn an annual performance bonus of up to a target percentage of the
executive’s base salary, as described further below under the section entitled “––Employment Arrangements and Severance Agreements
with our Named Executive Officers”. Payment of 2022 annual bonuses was based in part on us achieving certain research and product
development, capital raising and other target goals. Our compensation committee evaluated our performance 2022 and determined to pay
bonuses to each of our named executive officers in the amounts as set forth in the Summary Compensation Table above under the heading
“Non-Equity Incentive Plan Compensation”. From time to time, our Board of Directors or compensation committee may approve additional
annual bonuses for our named executive officers based on individual performance, company performance or as otherwise determined to be
appropriate.
Equity Compensation
Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, or any formal equity
ownership guidelines applicable to them, we believe that equity grants provide our executive officers with a strong link to our long-term
performance, create an ownership culture and help to align the interests of our executive officers and our
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(1)
(2)
(3)
(4)
(5)
stockholders. In addition, we believe that equity grants with a time-based vesting feature promote executive retention because this feature
incentives our executive officers to remain in our employment during the vesting period. Accordingly, our Board of Directors periodically
reviews the equity incentive compensation of our executives, 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
basis for retention purposes. We award our stock options on the date our Board 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. See “— Outstanding Equity Awards at Fiscal Year-End” below
for additional information.
During the year ended December 31, 2022, the Company granted 373,255 performance-based RSUs (PRSUs) to executives of the
Company. Performance is based upon attaining specified operational metrics. The performance criteria measurement dates are December
31, 2022 and March 31, 2023. There were no PRSUs issued for the December 31, 2022 measurement date. In addition, the PRSUs also
have service-based vesting criteria for two years after the measurement date for issued PRSUs.
401(k) Plan
We maintain a tax-qualified retirement plan (the 401(k) Plan) that provides eligible U.S. employees with an opportunity to save for retirement
on a tax advantaged basis. Eligible employees are able to defer eligible compensation subject to applicable annual Code limits. Employees’
pre-tax or Roth contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives
according to the participants’ directions. Employees are immediately and fully vested in their contributions. Our 401(k) Plan is intended to be
qualified under Section 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-qualified retirement plan, contributions to our 401(k) Plan and earnings on those contributions are not taxable to the employees until
distributed from our 401(k) Plan.
Limitations on Liability and Indemnification
As permitted by Delaware law, provisions in our amended and restated certificate of incorporation and amended and restated bylaws limit or
eliminate the personal liability of directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that,
when acting on behalf of the corporation, a director exercise an informed business judgment based on all material information reasonably
available to him or her. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of
fiduciary duty as a director, 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
or rescission. 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 extent permitted 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
connection with 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
liability of our directors or officers will be so eliminated or limited to the fullest extent permitted by Delaware law, as so amended. Our
amended and restated bylaws will also permit us to secure insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in connection with their services to us, regardless of whether our bylaws permit such indemnification.
We have obtained such insurance.
In addition to the indemnification that is provided for in our amended and restated certificate of incorporation and amended and restated
bylaws, we have entered into indemnification agreements with each of our directors and executive officers, which may be broader than the
specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification
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agreements may require us, among other things, to indemnify our directors and executive officers for some expenses, including attorneys’
fees, expenses, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of
his service as one of our directors or executive officers or any other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to attract and retain qualified individuals 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
and our indemnification agreements is qualified in its entirety by reference to these documents, each of which is attached as an exhibit to this
Annual Report.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the Securities Act), may be permitted to our
directors, 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 of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
Health and Welfare Benefits
All of our named executive officers are eligible to participate in our employee benefit plans, including our medical, dental and vision insurance
plans, 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 named
executive officers.
Rule 10b5-1 Sales Plans
Our 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
sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters
established by the director or officer when entering into the plan, without further direction from the director or officer. The director or officer
may amend or terminate the plan in some circumstances. Our directors and executive officers may also buy or sell additional shares outside
of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.
Employment Arrangements and Severance Agreements with our Named Executive Officers
We have entered into employment agreements with each of our named executive officers.
Garry Menzel
In December 2018, we entered into an employment agreement with Dr. Menzel, effective upon the closing of the IPO. Dr. Menzel is currently
entitled to receive an annual base salary of $625,000 and an annual target bonus equal to 55% of his annual base salary based upon our
Board of Directors’ or the compensation committee of the Board of Directors’ assessment of Dr. Menzel’s performance and our performance.
This employment agreement also includes a reaffirmation of Dr. Menzel’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. Menzel’s employment agreement provides that, in the event that his employment is terminated
by us without “cause” or by him for “good reason,” then subject to the execution and effectiveness of a separation agreement and release, he
will be entitled to receive (i) an amount equal to (x) 12 months of base salary payable on our 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 in connection with a “change in control,” payable
on our normal payroll cycle, provided that in either case, if Dr. Menzel commences new employment, all payments shall cease; and (ii)
payment of the monthly employer COBRA premium for the same level of group health coverage as in 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 separation agreement and release, all time-based
stock options and other time-based stock-based awards held by Dr. Menzel will accelerate and vest immediately.
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Alfonso Quintás Cardama
In December 2018, we entered into an employment agreement with Dr. Quintás Cardama, effective upon the closing of the IPO. Dr. Quintás
Cardama is currently entitled to receive an annual base salary of $505,000 and an annual target bonus equal to 40% of his annual base
salary based upon our Board of Directors’ or the compensation committee of the Board of Directors’ assessment of Dr. Quintás Cardama’s
performance and our performance. This employment agreement also includes a reaffirmation of Dr. Quintás Cardama’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. Quintás Cardama’s employment agreement
provides that, in the event that his employment is terminated by us without “cause” or by him for “good reason,” then subject to the execution
and effectiveness of a separation agreement 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 if such 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 “change in control,” payable on our normal payroll cycle, provided that in either case, if Dr. Quintás
Cardama commences new employment, all payments shall cease; and (ii) payment of the monthly employer COBRA premium for the same
level of group health coverage as in effect for Dr. Quintás Cardama 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. Quintás Cardama’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 and other time-based
stock-based awards held by Dr. Quintás Cardama will accelerate and vest immediately.
Rosemary Harrison
In November of 2021, we entered into an employment agreement with Dr. Harrison when she joined the Company as our Chief Business and
Strategy Officer. Dr. Harrison is currently entitled to receive an annual base salary of $400,000 and an annual target bonus equal to 40% of
her annual base salary based upon our Board of Directors’ or the compensation committee of the Board of Directors’ assessment of Dr.
Harrison’s performance and our performance. This employment agreement also incorporates Dr. Harrison’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. Harrison’s employment agreement provides that, in the event that her
employment is terminated by us without “cause” or by her for “good reason,” then subject to the execution and effectiveness of a separation
agreement and release, she will be entitled 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 connection with 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 normal payroll cycle, provided that in either case, if Dr. Harrison commences new employment, all
payments shall cease; and (ii) payment of the monthly employer COBRA premium for the same level of group health coverage as in effect for
Dr. Harrison 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 the a “change in control period,” Dr. Harrison’s
employment is terminated by us without “cause” or she resigns for “good reason,” then subject to the execution of the separation agreement
and release, all time-based stock options and other time-based stock-based awards held by Dr. Harrison will accelerate and vest
immediately.
Amendments to Employment Agreements
On March 5, 2023, we entered into amendments to the employment agreements (the “Executive Agreements”) with each of Garry Menzel,
Alfonso Quintas Cardama, and Rosemary Harrison (the “Executive Amendments”). The Executive Amendments revise the severance terms
provided under the Executive Agreements as follows: (i) in connection with a termination of employment by us without Cause or by the
named executive officer for Good Reason outside the Change in Control Period (each as defined in the Executive Agreements), the
executive is additionally entitled to the executive’s target annual cash bonus, prorated for the number of days elapsed in the year of
termination and (ii) in connection with a termination of employment by us without Cause or by the named executive officer for Good Reason
within the Change in Control Period, the executive is additionally entitled to the executive’s full target annual cash bonus for the year of
termination. In addition, the Executive Amendments provide that the payment of severance upon a termination of employment by us without
Cause or by the named executive officer for Good Reason within the Change in Control Period (other than with respect to Dr. Menzel) will be
made in a lump sum. Finally, the Executive Amendments provide that the payment of severance in all instances will not cease upon the
named executive officer’s commencement of new employment.
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Outstanding Equity Awards
The following table sets forth information concerning outstanding option awards held by our named executive officers as of December 31,
2022.
Option Awards (1)
NAME
Number of
securities
Underlying
unexercised
options (#)
exercisable
Number of
securities
underlying
unexercised
options (#)
unexercisable
Option
exercise
price ($)
Option
expiration
date
Garry Menzel
138,031
-
$
0.74
12/7/2027
433,037
-
5.88
7/25/2028
-
305,800
5.21
12/8/2031
-
238,008
0.97
12/14/2032
Alfonso Quintás Cardama
31,582
-
0.74
10/9/2027
42,346
-
0.74
12/7/2027
90,719
-
5.88
7/25/2028
-
114,700
5.21
12/8/2031
-
70,649
0.97
12/14/2032
Rosemary Harrison
-
191,102
4.04
1/9/2032
-
76,930
0.97
12/14/2032
1.
Option awards vest over four years, with 25% vesting on the first anniversary of the vesting commencement date, and the remainder vesting in 36 equal monthly
installments thereafter, subject to continued employment with us.
2.
Represents stock options granted on December 7, 2017, with a vesting start date of December 6, 2017.
3.
Represents stock options granted on July 26, 2018, with a vesting start date of July 26, 2018.
4.
Represents stock options granted on December 9, 2021, with a vesting start date of January 1, 2022.
5.
Represents stock options granted on December 15, 2022, with a vesting start date of December 15, 2022.
6.
Represents stock options granted on October 10, 2017, with a vesting start date of October 10, 2017.
7.
Represents stock options granted on January 10, 2022, with a vesting start date of January 10, 2022.
The following table sets forth information concerning outstanding restricted stock awards held by our named executive officers as of
December 31, 2022.
Stock Awards
NAME
Number of Shares
or Units of Stock
That Have Not
Vested
Market Value of
Shares or Units of
Stock That Have
Not Vested ($)
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
($)
Garry Menzel
39,681
$
39,681
41,526
41,526
152,900
152,900
Alfonso Quintás Cardama
11,775
11,775
17,447
17,447
57,350
57,350
Rosemary Harrison
12,882
12,882
46,597
46,597
1.
Represents restricted stock units granted on December 15, 2022, equal vesting annually over four years, with a vesting start date of December 15, 2022.
2.
Represents restricted stock units granted on November 17, 2022. Dr. Menzel exchanged 899,106 stock options for 262,584 restricted stock units in our tender
offer, vesting annually over four years, with a vesting start date of December 1, 2022.
3.
Represents performance-based restricted stock units granted August 7, 2022. Performance measurement dates of December 31, 2022 and March 31, 2023. No
shares were awarded as of December 31, 2022.
4.
Represents restricted stock units granted on November 17, 2022. Dr. Quintás Cardama exchanged 384,402 stock options for 112.832 restricted stock units in
our tender offer, vesting annually over four years, with a vesting start date of December 1, 2022.
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(2)
(3)
(4)
(5)
(6)
(2)
(3)
(4)
(5)
(7)
(5)
(1)
(2)
(3)
(1)
(4)
(4)
(1)
(3)
Compensation Risk Assessment
We believe that although a portion of the compensation provided to our executive officers and other employees is performance-based, our
executive 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
remain focused on both short-term and long-term strategic goals. As a result, we do not believe that our compensation programs are
reasonably likely to have a material adverse effect on us.
Director Compensation
The following table presents the total compensation for each person who served as a non-employee member of our Board of Directors and
received compensation for such service during the year ended December 31, 2022. Other than as set forth in the table and described more
fully below, we did not pay any compensation, make any equity awards to, or pay any other compensation to any of the non-employee
members of our Board of Directors in 2022. Dr. Menzel, our President and Chief Executive Officer, did not receive any compensation for his
service as a member of our Board of Directors. Dr. Menzel’s compensation for service as an employee for year ended December 31, 2022 is
presented in “Executive Compensation—Summary Compensation Table.” We reimburse members of our Board of Directors for reasonable
travel and out-of-pocket expenses incurred in connection with attending Board of Directors and committee meetings.
Director Compensation Table — 2022
NAME
Fees earned
or paid
in cash
($)
Option
awards
($)
All other
compensation
($)
Total
($)
Andrew Allen
$
52,500
$
10,920
$
- $
63,420
Ansbert Gadicke
-
-
-
-
Neil W. Gibson
57,500
10,920
-
68,420
Priti Hegde
44,000
10,920
-
54,920
Axel Hoos
44,000
10,920
-
54,920
Shawn Tomasello
49,000
10,920
-
-
59,920
Stephen Webster
85,000
10,920
-
95,920
(1)
Represents stock options granted to our non-employee directors in 2022. In accordance with SEC rules, these columns reflect the aggregate grant date fair
value of the option awards granted during 2022 computed in accordance with Financial Accounting Standard Board ASC Topic 718 for stock-based
compensation transactions.
(2)
The following table provides information regarding the number of shares of common stock underlying stock options granted to our non-employee directors that
were outstanding as of December 31, 2022:
NAME
Option Awards
Outstanding as of
December 31,
2022
Andrew Allen
60,342
Ansbert Gadicke
-
Neil W. Gibson
60,342
Priti Hegde
53,868
Axel Hoos
50,596
Shawn Tomasello
48,268
Stephen Webster
51,482
Non-Employee Director Compensation Policy
Our Board of Directors has adopted a non-employee director compensation policy that is designed to enable us to attract and retain, on a
long-term basis, highly qualified non-employee directors. Under the policy, each independent director who is not an employee or affiliated
with one of our 5% holders is paid cash compensation for service on our Board of Directors and for service on each committee on which the
director is a member. The chair of each committee receives a higher retainer for such service. These fees are payable in arrears in four equal
quarterly instalments pro-rated based on the number of actual days served by the
146
(1)
director during such calendar quarter. The fees paid to independent non-employee directors for service on our Board of Directors and for
service on each committee of our Board of Directors on which the director is a member are set forth below:
Member
annual fee
($)
Chairman
additional
annual fee
($)
Board of Directors
$
40,000
$
30,000
Audit Committee
7,500
15,000
Compensation Committee
5,000
10,000
Nominating and Corporate Governance Committee
4,000
8,000
Finance and Strategy Committee
-
-
In addition, each non-employee director elected or appointed to our Board of Directors that is not affiliated with a 5% holder of our stock will
be granted an initial one-time equity award of 33,600 stock options which will vest 25% on the one-year anniversary of the date of grant, with
the remainder vesting in 24 equal monthly instalments, subject to continued service through such vesting date(s). In addition, at the end of
each year, each non-employee director that is not affiliated with a 5% holder will be granted an equity award of 16,800 stock options, which
will vest 25% on the one-year anniversary of the January 1, that immediately follows the grant date, with the remainder vesting in 24 equal
monthly installments subject to continued service as a director through such vesting date(s).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities authorized for issuance under equity compensation plans
The following table provides information relating to our equity compensation plans as of December 31, 2022. As of December 31, 2022, we
had two equity compensation plans, our 2018 Plan and our Employee Stock Purchase Plan, which were approved by our Board of Directors
and our stockholders.
Equity Compensation Plans
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average exercise
price of outstanding options,
warrants, and rights
Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities reflected
in column (a))
(a)
(b)
(c)
Equity compensation plans approved by stockholders
4,800,465 $
4.43
3,815,601
Equity compensation plans not approved by stockholders
-
-
Total
4,800,465
3,815,601
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information known to us regarding beneficial ownership of our capital stock outstanding as of March 5,
2022 for:
•
each person, or group of affiliated persons, who is known by us to be the beneficial owner of five percent or more of our outstanding
common stock;
•
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
beneficial ownership for any other purpose. These rules generally attribute beneficial ownership of securities to persons who possess sole or
shared voting power or investment power with respect to those securities as well as any shares of common stock that the person has the
right to acquire within 60 days of March 7, 2022 through the exercise of stock options or other rights. These shares are deemed to be
outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that
person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless
otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as
beneficially owned by them. Each individual or entity shown on the table has furnished information with respect to beneficial ownership.
Except as otherwise indicated below, the
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address of each officer, director and five percent stockholder listed below is c/o TCR2 Therapeutics Inc., 100 Binney Street, Suite 710,
Cambridge, MA 02142.
The percentage of beneficial ownership in the table below is based on 38,546,345 shares of common stock deemed to be outstanding as of
March 5, 2023.
Common stock
beneficially owned
Shares
Percentage
5% or Greater Stockholders
Entities affiliated with MPM Capital
4,229,134
10.92 %
UBS Oncology Impact Fund, L.P.
3,370,982
8.75 %
Entities affiliated with Tang Capital Partners L.P.
2,738,947
7.11 %
Directors, Named Executive Officers and Other Executive Officers
Garry Menzel
944,406
2.14 %
Alfonso Quintás Cardama
355,339
*
Rosemary Harrison
59,718
*
Andrew Allen
30,103
*
Ansbert Gadicke
7,600,116
19.63 %
Neil Gibson
30,103
*
Priti Hegde
17,021
*
Axel Hoos
18,792
*
Shawn Tomasello
18,457
*
Stephen Webster
19,456
*
All executive officers and directors as a group (13 persons)
23.43 %
* 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
Management Investors 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 and warrants to purchase 178,269 shares of common stock exercisable within 60 days of March 1, 2021, in each case held by MPM Asset
Management LLC, (iv) 203,846 shares of 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 common stock 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. MPM BioVentures 2014 LLC is the managing member of MPM BioVentures 2014 GP LLC
and the manager of MPM Asset Management Investors BV2014 LLC. MPM SunStates Fund GP 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 the manager of MPM Asset Management Investors
SunStates Fund LLC. MPM Asset Management LLC was retained as a manager to manage the operations of MPM BioVentures 2014, 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
Management LLC, 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 listed above expressly disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein.
The address of these entities and individuals is 450 Kendall Street, Cambridge, MA 02142.
2.
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 above expressly disclaims beneficial ownership of the securities listed above except to the extent of any
pecuniary interest therein. The address of these entities and individuals is Durell House, 28 New Street, St Helier, Jersey, JE1 4FS.
3.
Based solely on a Schedule 13G/A filed by Tang Capital Partners, LP; Tang Capital Management, LLC, the general partner of Tang Capital Partners; and Kevin
Tang, the manager of Tang Capital Management on February 14, 2023, consists of 2,438,947 shares of common stock held by Tang Capital Partners, LP, Tang
Capital Management, LLC, and Kevin Tang. The address of Mr. Tang and these entities is 4747 Executive Drive, Suite 210, San Diego, CA 92121.
4.
Consists of (i) options to purchase 678,947 shares of common stock exercisable within 60 days of March 5, 2023, (ii) 132,729 shares of common stock held by
Dr. Garry Menzel, as Trustee of the Garry E. Menzel Revocable Trust of 2022 (the Garry E. Menzel Trust), under indenture of trust dated April 5, 2022 and (iii)
132,730 shares of common stock held by Mary E. Henshall, as Trustee of the Mary E. Henshall Revocable Trust of 2022 (the Mary E. Henshall Trust), under
indenture of trust dated April 5, 2022 and (iv) 138,871 shares of common stock held by Dr. Menzel directly. Dr. Menzel is the trustee of the Garry E. Menzel Trust
and may be deemed to beneficially own these securities. Ms. Henshall is Dr. Menzel’s spouse and Dr. Menzel disclaims beneficial ownership over the shares
held by the Mary E. Henshall Trust.
5.
Consists of (i) 109,459 shares of common stock and (ii) options to purchase 245,880 shares of common stock exercisable within 60 days of March 5, 2022.
6.
Consists of options to purchase 59,718 shares of common stock exercisable within 60 days of March 5, 2022.
7.
Consists of options to purchase 30,103 shares of common stock exercisable within 60 days of March 5, 2022.
8.
Consists of all shares of common stock held by entities affiliated with MPM Capital and all shares of common stock held by UBS Oncology Impact Fund, L.P.
See notes (1) and (2) above.
148
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
9.
Consists of options to purchase 30,103 shares of common stock exercisable within 60 days of March 5, 2022.
10.
Consists of options to purchase 17,021 shares of common stock exercisable within 60 days of March 5, 2022.
11.
Consists of options to purchase 18,792 shares of common stock exercisable within 60 days of March 5, 2022.
12.
Consists of options to purchase 18,457 shares of common stock exercisable within 60 days of March 5, 2022.
13.
Consists of options to purchase 19,456 shares of common stock exercisable within 60 days of March 5, 2022.
14.
Consists of (i) 8,008,473 shares common stock, (ii) options to purchase 1,159,677 shares of common stock exercisable within 60 days of March 5, 2022 and (iii)
warrants to purchase 178,269 shares of common stock exercisable within 60 days of March 5, 2022, held by thirteen executive officers and directors, and
entities affiliated with such executive officers and directors, as described in notes (4) through (13) above.
Communications with the Board of Directors
Stockholders who want to communicate with members of the Board, including the independent directors, individually or as a group, should
address their communications to the Board, the Board members or the Board committee, as the case may be, and send them by mail to c/o
TCR2 Therapeutics Inc., 100 Binney Street, Suite 710, Cambridge, Massachusetts 02142. The Chair of the Audit Committee will forward all
such communications 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
be retained for a reasonable period of time. The director may discuss the matter with the Company’s legal counsel, with independent
advisors, with non-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 regarding
accounting, internal accounting controls, or audit matters, and the confidential, anonymous submission by employees of concerns regarding
questionable accounting, internal accounting controls or auditing matters. The Company has also established a toll-free telephone number
for the reporting of such activity, which is 877-865-0978.
Board Committees
Our 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 and Strategy committee. We believe that the composition and functioning of all of our committees will comply with the applicable
requirements of Nasdaq, the Sarbanes-Oxley Act of 2002 and SEC rules and regulations that will be applicable to us. We intend to comply
with future requirements to 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 on the investor relations portion of our website at www.tcr2.com. We do not incorporate the information contained on, or accessible
through, our corporate 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 Independence
The following is a description of transactions or series of transactions since January 1, 2022 to which we 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 their
immediate 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
“Director Compensation” and “Executive Compensation.”
Manufacturing Agreement
During November 2020, we entered into a manufacturing partnership with ElevateBio, LLC. Dr. Ansbert Gadicke is a member of the Board of
Directors at the Company and ElevateBio, LLC. The agreement is to establish a manufacturing partnership with ElevateBio, LLC for
production of the Company’s clinical trial products. During the year ended December 31, 2022, we incurred $20.3 million in expenses and
have incurred additional costs of $0.1 for equipment owned by us for use by ElevateBio, LLC.
149
Harpoon Therapeutics, Inc. License Agreement
In June 2017, we entered into a license agreement with Harpoon Therapeutics, Inc. (Harpoon), under which Harpoon provides us with rights
to use certain Harpoon intellectual property relating to antibody-based protein binders and related know-how developed by Harpoon. In
return, we provide Harpoon 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 common stock are stockholders in Harpoon.
Amended and Restated Investors’ Rights Agreement
We are a party to an amended and restated investors’ rights agreement, or the Investors’ Rights Agreement, dated as of February 28, 2018,
with holders of our previously outstanding Series A preferred stock and Series B preferred stock, including certain of our 5% stockholders
and their affiliates and entities affiliated with certain of our officers and directors. The Investors’ Rights Agreement provides these holders the
right to demand that we file a registration statement or request that their shares be covered by a registration statement that we are otherwise
filing.
Employment Agreements
We have entered into employment agreements with certain of our executive officers. See “Item 11-Executive Compensation—Employment
Arrangements and Severance Agreements with our Named Executive Officers.”
Equity Grants
We have granted stock options and warrants to certain of our executive officers and members of our Board of Directors. See “Item 11-
Executive Compensation”
Indemnification Agreements
As permitted by Delaware law, provisions in our amended and restated certificate of incorporation and amended and restated bylaws limit or
eliminate the personal liability of directors for a breach of their fiduciary duty of care as a director. In addition, we have entered into
indemnification agreements 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 Transactions
Our Board of Directors reviews and approves transactions with directors, officers and holders of 5% or more of our voting securities and their
affiliates, each a related party. Prior to our initial public offering, the material facts as to the related party’s relationship or interest in the
transaction were disclosed to our Board of Directors prior to their consideration of such transaction, and the transaction was not considered
approved by our Board of Directors unless a majority of the directors who are not interested in the transaction approved the transaction.
Further, when stockholders were entitled to vote on a transaction with a related party, the material facts of the related party’s relationship or
interest in the transaction were disclosed 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,
the audit committee has the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are
transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and
in which a related person has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as
a director, executive officer, nominee for director, or greater than 5% beneficial owner of our common stock, in each case since the beginning
of the most recently completed year, and their immediate family members.
Director Independence
Under the Nasdaq listing rules, independent directors must comprise a majority of a listed company’s Board of Directors within twelve months
from the 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
committee members must also satisfy additional independence criteria, including those set forth in Rule 10A-3 under the Securities
Exchange Act of 1934, as amended (the Exchange Act), and compensation committee
150
members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. Under Nasdaq listing rules, a director
will only qualify as an “independent director” if, in the opinion of that company’s Board of Directors, that person does not have a relationship
that would interfere with the exercise of independent judgment in carrying out the responsibilities of 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 a listed company may not, other than in
his or her capacity as a member of the audit committee, the Board of Directors or any other board committee: (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 considered independent 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 be independent
from management in connection with the duties of a compensation committee member, including, but not limited to: the source of
compensation of the director, including any consulting advisory or other compensatory fee paid by such company to the director, and whether
the director is affiliated with the company or any of its subsidiaries or affiliates.
In March 2023, our Board of Directors undertook a review of the composition of our Board of Directors and its committees and the
independence of 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, are independent directors, including for purposes of Nasdaq and SEC rules. In making that determination, our Board of
Directors considered the relationships that each director has with us and all other facts and circumstances the Board of Directors deemed
relevant in determining independence, including the potential deemed beneficial ownership of our capital stock by each director, including
non-employee directors that are affiliated with certain of our major stockholders. There are no family relationships among any of our directors
or executive officers.
Audit Committee
As of March 5, 2023, our audit committee consists of Andrew Allen, Neil Gibson and Stephen Webster and is chaired by Stephen Webster.
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
registered public accounting firm;
•
reviewing the overall audit plan with our independent registered public accounting firm and members of management responsible
for preparing our consolidated financial statements;
•
reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly
consolidated financial 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 public
accounting 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
relate to 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
the Nasdaq listing rules. Our Board of Directors has determined that Andrew Allen, Neil Gibson and Stephen Webster are “independent” for
audit committee purposes as that term is defined in the rules of the SEC and the current listing standards of Nasdaq. Our Board of Directors
has determined that Stephen Webster is an audit committee financial expert.
The audit committee held four meetings during 2022. The audit committee operates under a written charter that satisfies the applicable
standards of 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 this
Annual Report, and you should not consider it a part of this Annual Report.
151
Compensation Committee
As of March 5, 2023, our compensation committee consists of Andrew Allen, Shawn Tomasello 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
our Chief 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 to our 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
the applicable 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
included in our annual proxy statement;
•
reviewing and approving the retention or termination of any consulting firm or outside adviser to assist in the evaluation of
compensation matters; and
•
reviewing matters relating to environmental, social and governance strategy and reporting, corporate citizenship, talent
management, culture and diversity and inclusion initiatives.
Each member of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act,
and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code).
The compensation committee held seven meetings during 2022. The compensation committee operates under a written charter that satisfies
the applicable standards of the SEC and Nasdaq. A copy of the compensation 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 this Annual Report, and you should not consider it a part of this Annual Report.
Nominating and Corporate Governance Committee
As of March 5, 2023, our nominating and corporate governance committee consists of Ansbert Gadicke, Priti Hegde, Axel Hoos, and Shawn
Tomasello and is chaired 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;
•
reviewing the composition of the Board of Directors to ensure that it is composed of members containing the appropriate skills and
expertise 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 governance
guidelines; and
•
overseeing the evaluation of our Board of Directors and management.
The nominating and corporate committee held three meetings during 2022. The nominating and corporate committee operates under a
written charter that satisfies the applicable standards of the SEC and Nasdaq. A copy of the nominating and corporate 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 this Annual Report, and you should not consider it a part of this Annual Report.
152
Finance and Strategy Committee
Our finance and strategy committee consists of Ansbert Gadicke, Andrew Allen and Stephen Webster and is chaired by Ansbert Gadicke.
The purpose of the finance and strategy committee is to consider and make recommendations to our Board of Directors regarding issues
impacting our financial structure and strategic direction, including, but not limited to, our capital structure, business development activities
and financing strategy, as well as the overall scope and focus of our business and operations. The finance and strategy committee held one
meeting during 2022.
Our Board of Directors may from time to time establish other committees.
Director Affiliations
Some of our directors are affiliated with and serve on the Board of Directors as representatives of entities which beneficially own or owned
5% or more of our common stock, as indicated below:
Name
Principal Stockholder
Ansbert Gadicke
MPM Capital and UBS Oncology Impact Fund, L.P.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm is KPMG LLP, Boston, MA, Auditor Firm ID: 185.
The Audit Committee has selected KPMG LLP as our independent registered public accounting firm for the years ended December 31, 2022
and 2021. In addition to retaining KPMG LLP to audit our consolidated financial statements for the years ended December 31, 2022 and
2021, we may engage the firm from time to time during the 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.
For the Years Ended
2022
2021
Audit fees
640,000
634,000
Audit-related fees
-
-
Tax fees
-
-
Other fees
1,780
1,780
641,780
635,780
Audit Fees consist of fees for professional services rendered in connection with the audit of our annual consolidated financial statements,
the review of the interim consolidated financial statements included in quarterly reports, services rendered in connection with SEC
registration statements, and services that are normally provided by KPMG LLP, such as comfort letters, in connection with statutory and
regulatory filings or engagements.
All Other Fees consist of accounting research software license fees.
In fiscal 2022 and 2021, 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’s independent auditor regardless of amount. These services may include audit services, audit-related services, tax services and
other related services. KPMG LLP and management are required to periodically report to the Audit Committee regarding the extent of
services provided by KPMG 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 public
accounting firm. It selected KPMG as the Company’s independent registered public accounting firm for 2022. This selection was
subsequently approved by the Board. The Audit Committee has reviewed and discussed with management and with KPMG the Company’s
audited consolidated financial statements for the year ended December 31, 2022. In addition, the Audit Committee has discussed with KPMG
the matters that independent registered public accounting firms must communicate to audit committees under applicable PCAOB standards.
153
The Audit Committee has also discussed and confirmed with KPMG its independence from the Company and received all written disclosures
and correspondence 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
financial statements for the year ended December 31, 2022 and the related footnotes be included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2022.
154
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.
Exhibits
The 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
immediately preceding 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 SUMMARY
None.
EXHIBIT INDEX
Number
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT
FILING DATE
FILED
HEREWITH
2.1
Agreement and Plan of Merger, dated as of March 5, 2023, by and among
Registrant, Adaptimmune Therapeutics plc and CM Merger Sub, Inc.
8-K
001-38811
2.1
3/6/2023
3.1
Amended and Restated Certificate of Incorporation of the Registrant
8-K
001-38811
3.1
2/25/2019
3.2
Amended and Restated By-laws of the Registrant
10-Q
001-38811
3.2
5/12/2022
3.3
Amendment No. 1 to Amended and Restated By-Laws of the Registrant
10-K
001-38811
3.3
3/16/2021
4.1
Amended and Restated Investors’ Rights Agreement among the Registrant
and certain of its stockholders, dated February 28, 2018
S-1
333-229066
4.1
12/28/2018
4.2
Form of Specimen Common Stock Certificate
S-1
333-229066
4.2
2/1/2019
4.3
Form of Common Stock Warrant
S-1
333-229066
4.3
12/28/2018
4.4
Description of Registrant’s Securities
10-K
001-38811
4.4
03/16/2021
4.5
Form of Voting and Support Agreement, dated as of March 5, 2023, by and
among Adaptimmune, Registrant and certain stockholders of Registrant.
8-K
001-38811
10.1
3/6/2023
10.1#
2015 Stock Option and Grant Plan and forms of award agreements
thereunder
S-1
333-229066
10.1
12/28/2018
10.2#
2018 Stock Option and Incentive Plan and forms of award agreements
thereunder
S-1
333-229066
10.2
2/1/2019
10.3#
Senior Executive Cash Incentive Bonus Plan
S-1
333-229066
10.3
12/28/2018
10.4#
2018 Employee Stock Purchase Plan
S-1
333-229066
10.4
2/1/2019
10.5#
Form of Director Indemnification Agreement
S-1
333-229066
10.5
12/28/2018
10.6#
Form of Officer Indemnification Agreement
S-1
333-229066
10.6
12/28/2018
10.7
Lease Agreement, dated as of June 30, 2017, by and between ARE-MA
Region No. 45, LLC and the Registrant
S-1
333-229066
10.7
12/28/2018
10.8#
Form of Amended and Restated Employment Agreement
S-1
333-229066
10.8
12/28/2018
10.9†
License Agreement, dated as of June 21, 2017, by and between Harpoon
Therapeutics, Inc. and the Registrant
S-1
333-229066
10.9
12/28/2018
10.10
Royalty Transfer Agreement, dated as of May 26, 2016, by and among the
Registrant, MPM Oncology Charitable Foundation, Inc. and the UBS
Optimus Foundation
S-1
333-229066
10.13
12/28/2018
10.11
Letter Agreement, dated as of May 26, 2016, by and among the Registrant,
MPM Oncology Charitable Foundation, the UBS Optimus Foundation and
UBS Oncology Impact Fund L.P.
S-1
333-229066
10.14
12/28/2018
10.12#
Amendment #1 to 2018 Stock Option and Incentive Plan
10-Q
001-38811
10.1
5/13/2019
10.13#
2022 Inducement Plan and forms of award agreements thereunder
10-K
001-38811
10.13
3/22/2022
10.14
Lease Agreement, dated as of March 23, 2021, by and between ARE-
Maryland No. 31, LLC and the Registrant
10-Q
001-38811
10.1
5/13/2021
10.15#
Form of Executive Agreement Amendment
8-K
001-38811
10.3
3/6/2023
21.1
Subsidiaries of the Registrant
S-1
333-229066
21.1
2/1/2019
23.1
Consent of KPMG LLP, Independent Registered Public Accounting Firm
X
31.1
Certification of Principal Executive Officer pursuant to Rule 13a‑14(a) /
Rule 15d‑14(a) of the Securities Exchange Act of 1934, as amended
X
31.2
Certification of Principal Financial Officer pursuant to Rule 13a‑14(a) / Rule
15d‑14(a) of the Securities Exchange Act of 1934, as amended
X
32.1+
Certification of the 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 2002
X
101.INS
Inline XBRL Instance Document - the instance document does not appear
in the Interactive Data File because its XBRL tags are embedded within the
Inline XBRL document
X
101.SCH
Inline XBRL Taxonomy Extension Schema Document
X
155
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
X
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
X
EX-104
Cover Page Interactive Data File (embedded within the Inline XBRL
document)
#
Indicates a management contract or any compensatory plan, contract or
arrangement
†
Confidential treatment has been granted as to certain portions of this
exhibit, which portions have been omitted and submitted separately to the
Securities and Exchange Commission.
+
The certifications furnished in Exhibit 32.1 hereto are deemed to
accompany this Annual Report on Form 10-K and will not be deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended. Such certifications will not be deemed to be incorporated by
reference into any filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, except to the extent that
the Registrant specifically incorporates it by reference.
156
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TCR THERAPEUTICS INC.
March 23, 2023
By:
/s/ Garry E. Menzel
Garry E. Menzel
President, Chief Executive Officer and Director
(Principal Executive Officer)
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Garry E. Menzel with full power of substitution and
resubstitution, as his or her true and lawful attorney-in-fact and agent 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 stated below, 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 in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing, ratifying
and confirming all that said attorney-in-fact and agent 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 the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Garry E. Menzel
Garry E. Menzel
President, Chief Executive Officer and Director (Principal Executive Officer)
March 23, 2023
/s/ Eric Sullivan
Eric Sullivan
Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer)
March 23, 2023
/s/ Andrew Allen
Andrew Allen
Director
March 23, 2023
/s/ Ansbert Gadicke
Ansbert Gadicke
Director
March 23, 2023
/s/ Neil Gibson
Neil Gibson
Director
March 23, 2023
/s/ Priti Hegde
Priti Hegde
Director
March 23, 2023
/s/ Axel Hoos
Axel Hoos
Director
March 23, 2023
/s/ Shawn Tomasello
Shawn Tomasello
Director
March 23, 2023
/s/ Stephen Webster
Stephen Webster
Director
March 23, 2023
157
2
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (Nos. 333-236965, 333-252244 and 333-254355) on Form S-3
and (Nos. 333-229691, 333-237481, 333-254354 and 333-263770) on Form S-8 of our report dated March 23, 2023, with respect to the
consolidated financial statements of TCR2 Therapeutics Inc.
/s/ KPMG LLP
Boston, Massachusetts
March 23, 2023
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO RULE 13A‑14 (A) / RULE 15D‑14 (A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, 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 the statements 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 the financial 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act 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 registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the 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 fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’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 to adversely 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 over financial reporting.
Date: March 23, 2023
/s/ Garry E. Menzel
Garry E. Menzel
President, Chief Executive Officer and Director
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO RULE 13A‑14 (A) / RULE 15D‑14 (A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Eric Sullivan, 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 the statements 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 the financial 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act 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 registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the 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 fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’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 to adversely 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 over financial reporting.
Date: March 23, 2023
/s/ Eric Sullivan
Eric Sullivan
Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATIONS 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 2002
In connection with this Annual Report on Form 10‑K of TCR2 Therapeutics Inc. (the “Company”) for the fiscal year ended December 31, 2022
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted 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; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: March 23, 2023
/s/ Garry E. Menzel
Garry E. Menzel
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Eric Sullivan
Eric Sullivan
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)