10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

March 31, 2023

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:

001-40603

 

TSCAN THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

82-5282075

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

830 Winter Street,

Waltham, Massachusetts

 

02451

(Address of principal executive offices)

 

(Zip Code)

 

(857) 399-9500

(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

Voting Common Stock, $0.0001 par value per share

 

 

TCRX

 

The Nasdaq Global Market, LLC

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of May 5, 2023, the registrant had 19,480,729 shares of voting common stock, $0.0001 par value per share, and 4,745,225 shares of non-voting common stock, $0.0001 par value per share, outstanding.

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report are forward-looking statements.

In some cases, you can identify forward-looking statements by words such as “may,” “can,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “seek,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “possible” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

the beneficial characteristics, safety, efficacy, therapeutic effects and potential advantages of our T cell receptor-engineered T cell, or TCR-T, therapy candidates;
our expectations regarding our preclinical studies being predictive of clinical trial results;
the timing of the initiation, progress and expected results of our preclinical studies, clinical trials and our research and development programs;
the timing of and our ability to submit applications for, and obtain and, if approved, maintain regulatory approvals for our product candidates;
our plans relating to developing and commercializing our TCR-T therapy candidates, if approved, including sales strategy;
estimates of the size of the addressable market for our TCR-T therapy candidates;
our manufacturing capabilities and the scalable nature of our manufacturing process;
our estimates regarding expenses, future milestone payments and revenue, capital requirements and needs for additional financing;
our expectations regarding competition;
our anticipated growth strategies;
our ability to attract or retain key personnel;
our ability to establish and maintain development partnerships and collaborations;
our expectations regarding federal, state and foreign regulatory requirements;
regulatory developments in the United States and foreign countries;
our ability to obtain and maintain intellectual property protection for our proprietary platform technology and our product candidates;
the anticipated trends and challenges in our business and the market in which we operate;
the sufficiency of our existing capital resources to fund our future operating expenses and capital expenditure requirements;
the effects of health epidemics, including the evolving effects of the COVID-19 pandemic, in regions where we, our partners, or other third parties on which we rely, on any of the foregoing or other aspects of our business or operations;
the effects of rising inflation rates and the impact on operating costs, liquidity and access to credit on any of the foregoing or other aspects of our business operations;
Disruptions and instability in the banking industry and other parts of the financial service sector, such as events involving limited liquidity, defaults, non-performance or other adverse events or developments;
Liquidity and/or capital resources changes and the impact of any changes or limitations on factors such as (among others) the company’s ability to borrow funds and/or renew or roll over existing indebtedness and access to private capital sources and public capital markets;
Financial market volatility and declines in financial market prices of equity securities;
Inflation and rising interest rates and resulting impacts financial market prices of debt and equity securities;

1


 

Historical and future operating, financial and investment impacts of inflation, rising interest rates and instability in financial and capital markets;
Impacts on customers, distributors, suppliers and others resulting from banking industry disruptions or ongoing or new supply chain and product distribution/logistics issues;
the effects of global economic uncertainty and financial market volatility caused by political instability, changes in international trade relationships and conflicts, such as the ongoing conflict between Russia and Ukraine, on any of the foregoing or other aspects of our business or operations; and
our anticipated use of our existing cash resources and our ability to obtain additional financing in the future.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions included in this Quarterly Report, particularly those described in the “Risk Factors” section in Part II, Item 1A of this Quarterly Report, that could cause actual results or events to differ materially from the forward-looking statements that we make. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. In light of these risks, uncertainties and assumptions, the forward- looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, advancements, discoveries, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law, we assume no obligation to update or revise these any forward-looking statements for any reason even if new information becomes available in the future.

You should read this Quarterly Report and the documents that we have filed as an exhibit to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

In addition, this Quarterly Report contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates, including data regarding the estimated size of such markets and the incidence of certain medical conditions. We obtained the industry, market and similar data set forth in this Quarterly Report from our internal estimates and research, and from academic and industry research, publications, surveys and studies conducted by third parties, including governmental agencies. Industry publications and third party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable. Our estimates of the potential market opportunities for our product candidates include a number of key assumptions based on our industry knowledge, industry publications and third party research, surveys and studies, which may be based on a small sample size and fail to accurately reflect market opportunities. Information based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by us and third parties, industry, medical and general publications, government data and similar sources. This Quarterly Report contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents.

Unless stated otherwise, references in this Quarterly Report to “us,” “we,” “our,” “our Company,” or “the Company” and similar terms refer to TScan Therapeutics, Inc.

2


 

RISK FACTOR SUMMARY

Our business operations are subject to numerous risks that, if realized, could materially and adversely affect our business, financial condition, results of operations, and future growth prospects. These risks are discussed more fully in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. These risks include, but are not limited to, the following:

Risks Related to Our Business and Industry

Our business depends upon the success of our proprietary platform.
Our limited operating history may make it difficult to evaluate the success of our business.
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.
We have never generated, and may never generate, any revenue from sales of our cell therapy products.
We will need to obtain substantial additional funding to complete the development and any commercialization of our product candidates, if approved.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our intellectual property or product candidates on unfavorable terms.
Global economic uncertainty and financial market volatility caused by political instability, changes in international trade relationships and conflicts, such as the ongoing conflict between Russia and Ukraine, could make it more difficult for us to access financing and could adversely affect our business and operations.
Recent volatility in capital markets and lower market prices for many 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, limit our ability to grow our business, pursue acquisitions or improve our operating infrastructure and restrict our ability to compete in our markets.
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 our current and projected business operations and its financial condition and results of operations.

Risks Related to the Development of Our Product Candidates

Our approach to the discovery and development of product candidates based on our proprietary platform represents a novel approach to cancer treatment, which creates significant challenges for us.
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.
Although many of our personnel have extensive experience in preclinical and clinical development and manufacturing at other companies, we have no direct experience as a company in conducting clinical trials or managing a manufacturing facility for our product candidates.
Our preclinical studies and clinical trials may fail to adequately demonstrate the safety, potency and purity of any of our product candidates, which would prevent or delay the development, regulatory approval and commercialization of our product candidates.
Our business could be adversely affected by the effects of health epidemics, including the evolving effects of the COVID-19 pandemic and responses thereto.
We may rely on third parties to manufacture our clinical product supplies, and we may rely on third parties to produce and process our product candidates, if licensed.
Allogeneic HCT is a high-risk procedure that may result in complications or adverse events for patients in our clinical trials including those unrelated to the use of our product candidates or for patients that use any of our product candidates, if approved.
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 clinical trial size, limit their commercial potential, or result in significant negative consequences.

 


 

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
The market opportunities for our product candidates may be relatively small and our estimates of the prevalence of our target patient populations may be inaccurate.
We face significant competition, and our operating results will suffer if we fail to compete effectively.

Risks Related to Manufacturing

Manufacturing and administering our product candidates is complex and we may encounter difficulties in production of our product candidates.
Although we have expanded our existing manufacturing facility and infrastructure in lieu of relying solely on third parties for the manufacture of our product candidates for certain clinical purposes and many of our personnel have experience in clinical manufacturing at other companies, we have no direct experience as a company managing manufacturing for our product candidates, which will be costly and time-consuming, and which may not be successful.
We may have difficulty validating our manufacturing process as we manufacture our product candidates, including TCR-T, from the patient population for our clinical trials.

Risks Related to Government Regulation

The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the preclinical and clinical development and regulatory approval of our product candidates.
We may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining and maintaining regulatory approval of our product candidates in other jurisdictions.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain patent protection for any of the product candidates 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, product candidates and technology substantially similar or identical to ours, and our ability to successfully commercialize any product candidates we may develop may be adversely affected.
We are currently, and expect in the future to be, party to material license or collaboration agreements, which may impose numerous obligations and restrictions on us.
Third party claims of intellectual property infringement, misappropriation or other violations may prevent or delay our product discovery and development efforts.

Risks Related to Our Reliance on Third Parties

If the third parties we plan to rely on to conduct our clinical trials or to manufacture certain aspects of our product candidates do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates.
We may not realize the benefits of our current or future collaborations, alliances, or licensing arrangements.

General Risk Factors

Rising inflation rates may result in increased operating costs and reduced liquidity, and affect our ability to access credit.

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.

Controls and Procedures

19

PART II.

OTHER INFORMATION

20

Item 1.

Legal Proceedings

20

Item 1A.

Risk Factors

20

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3.

Defaults Upon Senior Securities

77

Item 4.

Mine Safety Disclosures

77

Item 5.

Other Information

77

Item 6.

Exhibits

77

Signatures

79

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TScan Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

95,608

 

 

$

120,027

 

Prepaid expenses and other current assets

 

 

5,299

 

 

 

4,100

 

Total current assets

 

 

100,907

 

 

 

124,127

 

Property and equipment, net

 

 

9,019

 

 

 

10,100

 

Right-of-use assets

 

 

57,914

 

 

 

59,102

 

Restricted cash

 

 

5,031

 

 

 

5,037

 

Long-term deposit and other assets

 

 

706

 

 

 

725

 

Total assets

 

$

173,577

 

 

$

199,091

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,773

 

 

$

2,912

 

Accrued expenses and other current liabilities

 

 

7,438

 

 

 

6,838

 

Operating lease liability, current portion

 

 

3,836

 

 

 

3,681

 

Deferred revenue, current portion

 

 

-

 

 

 

3,874

 

Total current liabilities

 

 

14,047

 

 

 

17,305

 

Operating lease liability, net of current portion

 

 

51,972

 

 

 

53,013

 

Long-term debt and accrued interest

 

 

29,504

 

 

 

29,290

 

Other long term liabilities

 

 

36

 

 

 

49

 

Total liabilities

 

 

95,559

 

 

 

99,657

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Voting common stock, $0.0001 par value; 300,000,000 shares authorized; 19,480,729 and 19,082,820 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

2

 

 

 

2

 

Non-voting common stock, $0.0001 par value; 10,000,000 shares authorized; 4,745,225 and 5,143,134 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

258,957

 

 

 

257,810

 

Accumulated deficit

 

 

(180,942

)

 

 

(158,379

)

Total stockholders' equity

 

 

78,018

 

 

 

99,434

 

Total liabilities and stockholders' equity

 

$

173,577

 

 

$

199,091

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


 

TScan Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

Collaboration and license revenue

 

$

6,803

 

 

$

3,021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

21,779

 

 

 

14,690

 

General and administrative

 

 

7,767

 

 

 

4,494

 

Total operating expenses

 

 

29,546

 

 

 

19,184

 

Loss from operations

 

 

(22,743

)

 

 

(16,163

)

Other (expense) income:

 

 

 

 

 

 

Interest and other income, net

 

 

1,136

 

 

 

7

 

Interest expense

 

 

(956

)

 

 

-

 

Total other income

 

 

180

 

 

 

7

 

Net loss

 

$

(22,563

)

 

$

(16,156

)

Net loss per share, basic and diluted

 

$

(0.93

)

 

$

(0.67

)

Weighted average common shares outstanding—basic and diluted

 

 

24,225,954

 

 

 

23,974,642

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


 

TScan Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Non-voting Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2022

 

 

18,764,463

 

 

$

2

 

 

 

5,143,134

 

 

$

1

 

 

$

252,933

 

 

$

(92,158

)

 

$

160,778

 

Exercise of stock options

 

 

35,971

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

88

 

 

 

-

 

 

 

88

 

Vesting of restricted common stock

 

 

87,651

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

984

 

 

 

-

 

 

 

984

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,156

)

 

 

(16,156

)

Balances at March 31, 2022

 

 

18,888,085

 

 

 

2

 

 

 

5,143,134

 

 

 

1

 

 

 

254,005

 

 

 

(108,314

)

 

 

145,694

 

Balances at January 1, 2023

 

 

19,082,820

 

 

 

2

 

 

 

5,143,134

 

 

 

1

 

 

 

257,810

 

 

 

(158,379

)

 

 

99,434

 

Conversion of non-voting common stock to voting common stock

 

 

397,909

 

 

 

-

 

 

 

(397,909

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,147

 

 

 

-

 

 

 

1,147

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,563

)

 

 

(22,563

)

Balances at March 31, 2022

 

 

19,480,729

 

 

$

2

 

 

 

4,745,225

 

 

$

1

 

 

$

258,957

 

 

$

(180,942

)

 

$

78,018

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


 

TScan Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(22,563

)

 

$

(16,156

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation expense

 

 

1,499

 

 

 

1,195

 

Non-cash interest expense related to note payable

 

 

214

 

 

 

-

 

Stock-based compensation

 

 

1,147

 

 

 

984

 

Changes in current assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(1,180

)

 

 

(662

)

Prepaid rent

 

 

-

 

 

 

(1,444

)

Right-of-use assets and lease liabilities, net

 

 

(62

)

 

 

(31

)

Accounts payable

 

 

495

 

 

 

824

 

Accrued expense and other liabilities

 

 

737

 

 

 

(2,796

)

Deferred revenue

 

 

(3,874

)

 

 

(2,038

)

Net cash used in operating activities

 

 

(23,587

)

 

 

(20,124

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(838

)

 

 

(531

)

Net cash used in investing activities

 

 

(838

)

 

 

(531

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

-

 

 

 

88

 

Net cash provided by financing activities

 

 

-

 

 

 

88

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(24,425

)

 

 

(20,567

)

Cash, cash equivalents, and restricted cash - beginning of period

 

 

125,064

 

 

 

166,436

 

Cash, cash equivalents, and restricted cash - end of period

 

$

100,639

 

 

$

145,869

 

Summary of cash, cash equivalents and restricted cash reported within the consolidated balance sheets:

 

 

 

 

 

 

Cash and cash equivalents

 

 

95,608

 

 

 

140,838

 

Restricted cash

 

 

5,031

 

 

 

5,031

 

Total cash, cash equivalents, and restricted cash

 

$

100,639

 

 

$

145,869

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

743

 

 

$

-

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Purchase of property and equipment in accounts payable and accrued liabilities

 

 

24

 

 

 

416

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 


 

TSCAN THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

TScan Therapeutics, Inc. and its wholly-owned subsidiary, TScan Securities Corporation (the Company), is a biotechnology company that was incorporated in Delaware on April 17, 2018 and has a principal place of business in Waltham, Massachusetts. The Company is a biopharmaceutical company focused on developing a pipeline of T cell receptor-engineered T cell (TCR-T) therapies for the treatment of patients with cancer.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (US GAAP) and applicable rules and regulations of the Securities and Exchange Commission (the SEC) regarding interim financial reporting, and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. Management believes that the interim financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position, results of its operations and cash flows. The condensed consolidated financial statements include the accounts of TScan Therapeutics, Inc. and its subsidiary, TScan Securities Corporation. All intercompany balances and transactions have been eliminated in consolidation. The results for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 8, 2023. In the opinion of the Company’s management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair statement of the results for the interim periods presented have been included.

Risks, Uncertainties and Going Concern

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, successful development of technology, obtaining additional funding, protection of proprietary technology, compliance with government regulations, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for its product candidates and the ability to successfully market any products that receive approval, fluctuations in operating results, economic pressure impacting therapeutic pricing, dependence on key personnel, risks associated with changes in technologies, development by competitors of technological innovations and the ability to scale manufacturing to large scale production. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from sales.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has primarily funded its operations with proceeds from sales of capital stock, payments received under its license and collaboration agreements and issuance of a debt facility to K2 HealthVentures LLC. Since its inception, the Company has incurred recurring losses, including net losses of $22.6 million and $16.2 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the Company had an accumulated deficit of $180.9 million. The Company expects to continue to generate operating losses in the foreseeable future. The Company expects that its cash and cash equivalents as of March 31, 2023 will be sufficient to fund the Company’s operations for at least the next twelve months from the date of the issuance of these financial statements.

Emerging Growth Company Status

The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for nonpublic companies.

 


 

2. Summary of Significant Accounting Policies

 

The accounting policies of the Company are set forth in Note 2 to the consolidated financial statements contained in the Company's 2022 Annual Report on Form 10-K, the accounting policies followed by the Company for interim financial reporting are consistent with the accounting policies therein.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology and require a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The Company adopted this standard on January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed financial statements.

3. Fair Value Measurements

The following tables set forth by level, within the fair value hierarchy, the assets carried at fair value (in thousands):

 

 

 

Fair value measurements at March 31, 2023 using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Government securities

 

$

82,945

 

 

$

-

 

 

$

-

 

 

$

82,945

 

Money market funds

 

 

6,239

 

 

 

 

 

 

-

 

 

 

6,239

 

Total financial assets

 

$

89,184

 

 

$

-

 

 

$

-

 

 

$

89,184

 

 

 

 

Fair value measurements at December 31, 2022 using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

116,946

 

 

$

-

 

 

$

-

 

 

$

116,946

 

Total financial assets

 

$

116,946

 

 

$

-

 

 

$

-

 

 

$

116,946

 

 

Money market funds and government securities are valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. There were no transfers among Level 1, Level 2, or Level 3 categories in the periods presented.

The carrying value of cash, accounts payable and accrued expenses that are reported on the condensed consolidated balance sheets approximate their fair value due to the short-term nature of these assets and liabilities. The Company entered into new long-term debt in September 2022; given the recent issuance of that debt, the carrying value approximates fair value.

4. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Accrued research and development

 

$

3,582

 

 

$

1,322

 

Accrued employee compensation and benefits

 

 

2,482

 

 

 

4,357

 

Accrued consulting and professional services

 

 

586

 

 

 

636

 

Accrued legal services and license fee

 

 

353

 

 

 

92

 

Other

 

 

435

 

 

 

431

 

Total accrued expenses and other current liabilities

 

$

7,438

 

 

$

6,838

 

 

 


 

5. Collaboration and License Agreements

Novartis

In March 2020, the Company entered into a Collaboration and License Agreement (the Novartis Agreement) with Novartis Institutes For Biomedical Research, Inc. (Novartis) to collaborate on their research efforts to discover and develop novel TCR-T therapies. At the inception date of the Novartis Agreement, Novartis or its affiliates held an ownership interest of more than 10% in the Company, and at March 31, 2023, Novartis held less than 10% of the common shares outstanding. Under the Novartis Agreement, the Company will identify and characterize TCRs in accordance with a research plan and transfer data arising from the research plan. Novartis will have the option to license and develop TCRs for up to three novel targets identified in performance of the collaboration during the collaboration period of the Novartis Agreement. Novartis will also have rights of first negotiation for certain additional targets and TCRs identified in performance of the collaboration during a defined collaboration period of the Novartis Agreement and for 180 days after such collaboration period ends (which collaboration period ended in March 2023). If during such 180-day right of first negotiation period, the Company notifies Novartis of the Company’s intent to grant a third party a license to a target or TCR identified in the collaboration, then Novartis may obtain the exclusive right to negotiate a license to such target or TCR for an additional 270 days by providing the Company with a term sheet to license such target or TCR within 90 days of the Company’s notice of such intent. The Novartis Agreement provides that the Company will pay an upfront fee of $20.0 million, research funding totaling $10.0 million and potential milestone payments contingent on clinical, regulatory and sales success. In addition to payments upon achievement of certain clinical and regulatory milestones, Novartis will pay the Company mid-single to low double-digit royalties on net sales for each product directed to a target licensed by Novartis. After the end of the collaboration period and the expiration of Novartis’ first right of negotiation, the Company is free to develop TCRs against targets not licensed by Novartis.

The Company concluded that Novartis meets the definition of a customer, as the Company is delivering research and development activities and know-how rights. The Company identified performance obligations for research and development activities, data reporting and participation in joint steering and research committees. The Company determined there is a single performance obligation due to the services being highly interrelated and are therefore not distinct in the context of the contract. The Company combined the pre-option research services and data reporting into a single performance obligation. Novartis has an exclusive option to obtain a commercial license for up to three Targets (as defined in the Novartis Agreement) to pursue further development and commercialization of the respective Target. Pursuant to the Novartis Agreement, the option for Novartis to license, develop, and commercialize Targets is not a performance obligation at the outset of the Novartis Agreement as it is a customer option that does not represent a material right.

The Company looked to the promises in the arrangement to determine the method of recognition that best coincided with the pattern of delivery. The Company concluded that the performance of the research services over the expected research term was the predominant promise within the performance obligation. The Company recognized the revenue associated with the performance obligation using the input method, according to the actual costs incurred as a percentage of total expected costs to complete the research services. As costs were incurred, the Company recognized revenue over time.

The Company determined that the $20.0 million upfront payment, together with the $10.0 million of estimated research costs to be reimbursed by Novartis, to be the entirety of the consideration to be included in the transaction price as of the outset of the arrangement. The potential milestone payments that the Company is eligible to receive were excluded from the transaction price, as all milestone amounts were fully constrained based on the assessed probability of achievement. At this time, the Company has recognized all consideration in the contract as the performance obligations were satisfied as of March 31, 2023 and the collaboration period ended. The Company will continue to assess the probability of milestone payments throughout the 180-day right of first negotiation period.

The Company recognized $5.8 million and $3.0 million of revenue associated with the Novartis Agreement based on performance completed during that period for the three months ended March 31, 2023 and 2022, respectively. Additionally, the Company incurred $1.9 million and $1.0 million of costs associated with the Novartis Agreement that were recorded within research and development expenses in the statements of operations for the three months ended March 31, 2023 and 2022, respectively. Finally, as of March 31, 2023, the Company had no deferred revenue as all performance obligations were satisfied.

6. Commitments and Contingencies

Leases

The Company leases office space under non-cancelable operating lease agreements. There have been no material changes to the Company's leases during the three months ended March 31, 2023.
 

Brigham and Women’s License Agreement

The Company obtained the worldwide exclusive license to its foundational technology from The Brigham and Women’s Hospital, Inc. (or BWH). The license, as amended, grants worldwide exclusive use to the patent underlying the TargetScan technology in exchange for fees including development milestones and various royalties on product sales should they occur in the future.

 


 

Royalty Agreement

In June 2018, the Company amended and restated an existing royalty agreement with one of its founders. Under the amended and restated royalty agreement, the Company agreed to pay the founder an aggregate royalty of 1% of net sales of any product sold by the Company or by any of its direct or indirect licensees for use in the treatment of any disease or disorder covered by a pending patent application or issued patent held or controlled by the Company as of the last date that the founder was providing services to the Company as a director or consultant under a written agreement in perpetuity. Royalties are payable with respect to each applicable product for a defined period of time set forth in the royalty agreement. The founder assigned his rights and obligations under the royalty agreement to one of his affiliated entities in January 2021.

7. Loan and Security Agreement

On September 9, 2022 (the Closing Date), the Company entered into a Loan and Security Agreement (the Loan Agreement) with K2 HealthVentures LLC (K2HV), pursuant to which convertible term loans in an aggregate principal amount of up to $60 million is available to the Company in three tranches, subject to certain terms and conditions. The Company drew the first tranche of $30 million from K2HV on the Closing Date. The Company has the option to draw the second tranche of $10 million upon the achievement of certain financial and clinical milestones and an uncommitted third tranche of $20 million may be funded by joint agreement of the Company and K2HV. On the Closing Date, the Company paid a facility fee of $0.4 million to K2HV and is subject to an additional 1% of the principal amount of any amount drawn on third tranche.

The term loans mature on September 1, 2026 (the Maturity Date), and will be subject to interest only payments for 24 months, which can be extended to 36 months upon achievement of certain financial and clinical milestones, following which the term loans will amortize in equal monthly installments until maturity. The Company has the ability to repay the loan at any time either in cash or in shares, subject to applicable premiums as specified in the Loan Agreement. The term loans will accrue interest at a per annum rate equal to the greater of (i) 8.75% and (ii) the sum of (A) the prime rate (as last quoted in The Wall Street Journal) and (B) 4.75%, subject to a cap of 9.90%. At September 30, 2022 the applicable interest rate is 9.90%.

The lenders may elect at any time following the closing prior to the payment in full of the term loans to convert any portion of the principal amount of the term loans then outstanding into shares of the Company's common stock. The first tranche of the loan is convertible at the option of K2HV at a conversion price of $4.785 per share and future tranches will be convertible as specified in the agreement, provided that, such price shall be subject to the applicable conversion price floor and other adjustments in accordance with the Loan Agreement. The embedded conversion option meets the derivative accounting scope exception since the embedded conversion option is indexed to the Company’s own common stock and qualifies for classification within stockholders’ equity.

The Company has the option to prepay all, but not less than all, of the outstanding principal balance of the term loans under the Loan Agreement subject to a prepayment fee ranging from 4% to 1% depending upon when the prepayment occurs. The Company is obligated to pay a final fee equal to 6.00% of the aggregate amount of the term loans funded (the Exit Fee), to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. If, upon equity conversion, K2HV receives gross proceeds in an amount equal to at least 1.5 multiplied by the principal amount converted from the sale or other disposition of such Conversion Shares (as defined in the Loan Agreement), then as to such principal amount, the Exit Fee will be reduced to zero.

The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets (other than intellectual property), subject to certain exceptions. The Loan Agreement contains customary representations and warranties, and also includes customary events of default, including payment default, breach of covenants, change of control, and material adverse effects. The Loan Agreement restricts certain activities, such as disposing of the Company’s business or certain assets, incurring additional debt or liens or making payments on other debt, making certain investments and declaring dividends, acquiring or merging with another entity, engaging in transactions with affiliates or encumbering intellectual property, among others. During the term of the Loan Agreement, the Company must maintain minimum unrestricted cash and cash equivalents equal to 5.0 times the average monthly cash burn measured over the trailing three-month period. Upon the occurrence of an event of default, a default interest rate of an additional 5% per annum may be applied to the outstanding loan balances, and the Lender may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Loan Agreement and under applicable law.

The Company recorded $1.0 million in interest expense for the three months ended March 31, 2023. The effective interest rate on the Loan Agreement, including the amortization of the debt discount and issuance costs, and accretion of the final payment, was 13.13% at March 31, 2023.

Future principal debt payments of the convertible term loans funded as of March 31, 2023 are as follows:

 


 

 

2024

$

3,427

 

2025

 

14,588

 

2026

 

11,985

 

Total principal payments

 

30,000

 

Plus: Final payment fee

 

1,800

 

Less: unamortized debt discount and final fee

 

(2,296

)

Long-term debt

$

29,504

 

 

8. Net Loss Per Share

Net Loss Per Share

Basic and diluted net loss per share was calculated as follows (in thousands, except share and per share data):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(22,563

)

 

$

(16,156

)

Denominator:

 

 

 

 

 

 

Weighted-average common shares outstanding, basic and diluted

 

 

24,225,954

 

 

 

23,974,642

 

Net loss per share, basic and diluted

 

$

(0.93

)

 

$

(0.67

)

The Company has two classes of common stock, each with identical participation rights to earnings and liquidation preferences, and therefore the calculation of net loss per share as described above is identical to the calculation under the two-class method. The Company excluded the following potential common shares from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Options to purchase common stock

 

 

5,144,308

 

 

 

4,085,851

 

Common stock issuable upon conversion of Loan Agreement

 

 

2,160,918

 

 

 

-

 

Unvested restricted common stock

 

 

-

 

 

 

29,219

 

Total

 

 

7,305,226

 

 

 

4,115,070

 

 

8. Subsequent Events

On May 8, 2023, the Company entered into a Collaboration Agreement with Amgen Inc. (the Amgen Agreement) to identify antigens recognized by T cells in patients with Crohn’s disease utilizing the Company’s proprietary target discovery platform, TargetScan. Under the terms of the Agreement, Amgen will then evaluate a variety of modalities to create therapeutics based on targets discovered by TScan and will retain all global development and commercialization rights, as well as an option to expand the collaboration to include target discovery for ulcerative colitis, under certain pre-specified terms. Amgen will make an upfront payment of $30 million to TScan and the Company is eligible to earn success-based milestone payments of over $500 million, based upon the achievement of certain development and commercial milestones, as well as tiered single-digit royalty payments on net sales of products developed from the collaboration, subject to reductions set forth in the Agreement.

 


 

Item 2. 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 financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 8, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, 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” and “Special Note Regarding Forward-Looking Statements” sections of this Quarterly Report, 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 biopharmaceutical company focused on developing a robust pipeline of T cell receptor-engineered T cell, or TCR-T, therapies for the treatment of patients with cancer. Our approach is based on the central premise that we can learn from patients who are winning their fight against cancer in order to treat those who are not. We are continuing to build our ImmunoBank, a repository of therapeutic T cell receptors, or TCRs, that recognize diverse targets and are associated with multiple human leukocyte antigen, or HLA, types to provide customized multiplexed TCR-T therapy candidates for patients with a variety of solid tumors. We are building our ImmunoBank using our proprietary platform technologies. Using TargetScan, we analyze the T cells of cancer patients with exceptional responses to immunotherapy to discover how the immune system naturally recognizes and eliminates tumor cells in these patients. This allows us to precisely identify the targets of TCRs that are driving these exceptional responses. We aim to use these anti-cancer TCRs to treat patients with cancer by genetically engineering their own T cells to recognize and eliminate their cancer. In addition to discovering TCR-T therapies against novel targets, we are using our ReceptorScan technology to further diversify our portfolio of therapeutic TCRs with TCR-T therapies against known targets. We reduce the risk and enhance the safety profile of these therapeutic TCRs by screening them using SafetyScan to identify potential off-targets of a TCR and eliminate those TCR candidates that cross-react with proteins expressed at high levels in critical organs.

We are advancing a robust pipeline of TCR-T therapy candidates for the treatment of patients with hematologic malignancies and solid tumors. Our lead product candidates, TSC-100 and TSC-101, are in development for the treatment of patients with hematologic malignancies to eliminate residual leukemia and prevent relapse following hematopoietic cell transplantation, or HCT. TSC-100 and TSC-101 target HA-1 and HA-2 antigens, respectively, which are well-recognized TCR targets that were identified in patients with exceptional responses to HCT-associated immunotherapy. We have initiated a multi-arm Phase 1 clinical study of TSC-100 and TSC-101 with several clinical sites activated, with planned additional sites to be added in 2023.

In addition, we are developing multiple TCR-T therapy candidates for the treatment of solid tumors. One of the key goals for our solid tumor program is to develop what we refer to as multiplexed TCR-T therapy. We are designing these multiplexed therapies to be a combination of up to three highly active TCRs that are customized for each patient and selected from our bank of therapeutic TCRs, which we refer to as the ImmunoBank. We plan to populate the ImmunoBank with TCRs for multiple targets as well as multiple HLA types for each target, thus helping us to overcome key solid tumor resistance mechanisms of target loss and HLA loss. We are currently advancing six solid tumor programs: TSC-200 (HPV16); TSC-201 (undisclosed target); TSC-202 (undisclosed target); TSC-203 (PRAME); TSC-204 (MAGE-A1); and TSC-205 (undisclosed target). In December 2022, we submitted a primary investigational new drug, or IND, application for T-Plex, enabling customized mixtures of TCR-Ts to be administered to patients based on cancer-targets and associated common HLA types expressed in their tumors, as well as secondary IND applications for two initial TCR-T product candidates: TSC-204-A0201 and TSC-204-C0702. The FDA has cleared our IND applications for T-Plex, TSC-204-A0201, and TSC-204-C0702, allowing us to initiate study start-up activities. We plan to further expand the ImmunoBank by filing INDs for additional TCRs throughout 2023.

Since our inception in 2018, we have devoted our efforts to raising capital, obtaining financing, filing, prosecuting and maintaining intellectual property rights, organizing and staffing our company and incurring research and development costs related to the identification of novel targets for TCRs and development of TCR-T therapies to target and eliminate cancer cells. We do not have any therapies approved for sale and have not generated any revenue from product sales. To date, we have funded our operations primarily with proceeds from sales of convertible preferred stock, proceeds from the initial public offering ("IPO") completed in July 2021 and revenue received under our collaboration agreement with Novartis Institutes for BioMedical Research, Inc., or Novartis, as well as a debt facility with K2HV. Through December 31, 2022, we have received net proceeds of $159.4 million from sales of our convertible preferred stock. We received $89.6 million in net proceeds (after deducting underwriting discounts, commissions and offering costs), from our IPO. Under the terms of our Collaboration and License Agreement with Novartis, we received a $20.0 million upfront payment and agreed to invest $10.0 million in research costs that was reimbursed by Novartis over the research period of the agreement, which concluded in March 2023. Finally, we received $30.0 million in gross proceeds through the issuance of a debt facility to K2HV under the Loan Agreement.

 


 

We have incurred significant operating losses since our inception. We reported net losses of $22.6 million and $16.2 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $180.9 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We expect that our expenses and capital expenditure requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

continue our research and development efforts to identify and develop product candidates and submit investigational new drug applications, or INDs, for such product candidates;
conduct preclinical studies and commence clinical trials for our current and future product candidates based on our proprietary platform;
develop processes suitable for manufacturing and clinical development;
continue to develop and expand our manufacturing capabilities;
conduct clinical trials of our product candidates to evaluate their safety and potential efficacy;
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 pr