TScan Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. TScan is a clinical-stage biotechnology company developing T cell receptor-engineered T cell (TCR-T) cancer therapies. It has no approved products and has generated no product-sales revenue; reported revenue is collaboration and license revenue.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Collaboration and license revenue | $3.4 million | $2.4 million | $10.4 million | $7.3 million |
| Research and development expense | $15.0 million | $14.2 million | $44.2 million | $32.3 million |
| General and administrative expense | $4.9 million | $4.0 million | $14.2 million | $9.4 million |
| Net loss | $16.2 million | $15.8 million | $47.5 million | $34.4 million |
| Net loss per share, basic and diluted | $(0.67) | $(0.80) | $(1.98) | $(4.55) |
- At September 30, 2022, cash and cash equivalents were $137.3 million; restricted cash was $5.0 million. Total assets were $165.5 million and stockholders’ equity was $116.7 million.
- For the first nine months of 2022, operating cash use was $50.5 million, investing cash use was $2.8 million, and financing provided $29.2 million. Cash, cash equivalents and restricted cash decreased by $24.1 million to $142.3 million.
- Long-term debt and accrued interest had a $29.1 million carrying value; the company drew $30 million principal under its K2 HealthVentures loan in September. The applicable rate was 9.90%; the stated effective rate, including fees and accretion, was 13.13%.
- The filing does not provide a clear gross-profit or operating-margin measure; the company reports operating expenses rather than product cost of sales.
Changes versus prior comparable periods
- Nine-month revenue increased $3.2 million, reflecting recognition of Novartis collaboration revenue. Management expected revenue under that agreement to continue increasing through year-end 2022; its research term was expected to end in March 2023.
- Nine-month operating expenses rose $16.7 million and net loss widened $13.1 million. R&D increased $11.9 million, principally from personnel, facility expansion, clinical study start-up and pipeline development; G&A rose $4.8 million, mainly from personnel and facility, professional and legal costs.
- Operating cash use increased $16.2 million year over year. Financing was substantially lower than in 2021, when the company received IPO and preferred-stock proceeds; 2022 financing mainly reflected the new loan.
- Cash and cash equivalents declined from $161.4 million at December 31, 2021 to $137.3 million at September 30, 2022. Debt increased from none reported at year-end 2021 following the September 2022 loan draw.
Outlook, risks and notable items
- Management said existing cash and cash equivalents were expected to fund planned operating expenses and capital expenditures into the second quarter of 2024, subject to assumptions that may prove incorrect. The financial-statement note separately states resources were expected to be sufficient for at least 12 months from issuance.
- TSC-100 and TSC-101 INDs were cleared, and their Phase 1 study was open for enrollment and recruiting. The company expected to submit INDs for two solid-tumor candidates by year-end 2022 and additional candidates by year-end 2023; these are forward-looking targets, not reported achievements.
- The K2 loan provides up to $60 million in three tranches: $30 million funded, a $10 million tranche subject to milestones, and an uncommitted $20 million tranche by mutual agreement. It is secured by substantially all assets other than intellectual property, includes cash-maintenance and other covenants, and may be convertible into common shares. A 6% exit fee and potential prepayment fees also apply.
- A new laboratory and office lease was expected to commence in Q4 2022. Annual fixed rent starts at $7.6 million and increases 3% annually over the original 10-year, 2-month term. The facility was still under construction and the lease was not yet recognized as a lease asset and liability at quarter-end.
- Key risks include early-stage clinical and preclinical development, trial safety and enrollment, manufacturing scale-up and reliance on limited suppliers, regulatory approval, intellectual-property protection, and the need for substantial additional capital. Inflation, market volatility, geopolitical disruption and COVID-related supply or trial delays could add pressure.
- The company reported no material legal proceedings. Management concluded disclosure controls and procedures were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, enrollment and safety updates for the TSC-100/TSC-101 Phase 1 study, and whether solid-tumor IND submissions met the stated timelines.
- Cash burn, spending plans and assumptions supporting the projected runway into Q2 2024, including the effect of clinical and facility expansion.
- Loan covenant compliance, availability and conditions for additional tranches, interest and exit-fee obligations, and possible conversion dilution.
- Novartis collaboration revenue recognition, remaining deferred revenue, option and negotiation rights, and the agreement’s expected end date.
- Lease commencement, resulting recognized liabilities and future rent commitments.