TRANSCODE THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the "Financial Statements" section of this Annual Report on Form 10-K including the related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual 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 set forth in the "Cautionary Note Regarding Forward Looking Statements" and "Risk Factors" section of this Annual 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.
Our TTX delivery system is built around a core iron oxide nanoparticle designed to minimize kidney and liver clearance. This is expected to translate into a long circulation half-life that allows for efficient accumulation of the therapeutic candidate in tumor cells and metastatic sites. Nanoparticles similar in design to those we use have an excellent clinical safety record of low toxicity and low immunogenicity. Further, the ability to image these particles enables quantification of their delivery to target tissues.
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Advancing new RNA therapies through a modular approach
The TransCode TTX platform is modular by design, both at the level of the core nanoparticle and at the therapeutic loading. The size, charge, and surface chemistry of the core nanoparticles can be tuned to optimize them for the intended target and therapeutic load. Also, the therapeutic load can be adapted to the specific approach being developed, ranging from RNA interference, or RNAi, which includes small interfering RNAs, or siRNAs, antisense oligonucleotides, non-coding RNA mimics to mRNA-based cancer vaccines, and Clustered Regularly Interspaced Palindromic Repeats, or CRISPR, -based gene repair and replacement platforms as well as Pattern Recognition Receptors such as retinoic acid inducible gene, or RIG-I. The TTX platform can further be used for developing RNA-targeted radiolabeled therapeutics and diagnostics candidates and other custom products targeting known and novel biomarkers and other genetic elements as they are discovered and validated. The TTX platform is intended to overcome issues of stability, efficiency, and immunogenicity faced by existing lipid and liposomal nanoparticle platforms while optimizing delivery to and accumulation in tumor cells and metastatic sites.
Our lead therapeutic candidate, TTX-MC138, targets microRNA-10b, or miRNA-10b, a
master regulator of metastatic cell viability in a range of cancers, including
breast, pancreatic, ovarian, colon, glioblastomas, and others. In
Our other preclinical programs include two solid tumor programs: TTX-siPDL1, an
siRNA-based modulator of programmed death-ligand 1, or PD-L1, and TTX-siLIN28B,
an siRNA-based inhibitor of RNA-binding protein LIN28B. TransCode also has three
indication agnostic programs: TTX-
All these therapeutic candidates are intended to utilize our proprietary delivery mechanism and are designed with the goal of significantly improving outcomes for cancer patients.
We are also exploring LIN28B as a potential target for pancreatic cancer under
an option to license a siRNA technology from
Additionally, we are interested in pursuing diagnostic approaches for RNA targets that might be relevant and important to informing treatment of patients using RNA therapeutics. Our 2018 license with MGH includes a patented microRNA screening assay with the potential to detect expression of microRNAs in patient blood. We intend to optimize this diagnostic test to detect miR-10b in cancer patients as our first commercial testing product. If approved, this test could be used as a screening assay to detect metastasis in a variety of tumor types. Also, we may be able to use this test to evaluate miR-10b expression before, during and after treatment to best determine timing of therapeutic intervention.
In
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This research, published by Dr. Zdravka Medarova, our Chief Technology Officer and scientific co-founder, and others describes what we believe is an effective approach to assessing delivery of TTX-MC138 in metastatic cancer patients. Since the PET-MRI technique is sensitive enough to determine the concentration of radiolabeled drug in the sub-picomolar range, microgram quantities of the radiolabeled drug are believed to be sufficient to perform such a study in humans. We believe this capability has significant advantages in the initial phases of drug development. Because the low mass of the radiolabeled drug does not induce reactions in humans, we believe the regulatory process will be less complex.
Dr. Medarova's paper suggests that the radiolabeling does not impact tumor cell uptake or the ability of TTX-MC138 to engage its target. The paper also shows that the biodistribution of Cu-64 labeled TTX-MC138, when injected at a microdose, reflects its biodistribution at the level of a therapeutic dose. These key findings are expected to enable a microdosing study with TTX-MC138 in patients. We believe that a microdosing study has numerous advantages over our original Phase 0 trial design, the intent of which was to dose patients with a single therapeutic dose of TTX-MC138 and image its delivery by MRI alone. Specifically, as compared to the original Phase 0 study design, a microdosing study:
allows more precise quantitation of the amount of TTX-MC138 delivered to the (i) metastatic lesions because of the higher sensitivity and quantitative
accuracy of positron emission tomography. By contrast, imaging of drug
delivery by MRI alone is much less sensitive and less quantitative;
permits measurement of the pharmacokinetics and biodistribution of TTX-MC138
not only in the metastatic lesions but in other tissues throughout the body.This knowledge can inform Phase I/II clinical trial designs by allowing us (ii) to determine drug uptake and clearance from vital organs. By contrast,
measurement of TTX-MC138 delivery by MRI alone, as envisioned in the
original Phase 0 trial design, would only allow us to assess drug
accumulation in the metastatic lesions;
enables measurement of pharmacokinetic endpoints potentially informingdosing for Phase II/III clinical trials. Specifically, because of the high (iii) sensitivity and quantitative nature of PET-MRI, it may be possible to
derive a more precise calculation of drug concentration in the metastatic
lesions over time and then correlate that information to the effective dose
defined in our preclinical studies; and
further informs patient enrollment during Phase II/III trials by allowing (iv) patient inclusion in the trials based on which patients' metastases
demonstrated accumulation of TTX-MC138 in prior trials.
Because of the benefits we believe we can derive from a microdosing Phase 0 trial, and reflecting the studies described in Cancer Nanotechnology, we now intend to pursue a microdosing Phase 0 trial for our First-in-Human clinical trial. We also believe the timeline to complete this study will more closely align with the timeline planned for our original Phase 0 study.
Success in the microdosing study could also validate delivery generally for our TTX pipeline which potentially opens-up additional relevant RNA targets that have been previously undruggable. Concurrent with the Phase 0 study, we expect to conduct studies to support an IND for a Phase I/II clinical trial with TTX-MC138.
In the microdose Phase 0 study, we plan to enroll up to 12 patients with late-stage advanced solid tumors, infuse a single microdose of radiolabeled TTX-MC138, and use PET-MRI to measure TTX-MC138 delivery to metastatic lesions and other tissues in the body. We plan to conduct the clinical portion of the study at a major cancer center.
SBIR Award
In
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In the SBIR Award application, we proposed performing key translational experiments including IND-enabling and supporting imaging studies using MRI to assess delivery and target engagement of TTX-MC138 in metastatic lesions of breast cancer patients. The experiments are designed to achieve the following aims:
SBIR Phase I:
Aim 1. Optimize a method for measuring miR-10b expression in breast cancer clinical samples.
SBIR Phase II:
Aim 2. File an IND application for TTX-MC138.
Aim 3. Use imaging to determine the uptake of TTX-MC138 by radiologically-confirmed metastases in breast cancer patients.
We believe that we have achieved the first and second milestones which included 1. development and validation of a method for the use of a test called qRT-PCR to measure miR-10b expression in patient blood and tissue samples. The qRT-PCR test is often considered the gold standard for quantifying miRNAs with high sensitivity and specificity and with a wide analytical measurement range. This validated test will be used in our Phase 0 and later clinical trials to identify the level of miR-10b inhibition by TTX-MC138 as an indicator of pharmacodynamic activity. 2. We have completed IND-enabling studies and received a "study-may-proceed" letter from the FDA. We have submitted our request for the third year of funding under this Award and anticipate funding in April of 2023.
Financial Operations Overview
From inception in
We have incurred significant operating losses since inception. Our net losses
were
? continue preclinical studies and initiate clinical trials for TTX-MC138 and
other product candidates we may develop;
? advance the development of our product candidate pipeline;
? continue to develop and expand our proprietary TTX platform to identify
additional product candidates;
? obtain new intellectual property and maintain, expand and protect our
intellectual property portfolio;
? seek marketing approvals for our product candidates that successfully complete
clinical trials, if any;
hire additional clinical, scientific, commercial and administrative personnel
? to increase our overall knowledge base, scientific expertise, experience and
capabilities;
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? acquire or license additional product candidates;
? expand our infrastructure and facilities to accommodate increased activities
and personnel; and
add operational, financial and management information systems and personnel,
? including personnel to support our research and development programs, any
future commercialization efforts and our further transition to operating as a
public company.
Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other expenses.
As a result, we will need substantial additional funding to support our continuing operations and pursue our business strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through sales of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. 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 or delay our pursuit of potential licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
At
Impact of the Novel Coronavirus (COVID-19) Pandemic
Since it was reported to have surfaced in
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Components of our results of operations
Revenue
To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval of any product candidate, or license agreements with third parties, we may generate revenue in the future from product sales or licensing agreements. However, there can be no assurance as to when, if ever, we will generate any such revenue.
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 product candidates. We expense research and development costs as incurred, which include:
? expenses incurred in performing preclinical and clinical development;
expenses incurred to conduct the necessary preclinical studies and clinical
? trials related to seeking regulatory approval to market our product candidates
that successfully complete clinical trials;
expenses incurred under agreements with contract research organizations, or
CROs, conducting drug discovery work, preclinical studies, and clinical trials
? for us, and with contract manufacturing organizations, or CMOs, engaged to
produce preclinical and clinical drug substance and drug product for our
research and development activities;
other costs related to acquiring and manufacturing materials in connection with
our drug discovery efforts and our preclinical studies, materials for our
? clinical trials, including manufacturing validation batches, as well as costs
related to investigative sites and consultants that conduct our clinical
trials, preclinical studies and other scientific development services;
? payments made under third-party licensing, acquisition and option agreements;
personnel-related expenses, including salaries, benefits, travel and other
? related expenses, and share-based compensation expense for research and
development personnel;
? costs related to compliance with regulatory requirements; and
? allocated facilities costs, including rent and utilities, and depreciation and
other facilities or equipment expenses.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable 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. Such amounts are subsequently expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.
We intend to track our research and development expenses on a program-by-program basis. Our direct external research and development expenses comprise primarily fees paid to outside consultants, CROs, CMOs, research laboratories, and suppliers in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct external research and development expenses also include fees incurred under license and option agreements. We do not intend generally to allocate costs of management personnel, certain costs associated with our discovery efforts, certain supplies used in the laboratory, and certain facilities costs, including depreciation or other indirect costs, to specific programs when these costs are
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incurred across multiple programs and where it may not be practical to track them by program. We use internal resources along with outside parties primarily to conduct our research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally are expected to 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. As a result, we expect that our research and development expenses will increase substantially over the next several years if we commence planned clinical trials for TTX-MC138, as well as conduct other preclinical and clinical development, including submitting regulatory filings. In addition, we expect our discovery research efforts and related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with share-based compensation, will increase significantly over prior levels. Also, we may incur additional expenses related to milestone and royalty payments to third parties with whom we have entered or may enter into license, acquisition and option agreements to assess, use or acquire intellectual property rights or rights to future product candidates.
In
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 or when, if ever, material net cash inflows may commence from or related to any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain due to the numerous risks and uncertainties associated with product development and commercialization, including:
? the scope, progress, outcome and costs of our preclinical development
activities, clinical trials and other research and development;
? the requirement to establish an appropriate safety and efficacy profile in
IND-enabling studies;
? the timing and terms of regulatory approvals, if any, to conduct clinical
trials;
the number of sites and patients needed to complete clinical trials, the length
? of time required to enroll suitable patients and complete clinical trials, and
the duration of patient follow-ups;
? the timing, receipt and terms of marketing approvals, if any, from applicable
regulatory authorities including the FDA and regulators outside the
? the extent of any post-marketing approval commitments that may be required by
regulatory authorities;
establishing clinical and commercial manufacturing capabilities or making
? arrangements with third-party manufacturers to supply the quantities and
quality of product we need;
development and timely delivery of clinical-grade and commercial-grade drug
? formulations as required for use in our clinical trials and for commercial
launch;
? obtaining, maintaining, defending and enforcing patent claims and other
intellectual property rights;
? significant and changing government regulation;
? launching commercial sales of our product candidates, if and when approved,
whether alone or in collaboration with others;
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? competitive developments;
the impact of any business interruptions on our operations, including the
? timing and enrollment of patients in our planned clinical trials, or to those
of our manufacturers, suppliers, or other vendors resulting from the COVID-19
pandemic or similar public health crisis or for any other reason; and
? maintaining an acceptable safety profile of our product candidates following
approval, if any, of our product candidates.
Any changes in or adverse outcome of any of these variables or others with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of our product candidates.
General and administrative expenses
General and administrative expenses consist primarily of staffing costs comprising mainly salaries, benefits, and share-based compensation expense for personnel serving in executive, finance, and other business functions; insurance costs, especially directors and officers liability insurance; professional fees for legal, patent, consulting, investor and public relations, accounting, tax and audit services; corporate and office expenses, including facilities costs; and information technology costs.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our R&D activities, prepare for potential commercial activities including possible partnerships for the development or marketing of approved product candidates, if any, and the increased requirements of a larger and publicly-traded company. We also anticipate that we will incur significantly increased accounting, audit, tax, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company. Additionally, if and when we believe regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other personnel-related expenses as we prepare for commercial operations, especially as it relates to the sales and marketing of that product candidate. There is a risk that we could incur the foregoing expenses but not receive the anticipated regulatory approval.
In
Other income (expense)
Interest expense
Interest expense had consisted primarily of accrued interest on our convertible promissory notes and charges for amortizations of debt discount related to the embedded derivative liability of our convertible promissory notes and of debt issuance costs. Since the notes converted into shares of common stock concurrent with our IPO, we will no longer incur interest expense on these notes.
Interest income
Interest income consists primarily of income earned on our cash balances. Our interest income has not been significant due to low cash balances and, since the IPO until recently, low interest rates earned on our cash balances.
Change in fair value of derivative liabilities
Our convertible promissory notes provided for conversion into our common stock at a discount which conversion feature met the accounting definition of a derivative instrument. We classified this derivative instrument as a liability on our balance sheets. While the notes were outstanding, we remeasured fair value of this derivative liability at each reporting date and recognized any changes in fair value as other income (expense) in our statements of operations. Following conversion of the notes into common stock concurrent with our IPO, we no longer have derivative liabilities.
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Gains related to conversion of convertible promissory notes and exercise of warrants
We estimated that the fair value of the shares of our common stock issued in
connection with the conversion of our convertible promissory notes in the IPO
was less than the carrying value of the notes, including related liabilities,
that were extinguished on conversion. The difference between our estimated fair
value of the shares and the carrying value of the notes and note-related
liabilities was approximately
Grant income
From time to time, we apply for grant funding from government programs and may, in the future, apply for grants from non-government sources as well. There is no assurance that any grants will be awarded to us or, if awarded, that we will receive all the funds expected from such award. Grant payments received in advance of us performing the work for which the grant was awarded are recorded as deferred grant income on our balance sheets. Grant income is recognized in our statements of operations as and when earned for performance of the specific R&D activities for which the grants are awarded. Grant income earned in excess of grant payments received is recorded as grant receivable on our balance sheets.
Results of operations
The following table summarizes our unaudited results of operations for the years
indicated:
Years Ended December 31,
2022 2021 Change
(in thousands)
Operating Expenses
Research and development $ 10,232 $ 2,754 $ 7,478
General and administrative 8,433 3,397 5,036
Total operating expenses 18,665 6,151 12,514
Loss from operations (18,665) (6,151) (12,514)
Other Income (expense)
Change in fair value of derivative liability - (867) 867
Change in fair value of warrant liability - (6) 6
Grant income 1,080 278 802
Loss on sale of equipment - (3) 3
Interest expense - (95) 95
Interest income 20 1 19
Total other income (expense) 1,100 (692) 1,792
Net loss $ (17,565) $ (6,843) $ (10,722) Comparison of the years ended
Research and development expenses
Research and development, or R&D, expenses increased
General and administrative expenses
General and administrative expenses increased
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compensation and related personnel costs which we incurred for only approximately half of 2021, except for stock compensation expenses, and investor relations and other costs of being a public company.
Grant income
Grant income increased
Change in fair value of derivative liabilities
The fair value of derivative liabilities charge was
Change in fair value of warrant liability
The fair value of the warrant liability charge was
Interest expense
Interest expense decreased
Liquidity and capital resources
Sources of liquidity
Since inception, we have not generated any revenue from product sales or any
other sources, and we have incurred significant operating losses and negative
cash flows from our operations. We have not yet commercialized any of our
product candidates and we do not expect to generate revenue from sales of any
product candidates for several years, if ever. We have funded our operations to
date primarily with proceeds from borrowings under convertible promissory notes
and with funds from our initial public offering and SBIR Award. Through
As of
On
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Future requirements
We expect our expenses to continue to increase substantially in connection with our ongoing and planned activities, particularly as we advance preclinical activities and pursue clinical trials of TTX-MC138. In addition, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, tax, investor relations and other expenses that we did not incur as a private company.
The timing and amount of our operating expenditures will depend largely on our ability to, among other things:
? advance clinical development of TTX-MC138;
manufacture, or have manufactured on our behalf, our preclinical and clinical
? drug materials and develop processes for commercial manufacturing of any
product candidates that may receive regulatory approval;
? seek regulatory approvals for any product candidates that successfully complete
clinical trials;
establish a sales, marketing, medical affairs and distribution infrastructure
? to commercialize any product candidates for which we obtain marketing approval
and intend to commercialize on our own;
? establish collaborations to commercialize any product candidates for which we
obtain marketing approval but do not intend to commercialize on our own;
expand our operational, financial and management systems and hire additional
personnel, including personnel to support our clinical development, quality
? control, scientific research, manufacturing and commercialization efforts, our
general and administrative activities and our operations as a public company;
and
? obtain or develop new intellectual property and maintain, expand and protect
our intellectual property portfolio.
At
Because of the numerous risks and uncertainties associated with research, development and commercialization of biologic product candidates, we are unable to estimate the exact amount and timing of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
? the scope, progress, outcome and costs of conducting preclinical development
activities, clinical trials, and other research and development;
? the costs, timing and outcome of regulatory review of our product candidates;
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? the costs, timing and requirements to manufacture our product candidates to
supply our preclinical development efforts and our clinical trials;
the costs of future activities, including product sales, medical affairs,
? marketing, manufacturing and distribution, for any of our product candidates
for which we receive marketing approval;
? the costs of manufacturing commercial-grade product and building inventory to
support commercial launch;
? the ability to receive non-dilutive funding, including grants from governments,
organizations and foundations;
? the revenue, if any, received from commercial sales of our products, should any
of our product candidates receive marketing approval;
the costs of preparing, filing and prosecuting patent applications,
? maintaining, expanding and enforcing our intellectual property rights and
defending intellectual property-related claims;
? the terms of any industry collaborations we may be able to establish;
? the extent to which we acquire or license other product candidates and
technologies; and
? the efficiency with which we operate our business.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of public or private equity offerings, debt financings, governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties. There is no assurance that funding from any of the foregoing sources or otherwise will be available on acceptable terms, if at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests in our common stock may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in fixed payment obligations.
If we raise additional funds through governmental funding, collaborations, strategic partnerships and alliances, or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue or earnings streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.
If we are unable to raise additional funds 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 product candidates that we would otherwise prefer to develop and market ourselves.
Cash flows
The following table summarizes our unaudited cash flows for the years indicated:
Years ended December 31,
2022 2021
(in thousands)
Net cash used in operating activities
(101) (252)
Net cash provided by financing activities 6 25,517
Net change in cash $ (15,858) $ 19,998
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Comparison of the years ended
Operating activities
During the year ended
Changes in accounts payable and accrued expenses were generally due to the amounts and timing of vendor invoicing and payments.
Investing activities
During the year ended
Financing activities
During the year ended
During the year ended
Contractual obligations and commitments
As of
Under our five-year strategic collaboration agreement with MD Anderson, which we
entered into in
In addition, we also enter into contracts in the normal course of business with CMOs, CROs and other third parties for the manufacture of our product candidates, to support clinical trials and preclinical research studies and testing, and for other purposes. These contracts are generally cancelable by us. Any payments due upon cancellation of these contracts generally consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation although some agreements provide for termination fees.
Critical accounting estimates
We have based our management's discussion and analysis of financial condition and results of operations on our financial statements. Our financial statements are prepared in accordance with United States GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses and the disclosure of contingent assets and liabilities at the date of the 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 our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate estimates and assumptions on an ongoing basis. Our actual results may differ from amounts derived from these estimates or from amounts obtained under different assumptions or conditions.
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While our significant accounting policies are described in more detail in Note 2 to our audited 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 financial statements.
Research and development expenses
In preparing our financial statements, we are required to estimate our accrued research and development expenses.
We rely to a significant extent on third parties to conduct preclinical studies, provide materials, and to provide clinical trial services, including trial conduct, data management, statistical analysis and electronic compilation. At the end of each reporting period, we compare payments made to each service provider to the estimated progress towards completion of the related project. Factors that we consider in preparing these estimates include materials delivered or services provided, milestones achieved, the number of patients enrolled in studies, and other criteria related to the efforts of these vendors. These estimates are subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, we record net prepaid or accrued expenses related to these costs.
The estimating process involves reviewing open contracts and purchase orders, communicating with our relevant personnel to identify services that have been performed on our behalf or deliveries of materials made to us, and estimating the level of service performed and the associated cost incurred for those services 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 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, including research laboratories, in connection with preclinical
development activities;
? CROs and investigative sites in connection with preclinical testing and
clinical trials; and
? CMOs in connection with the production of drug substance and drug product
formulations for use in preclinical testing and clinical trials.
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 the 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 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.
Share-based compensation
We measure share-based awards granted to employees, directors and others based
on the fair value of the underlying award on the date of the grant. We recognize
the corresponding compensation expense of those awards over the requisite
service period, generally the vesting period of the respective award. Through
For share-based awards granted to consultants and non-employees, we recognize compensation expense over the period during which services are rendered by such consultants and non-employees until completed.
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Determination of the fair value of common stock
As prior to our initial public offering there was no public market for our
common stock, the estimated fair value of our common stock was determined by our
Board as of the date of each share-based award. Based on the fact that most of
our activities from inception through mid-2018 related to organizing our
company, including identifying management, directors and advisors, business
planning, identifying potential product candidates, acquiring or developing
intellectual property, conducting a limited amount of research and development,
establishing arrangements with third parties to manufacture initial quantities
of our product candidates and component materials, and seeking financing, and
that our preclinical development had not advanced significantly, the Board
determined that the fair value of our common stock had remained relatively
constant at its par value during this period. In
The valuations were performed in accordance with the Standards of the
Factors considered by the appraiser in determining the fair value of our common stock as of each grant date, included:
? our stage of development and business strategy;
? the progress of our research and development programs, including the status and
results of preclinical studies and plans for clinical trials for TTX-MC138;
our capital structure, including, if outstanding at the time of a grant, our
? convertible promissory notes and the superior rights and preferences of the
notes relative to our common stock;
? external market conditions affecting the biopharmaceutical industry and trends
within the biopharmaceutical industry;
? our financial position, including cash on hand, and our historical and
forecasted performance and results of operations;
? the absence of an active public market for our common stock;
? the likelihood of achieving a liquidity event, such as an IPO or sale of our
company in light of prevailing market conditions; and
? an analysis of IPOs and the market performance of similar companies in the
biopharmaceutical industry.
If there is an active public trading market for our common stock, we do not expect it to be necessary for our board to estimate the fair value of our common stock in connection with our accounting for share-based awards that we may grant, because the fair value of our common stock will be determined based on the quoted market price of our common stock. We may, despite any development of an active trading market for our common stock, and pending a sufficient history of the volatility of the price of our own common stock, calculate the volatility component of the valuation using volatility measures for a group of publicly-traded companies we deem comparable for this purpose.
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Restricted Stock Awards
The following table sets forth the number of shares of restricted stock we
granted from
Per share Per share
Number of purchase price estimated fair
shares subject of restricted value of award
Grant Date to award stock on grant date
February 1, 2016 3,245,081 $ 0.0001 $ 0.0001
April 1, 2016 36,393 $ 0.0001 $ 0.0001
August 17, 2016 139,508 $ 0.0001 $ 0.0001
June 1, 2017 812,787 $ 0.0001 $ 0.0001
June 1, 2017(1) (594,427) $ 0.0001 $ 0.0001
June 12, 2017 600,491 $ 0.0001 $ 0.0001
July 15, 2017 211,991 $ 0.0001 $ 0.0001
August 28, 2017 184,393 $ 0.0001 $ 0.0001
December 11, 2017(1) (1,024,779) $ 0.0001 $ 0.0001
January 22, 2018 670,246 $ 0.0001 $ 0.0001
July 1, 2018 127,377 $ 0.0001 $ 0.0660 (2)
October 1, 2018 49,889 $ 0.0660 $ 0.0660
October 7, 2018 177,266 $ 0.0660 $ 0.0660
(1) Cancellations
For restricted stock granted on
determined at that time that the fair value of our common stock was
reporting a higher value at approximately the date of the grant resulted in a
stock compensation charge for accounting purposes.
Valuation of derivative liabilities - conversion feature
We previously issued convertible promissory notes that each contained a conversion feature meeting the accounting definition of a derivative instrument as the feature was not clearly and closely related to the economic characteristics and risks of the convertible promissory notes. This is because the conversion feature provided for (i) conversion of the notes at a discount to the price obtained by the company for shares sold in a "Qualified Financing" (as defined) that would trigger the required conversion of the notes as well as (ii) a "cap" on the conversion price notwithstanding the discount. We classified these features of the notes as derivative liabilities, which were initially recorded at their fair value upon issuance of the convertible promissory notes and were subsequently remeasured to fair value at each reporting date, with changes in fair value recognized in our statements of operations.
In connection with our IPO, all of the outstanding principal and accrued interest under the convertible promissory notes automatically converted into shares of common stock. As a result, subsequent to our IPO, we will no longer have derivative liabilities recorded on our balance sheet and thus will no longer recognize changes in fair value of the derivative liabilities in our statements of operations.
Off-balance sheet arrangements
During the periods presented, we did not have, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may affect our financial position and results of operations is disclosed in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K.
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Internal control over financial reporting
In preparation of our financial statements to meet the requirements of our IPO,
we determined that material weaknesses in our internal control over financial
reporting existed during the year ended
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company" as defined in the JOBS Act. We will remain
an emerging growth company until the earliest to occur of: (i) the last day of
the fiscal year in which we have more than
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards by delaying adoption of these standards until they would apply to private companies. We have elected to use the extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date on which we (i) are no longer an emerging growth company and (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of effective dates applicable to public companies.
We are also a "smaller reporting company" meaning that the market value of our
stock held by non-affiliates plus the proposed aggregate amount of gross
proceeds to us as a result of our initial public offering is less than
Information Technology Risks
Our data and computer systems are subject to threats from malicious software
codes and viruses, phishing, ransomware, business email compromise attacks, or
other cyber-attacks. In
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