10-Q
2023-11-30March 31, 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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 June 30, 2022

OR

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

For the transition period from ___________________ to ___________________

Commission File Number: 001-40384

 

TALARIS THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

83-2377352

( State or other jurisdiction of

incorporation or organization)

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

93 Worcester St.
Wellesley, MA

02481

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (502) 398-9250

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

TALS

 

The Nasdaq Global Market

 

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, 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 August 1, 2022, the registrant had 41,698,054 shares of common stock, $0.0001 par value per share, outstanding.

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

80

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosures

80

Item 5.

Other Information

80

Item 6.

Exhibits

81

Signatures

82

 

i


 

SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q (this "Quarterly Report"). The principal risks and uncertainties affecting our business include the following:

Our business substantially depends upon the successful development and regulatory approval of FCR001, our lead product candidate. If we are unable to obtain regulatory approval for FCR001, our business may be materially harmed.
We are a late-stage clinical biotechnology company and we have incurred net losses since our inception. We anticipate that we will continue to incur significant net losses for the foreseeable future, and may never achieve or maintain profitability.
We have not yet completed any registrational trials and have no history of commercializing products, which may make it difficult to evaluate the success of our business to date and to assess our future viability.
Our product candidates represent a novel therapeutic approach that could result in heightened regulatory scrutiny. The regulatory landscape that applies to our Facilitated Allo-HSCT Therapy is rigorous, complex, uncertain and subject to change.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and the inability to successfully and timely conduct clinical trials and obtain regulatory approval for our product candidates would substantially harm our business.
If we experience delays or difficulties in the enrollment of patients in clinical trials, development of our product candidate may be delayed or prevented, which would have a material adverse effect on our business.
The results of preclinical studies or earlier clinical trials are not necessarily predictive of future results. Our existing product candidates in clinical trials, and any other product candidate we advance into clinical trials, may not have favorable efficacy or safety in later clinical trials or receive regulatory approval.
Interim, “top line” or preliminary data from our clinical trials that we may announce or share with regulatory authorities from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
Our product candidates, or associated conditioning regimens or treatment protocols, may cause undesirable side effects, or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any regulatory approval.
We intend to develop FCR001, and potentially future product candidates, in other indications and in combination with other therapies, which exposes us to additional risks. Combination therapies and additional indications involve additional complexity and risk that could delay or cause our programs to stall or fail; development of such programs may be more costly, may take longer to achieve regulatory approval and may be associated with unanticipated adverse events.
Even if our product candidates receive regulatory approval, we will still face extensive ongoing regulatory requirements and continued regulatory review, which may result in significant additional expense, and our products may still face future development and regulatory difficulties.
We currently operate our own manufacturing facility and intend to scale-up our manufacturing and processing approaches to appropriately address our anticipated commercial needs for FCR001, which will require significant resources. We may fail to successfully operate our facility, which could adversely affect our clinical trials and the commercial viability of our product candidates.
Our product candidates are uniquely manufactured for each patient and we may encounter difficulties in production, particularly with respect to scaling our manufacturing capabilities.
If our manufacturing facility is damaged or destroyed or production at our manufacturing facility is otherwise interrupted, our business would be negatively affected.
We are dependent on a limited number of suppliers and, in some cases sole suppliers, for some of our components and materials used in our product candidates.
We rely on third parties to conduct our clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

ii


 

We depend substantially on intellectual property licensed from the University of Louisville Research Foundation Inc. (“ULRF”), and termination of this license could result in the loss of significant rights, which would materially harm our business.
We expect the product candidates we develop will be regulated as biological products, or biologics, and therefore they may be subject to competition sooner than anticipated.
If we are unable to obtain and maintain sufficient intellectual property protection for our product candidates and manufacturing process, or if the scope of the intellectual property protection is not sufficiently broad, our ability to commercialize our product candidates successfully and to compete effectively may be adversely affected.
Our business has been adversely affected by the ongoing COVID-19 pandemic, and could be further adversely affected by the effects this and other of public health epidemics in regions where we, or third parties on which we rely have significant research, development or production facilities, concentrations of clinical trial sites or other business operations.
Geopolitical and military conflict such as the ongoing warfare in Ukraine, could cause a disruption of the development of our product candidates and adversely impact our business.

iii


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-1 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of this Annual Report on Form 10-K. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative or plural of those terms, and similar expressions.

Forward-looking statements include, but are not limited to, statements about:

the success, cost and timing of our product development activities and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
the potential for COVID-19 or other pandemic, epidemic or outbreak of an infectious disease, to disrupt our business plans, product development activities, ongoing clinical trials, including the timing and enrollment of patients, the health of our employees and the strength of our supply chain;
our expectations regarding the safety or efficacy profile of our product candidates
our ability to advance any product candidate into or successfully complete any clinical trial;
our ability to obtain regulatory approval for any of our candidates;
our ability to successfully manufacture our product candidates for future clinical trials or for commercial use, if approved;
the ability to license additional intellectual property relating to any future product candidates and to comply with our existing license agreement;
our ability to commercialize our products in light of the intellectual property rights of others;
the success of competing therapies that are or become available;
our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;
the commercialization of our product candidates, if approved;
our plans to research, develop and commercialize our product candidates;
our ability to attract collaborators with development, regulatory and commercialization expertise;
future agreements with third parties in connection with the development or commercialization of our product candidates and any other approved product;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
the rate and degree of market acceptance of our product candidates;
regulatory and political developments in the United States and foreign countries, including but not limited to the Russia-Ukraine conflict and associated sanctions;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
our ability to attract and retain key scientific or management personnel;
the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
the impact of laws and regulations; and
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates.

 

 

 

 

 

iv


 

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligations to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

 

v


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TALARIS THERAPEUTICS, INC.

BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,518

 

 

$

18,614

 

Marketable securities

 

 

181,594

 

 

 

225,357

 

Prepaid and other current assets

 

 

4,925

 

 

 

2,543

 

Total current assets

 

 

212,037

 

 

 

246,514

 

Property and equipment, net

 

 

5,730

 

 

 

4,804

 

Right-of-use assets

 

 

3,038

 

 

 

 

Other assets

 

 

111

 

 

 

104

 

Total assets

 

$

220,916

 

 

$

251,422

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,075

 

 

$

2,556

 

Accrued expenses

 

 

4,421

 

 

 

5,431

 

Lease liability, current

 

 

835

 

 

 

 

Total current liabilities

 

 

7,331

 

 

 

7,987

 

Share repurchase liability

 

 

392

 

 

 

593

 

Other liabilities

 

 

21

 

 

 

33

 

Lease liability, net of current

 

 

2,430

 

 

 

 

Total liabilities

 

 

10,174

 

 

 

8,613

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Common stock, $0.0001 par value, 140,000,000 shares authorized and 39,995,881
   issued and outstanding and
10,000,000 non-voting shares authorized and 1,150,000
   issued and outstanding as of June 30, 2022 and
140,000,000 shares authorized
   and
39,763,049 issued and outstanding and 10,000,000 non-voting shares authorized
   and
1,150,000 issued and outstanding as of December 31, 2021

 

 

4

 

 

 

4

 

Additional paid-in-capital

 

 

339,083

 

 

 

333,730

 

Accumulated deficit

 

 

(127,202

)

 

 

(90,847

)

Accumulated other comprehensive loss

 

 

(1,143

)

 

 

(78

)

Total stockholders’ equity

 

 

210,742

 

 

 

242,809

 

Total liabilities and stockholders’ equity

 

$

220,916

 

 

$

251,422

 

 

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

1


 

TALARIS THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

13,187

 

 

$

7,570

 

 

$

27,383

 

 

$

14,473

 

General and administrative

 

 

5,228

 

 

 

3,487

 

 

 

9,446

 

 

 

5,589

 

Total operating expenses

 

 

18,415

 

 

 

11,057

 

 

 

36,829

 

 

 

20,062

 

Loss from operations

 

 

(18,415

)

 

 

(11,057

)

 

 

(36,829

)

 

 

(20,062

)

Interest and other income (expense), net

 

 

319

 

 

 

(295

)

 

 

474

 

 

 

(589

)

Net loss

 

$

(18,096

)

 

$

(11,352

)

 

$

(36,355

)

 

$

(20,651

)

Unrealized gain (loss) on marketable securities

 

 

(217

)

 

 

25

 

 

 

(1,065

)

 

 

47

 

Total comprehensive loss

 

$

(18,313

)

 

$

(11,327

)

 

$

(37,420

)

 

$

(20,604

)

Net loss

 

$

(18,096

)

 

$

(11,352

)

 

$

(36,355

)

 

$

(20,651

)

Net loss per common share, basic and diluted

 

 

(0.44

)

 

 

(0.41

)

 

 

(0.89

)

 

 

(1.19

)

Weighted average number of common shares outstanding used in computation
   of net loss per common share, basic and diluted

 

 

41,088,085

 

 

 

27,373,165

 

 

 

41,034,447

 

 

 

17,322,734

 

 

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

2


 

TALARIS THERAPEUTICS, INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

 

 

 

Series A
Convertible
Preferred Stock

 

 

Series A-1
Convertible Preferred
Stock

 

 

Series B
Convertible
Preferred Stock

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Accumulated
Other

 

 

Total

 

 

 

Outstanding
Shares

 

 

Amount

 

 

Outstanding
Shares

 

 

Amount

 

 

Outstanding
Shares

 

 

Amount

 

 

 

Outstanding
Shares

 

 

Amount

 

 

Paid-in
Capital

 

 

Accumulated
Deficit

 

 

Comprehensive
Income (Loss)

 

 

Stockholders’
Equity (Deficit)

 

Balance at December 31, 2020

 

 

40,000,000

 

 

$

37,383

 

 

 

28,000,000

 

 

$

34,272

 

 

 

62,499,993

 

 

$

114,496

 

 

 

 

7,087,130

 

 

$

1

 

 

$

4,879

 

 

$

(43,014

)

 

$

(13

)

 

 

(38,147

)

Issuance of common stock upon
   exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

117,181

 

 

 

 

 

 

123

 

 

 

 

 

 

 

 

 

123

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

835

 

 

 

 

 

 

 

 

 

835

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,299

)

 

 

 

 

 

(9,299

)

Unrealized gain on marketable
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

22

 

Balance at March 31, 2021

 

 

40,000,000

 

 

 

37,383

 

 

 

28,000,000

 

 

 

34,272

 

 

 

62,499,993

 

 

 

114,496

 

 

 

 

7,204,311

 

 

 

1

 

 

 

5,837

 

 

 

(52,313

)

 

 

9

 

 

 

(46,466

)

Issuance of common stock, net of
   underwriting discounts and
   issuance costs of $
12,858,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,825,000

 

 

 

1

 

 

 

137,165

 

 

 

 

 

 

 

 

 

137,166

 

Conversion of convertible preferred
   stock to common stock

 

 

(40,000,000

)

 

 

(37,383

)

 

 

(28,000,000

)

 

 

(34,272

)

 

 

(62,499,993

)

 

 

(114,496

)

 

 

 

24,392,498

 

 

 

2

 

 

 

186,149

 

 

 

 

 

 

 

 

 

186,151

 

Issuance of contingent common
   stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48,889

 

 

 

 

 

 

831

 

 

 

 

 

 

 

 

 

831

 

Issuance of common stock upon
   exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,436

 

 

 

 

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

896

 

 

 

 

 

 

 

 

 

896

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,352

)

 

 

 

 

 

(11,352

)

Unrealized gain on marketable
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

25

 

Balance at June 30, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

40,571,134

 

 

$

4

 

 

$

330,980

 

 

$

(63,665

)

 

$

34

 

 

$

267,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

40,913,049

 

 

$

4

 

 

$

333,730

 

 

$

(90,847

)

 

$

(78

)

 

$

242,809

 

Issuance of common stock upon
   exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

110,819

 

 

 

 

 

 

131

 

 

 

 

 

 

 

 

 

131

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,197

 

 

 

 

 

 

 

 

 

2,197

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,259

)

 

 

 

 

 

(18,259

)

Unrealized loss on marketable
   securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(848

)

 

 

(848

)

Balance at March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,023,868

 

 

 

4

 

 

 

336,058

 

 

 

(109,106

)

 

 

(926

)

 

 

226,030

 

Issuance of common stock upon
   exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,851

 

 

 

0

 

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Issuance of common stock under
   2021 employee stock purchase
   plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,162

 

 

 

0

 

 

 

77

 

 

 

 

 

 

 

 

 

77

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,846

 

 

 

 

 

 

 

 

 

2,846

 

Net loss