TCR2 THERAPEUTICS INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q) –

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) and our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report’) filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2022. 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. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those set forth in Item 1A, “Risk Factors” and elsewhere in our Annual Report and this Quarterly Report.
We are a clinical-stage cell therapy company developing a pipeline of novel T cell therapies for cancer patients suffering from solid tumors by powering the T cell receptor (TCR) with our proprietary, first-in-class TCR Fusion Construct T cells (TRuC-T cells). Designed to overcome the limitations of current cell therapy modalities, our TRuC-T cells specifically recognize and kill cancer cells by harnessing the entire TCR signaling complex, independent of human leukocyte antigens (HLA), which we believe is essential for T cell therapies to be effective in patients with solid tumors.
Our lead TRuC-T cell targeting mesothelin-expressing solid tumors is gavocabtagene autoleucel (gavo-cel, formerly TC-210). We are conducting our Phase 1/2 clinical trial for gavo-cel to treat patients with non-small cell lung cancer (NSCLC), ovarian cancer, malignant pleural/peritoneal mesothelioma or cholangiocarcinoma. We estimate the patient population for gavo-cel in the four indications which we are exploring in our clinical trial is up to 81,000 patients in the United States alone.

In the first half of 2022, the Company initiated the Phase 2 expansion portion of the ongoing Phase 1/2 clinical trial of gavo-cel, its first-in-class TRuC-T cell targeting mesothelin-expressing solid tumors. Enrollment is ongoing and the Company expects to report initial data from the Phase 2 in the second half of 2022.

In mid-July 2022, the Company plans to present the complete Phase 1 dataset for gavo-cel from the dose escalation portion of the Phase 1/2 clinical trial of gavo-cel in patients with treatment refractory mesothelin-expressing solid tumors in mid-July 2022. The presentation will focus on safety, efficacy and translational data and include 30 patients from the Phase 1 dose escalation, with data from additional malignant pleural/peritoneal mesothelioma (MPM) and ovarian patients
Our next most advanced program is TC-510, our first enhanced TRuC-T cell targeting mesothelin-expressing solid tumors which incorporates a PD-1:CD28 chimeric switch receptor. In our preclinical studies of TC-510, we observed enhanced signaling, increased proliferation, reduced exhaustion and improved in vivo efficacy against tumors with high PD-L1 expression. Based on these preclinical studies, we believe we can improve on the efficacy of gavo-cel in specific hostile solid tumor microenvironment settings and potentially expand into new solid tumor indications.

In the first half of 2022, the Company announced the U.S. Food and Drug Administration (FDA) cleared the investigational new drug (IND) application for TC-510, a TRuC-T cell targeting mesothelin that co-expresses a PD-1:CD28 chimeric switch receptor. The Phase 1/2 clinical trial is evaluating the safety and efficacy of TC-510 in patients with mesothelin-expressing MPM, ovarian cancer, pancreatic cancer, colorectal cancer and triple negative breast cancer. The Company expects to report initial data from the Phase 1 in the second half of 2022.
In addition to our lead clinical program, we are expanding our pipeline by utilizing our versatile platform to address some of the primary challenges to cell therapies such as the hostile and immunosuppressive tumor microenvironment. These include enhancements, such as: TC-510, our TRuC-T cell co-expressing a PD-1:CD28 chimeric switch receptor that converts inhibitory PD-1 signaling into positive costimulation and TC-520, our TRuC-T cell co-expressing IL-15 pathway enhancements to improve T cell persistence; dual targeting TRuC-T cells to combat tumor heterogeneity; and other accessories to combat the tumor microenvironment. We are also pursuing new targets such as CD70, GPC3 and Nectin-4 for which we believe TRuC-T cells offer advantages over existing therapeutic modalities. We continue to advance our allogeneic, or off-the-shelf, TRuC-T cell approaches to simplify manufacturing, reduce cost of therapy, and improve patient access. In January 2022, we announced a strategic research collaboration and non-exclusive license agreement with Arbor Biotechnologies focused on the further development of allogeneic TRuC-T cell therapies.
We expect that further updates from our emerging TRuC pipeline in 2022 will include the presentation of new preclinical data from autologous TRuC-T cells targeting novel antigens and enhancements, preclinical data from our lead allogeneic TRuC-T cell candidate in 2022 and the selection of a lead allogeneic TRuC-T cell candidate in 2022.
We are devoting extensive resources in process development and manufacturing to optimize the reliability of our product candidates and reduce manufacturing costs and vein-to-vein time. This investment will ensure that our manufacturing and delivery process will have utility across all the product candidates in our pipeline.
In November 2020, we contracted with ElevateBio, LLC, to leverage the extensive technical capabilities at ElevateBio BaseCamp. The BaseCamp partnership enables us to utilize our own equipment in close proximity to our U.S. headquarters in Cambridge, MA and establish additional manufacturing capacity and technical capabilities in the U.S. and will support the Phase 2 expansion portion of the gavo-cel Phase 1/2 clinical trial. In February 2022, the Company executed an agreement that expanded our partnership with ElevateBio by obtaining a second GMP manufacturing suite at ElevateBio BaseCamp in Waltham, Massachusetts through December 2023.
In March 2021, we signed a long-term, full-building lease with ARE for an existing 85,000 square foot, state-of-the-art cell therapy manufacturing facility in Rockville, Maryland which is ready for cGMP build-out. The facility is expected to support our commercial-scale manufacturing timelines with production anticipated in 2023 and the flexible layout will allow production of gavo-cel and other emerging cell therapies in our pipeline.
Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. As of March 31, 2022, we had an accumulated deficit of $378.7 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

add operational, financial, and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, and our operations as a public reporting company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Additionally, we expect to incur significant expenses if we acquire and establish our own commercial manufacturing facility, which will be a costly and time-consuming process, and in our operations as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.
Impact of the COVID-19 Pandemic
Since the outbreak of a novel strain of virus named SARS-CoV-2 (severe acute respiratory syndrome 2), or coronavirus (COVID-19) in December 2019, we have been carefully monitoring the COVID-19 pandemic and its actual and potential impact on our business and have taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19 in our communities while balancing our commitment to conduct our clinical trials. We have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the ongoing COVID-19 pandemic. We have also maintained efficient communication with our partners and clinical sites as the COVID-19 situation has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs. COVID-19 has significantly impacted the global healthcare system, including the conduct of clinical trials as medical institutions prioritize the treatment of those afflicted with COVID-19. We continue to closely monitor the adverse impact of the ongoing COVID-19 pandemic on our operations and ongoing clinical and preclinical development.
The effect of the ongoing COVID-19 pandemic on our development timelines for gavo-cel and TC-510, and its effect on our ability to manufacture for our clinical trials is uncertain. We believe that we have been able, as of the date of this Quarterly Report, to mitigate some of the impact from the COVID-19 pandemic on our ongoing clinical programs, however, we have been affected. The future impact of the ongoing COVID-19 pandemic on our industry, the healthcare system, clinical trials and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, as well as the effect of any relaxation of current restrictions within the Cambridge community or regions in which our partners and clinical sites are located, and the direct and indirect economic effects of the pandemic and containment measures, among others. See “Item 1A. Risk Factors” for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.
Consolidation of Manufacturing in the U.S.
In the fourth quarter of 2021, we commenced efforts to consolidate our manufacturing operations in the United States. In connection with this plan, we closed our manufacturing facility in Stevenage, United Kingdom, at the end of 2021. In addition, in February 2022 we amended our agreement to expand our
partnership with ElevateBio by partnering for a second GMP manufacturing suite at ElevateBio BaseCamp in Waltham, Massachusetts through December 2023.
Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our product candidates, which include:

We expense research and development costs as incurred. Any non-refundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development and manufacturing activities in the near term and in the future. At this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, legal, and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Interest Income, net
Interest income, net consists of interest earned on our cash equivalents and investment balances, net of investment charges.
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