Form 10-Q Alaunos Therapeutics, For: Mar 31

May 16, 2022 7:33 AM EDT

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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, 2022

OR

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

 

Commission File Number: 001-33038

 

Alaunos Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

84-1475642

(State or other jurisdiction of

incorporation or organization)

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

8030 El Rio Street

Houston, TX 77054

(346) 355-4099

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

 

 

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

 

TCRT

 

The Nasdaq Stock 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 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 May 11, 2022, the number of outstanding shares of the registrant's common stock, $0.001 par value, was 215,950,561 shares.

 

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are all statements contained in this Quarterly Report that are not historical fact, and in some cases can be identified by terms such as: “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “target,” “will” and other words and terms of similar meaning.

These statements are based on management’s current beliefs and assumptions and on information currently available to management. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this Quarterly Report include, but are not limited to, statements about:

our ability to raise substantial additional capital to continue as a going concern, fund our planned operations and repay our existing indebtedness;
estimates regarding our expenses, use of cash, timing of future cash needs and anticipated capital requirements;
the development of our product candidates, including statements regarding the initiation, timing, progress and results of our preclinical studies, clinical trials and research and development programs;
our ability to advance our product candidates through various stages of development, especially through pivotal safety and efficacy trials;
the risk that final trial data may not support interim analysis of the viability of our product candidates;
our expectation regarding the safety and efficacy of our product candidates;
the timing, scope or likelihood of regulatory filings and approvals from the U.S. Food and Drug Administration, or FDA, or equivalent foreign regulatory agencies for our product candidates and for which indications;
our ability to license additional intellectual property relating to our product candidates from third parties and to comply with our existing license agreements;
our ability to enter into partnerships or strategic collaboration agreements and our ability to achieve the results and potential benefits contemplated from relationships with collaborators;
our ability to maintain and establish collaborations and licenses;
our expectation of developments and projections relating to competition from other pharmaceutical and biotechnology companies or our industry;
our estimates regarding the potential market opportunity for our product candidates;
the anticipated rate and degree of commercial scope and potential, as well as market acceptance of our product candidates for any indication, if approved;
the anticipated amount, timing and accounting of contract liabilities, milestones and other payments under licensing, collaboration or acquisition agreements, research and development costs and other expenses;
our intellectual property position, including the strength and enforceability of our intellectual property rights;
our ability to attract and retain qualified employees and key personnel; and
our expectations regarding the impact of the COVID-19 pandemic, including the expected duration of disruption to key clinical trial activities, limitations on travel, quarantine and social distancing protocols, diversion of healthcare resources away from the conduct of our clinical trials, and other immediate and long-term impacts and effects on our business and operations.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other 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. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

i


 

Unless the context requires otherwise, references in this Quarterly Report to “Alaunos,” the “Company,” “we,” “us” or “our” refer to Alaunos Therapeutics, Inc., and its subsidiaries.

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. We own the trademarks Alaunos™, Ziopharm® and hunTR™ as well as the graphic trademark found on our website. Other trademarks, service marks and trade names appearing in this Quarterly Report are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this Quarterly Report are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

 

ii


 

SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS

Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report. Some of the more significant risks include the following:

We will require substantial additional financial resources to continue as a going concern, continue ongoing development of our product candidates and pursue our business objectives; if we are unable to obtain these additional resources when needed, we may be forced to delay or discontinue our planned operations, including clinical testing of our product candidates.
If we fail to satisfy applicable listing standards, our common stock may be delisted from the Nasdaq Global Select Market. Delisting could prevent us from maintaining an active, liquid and orderly trading market.
We may effect a reverse stock split of our common stock, but it may not result in the intended benefits. If we implement a reverse stock split, liquidity of our common stock may be adversely affected.
Our plans to develop and commercialize non-viral adoptive cellular therapies based on T-cell receptor, or TCR, therapies can be considered as new approaches to cancer treatment, the successful development of which is subject to significant challenges.
Our current product candidates are based on novel technologies and are supported by limited clinical data and we cannot assure you that our current and planned clinical trials will produce data that supports regulatory approval of one or more of these product candidates.
We will need to attract, recruit and retain qualified personnel, and we will continue to rely on key scientific and medical advisors, and their knowledge of our business and technical expertise would be difficult to replace.
Our existing indebtedness, together with our other financial obligations and contractual commitments, could adversely affect our financial condition and restrict our future operations. For instance, if we fail to achieve certain clinical milestones or equity raise requirements, we will be required to deposit a significant amount of cash into an account to be held as collateral.
If we are unable to obtain the necessary United States or worldwide regulatory approvals to commercialize any product candidate, our business will suffer.
Our product candidates are in various stages of clinical trials, which are very expensive and time-consuming. We cannot be certain when we will be able to submit a Biologics License Application, or BLA, to the FDA and any failure or delay in completing clinical trials for our product candidates could harm our business.
Our cell-based immuno-oncology product candidates rely on the availability of reagents, specialized equipment, and other specialty materials and infrastructure, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.
If we are unable either to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will be unable to commercialize our product candidates successfully.
Our immuno-oncology product candidates may face competition in the future from biosimilars.
If we or our licensors fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish and our ability to successfully commercialize our products may be impaired.
Our stock price has been, and may continue to be, volatile.
Our business, operations and clinical development plans and timelines could be adversely affected by the effects of health epidemics, including the COVID-19 pandemic, on the manufacturing, clinical trial and other business activities performed by us or by third parties with whom we conduct business, including our clinical research organizations, or CROs, shippers and others.

iii


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (unaudited)

2

 

Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021

2

 

Statements of Operations for the Periods Ended March 31, 2022 and 2021 (unaudited)

3

 

Statements of Changes in Stockholders’ Equity for the Periods Ended March 31, 2022 and 2021 (unaudited)

4

 

Statements of Cash Flows for the Periods Ended March 31, 2022 and 2021 (unaudited)

5

 

Notes to Unaudited Financial Statements (unaudited)

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3.

Defaults Upon Senior Securities

58

Item 4.

Mine Safety Disclosures

58

Item 5.

Other Information

58

Item 6.

Exhibits

59

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Alaunos Therapeutics, Inc.

BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS:

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

68,255

 

 

$

76,054

 

Receivables

 

 

 

 

 

1,111

 

Prepaid expenses and other current assets

 

 

1,517

 

 

 

1,666

 

Total current assets

 

 

69,772

 

 

 

78,831

 

Property and equipment, net

 

 

10,311

 

 

 

10,941

 

Right-of-use asset

 

 

4,240

 

 

 

4,420

 

Deposits

 

 

42

 

 

 

42

 

Other non-current assets

 

 

626

 

 

 

631

 

Total assets

 

$

84,991

 

 

$

94,865

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

605

 

 

$

1,368

 

Current portion of long-term debt

 

 

13,993

 

 

 

7,868

 

Accrued expenses

 

 

5,891

 

 

 

6,076

 

Lease liability - current portion

 

 

745

 

 

 

729

 

Total current liabilities

 

 

21,234

 

 

 

16,041

 

Long-term debt

 

 

10,323

 

 

 

16,250

 

Lease liability - non-current portion

 

 

4,312

 

 

 

4,518

 

Total liabilities

 

$

35,869

 

 

$

36,809

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock $0.001 par value; 350,000,000 shares authorized, 215,950,561 shares issued and outstanding at March 31, 2022 and 350,000,000 shares authorized, 216,127,443 shares issued and outstanding at December 31, 2021

 

 

216

 

 

 

216

 

Additional paid-in capital

 

 

901,546

 

 

 

900,693

 

Accumulated deficit

 

 

(852,640

)

 

 

(842,852

)

Total stockholders' equity

 

 

49,122

 

 

 

58,057

 

Total liabilities and stockholders' equity

 

$

84,991

 

 

$

94,865

 

 

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

2


 

Alaunos Therapeutics, Inc.

STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)

 

 

 

For the Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

5,580

 

 

 

13,336

 

General and administrative

 

 

3,505

 

 

 

8,227

 

Total operating expenses

 

 

9,085

 

 

 

21,563

 

Loss from operations

 

 

(9,085

)

 

 

(21,563

)

Other income (expense), net

 

 

(703

)

 

 

9

 

 

 

 

 

 

 

 

Net loss

 

$

(9,788

)

 

$

(21,554

)

Net loss applicable to common stockholders

 

$

(9,788

)

 

$

(21,554

)

Basic and diluted net loss per share

 

$

(0.05

)

 

$

(0.10

)

Weighted average number of common shares outstanding used to compute basic and diluted net loss per share

 

 

214,946,569

 

 

 

213,954,665

 

 

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

 

 

3


 

Alaunos Therapeutics, Inc.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share and per share data)

 

 

 

Common Stock

 

 

Additional Paid in Capital

 

 

Accumulated Deficit

 

 

Total Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

214,591,906

 

 

$

215

 

 

$

887,868

 

 

$

(764,101

)

 

$

123,982

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,197

 

 

 

 

 

 

2,197

 

Exercise of employee stock options

 

 

352,442

 

 

 

 

 

 

1,016

 

 

 

 

 

 

1,016

 

Restricted stock awards

 

 

313,326

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(21,554

)

 

 

(21,554

)

Balance at March 31, 2021

 

 

215,257,674

 

 

$

215

 

 

$

891,081

 

 

$

(785,655

)

 

$

105,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

216,127,443

 

 

$

216

 

 

$

900,693

 

 

$

(842,852

)

 

$

58,057

 

Stock-based compensation

 

 

 

 

 

 

 

 

853

 

 

 

 

 

 

853

 

Cancelled restricted common stock

 

 

(176,882

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,788

)

 

 

(9,788

)

Balance at March 31, 2022

 

 

215,950,561

 

 

 

216

 

 

 

901,546

 

 

 

(852,640

)

 

 

49,122

 

 

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

 

 

4


 

Alaunos Therapeutics, Inc.

STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(9,788

)

 

$

(21,554

)

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

 

 

 

 

 

 

Depreciation

 

 

689

 

 

 

540

 

Amortization of financing costs

 

 

198

 

 

 

 

Stock-based compensation

 

 

853

 

 

 

2,197

 

(Increase) decrease in:

 

 

 

 

 

 

Receivables

 

 

1,111

 

 

 

(340

)

Prepaid expenses and other current assets

 

 

149

 

 

 

3,207

 

Right-of-use asset

 

 

180

 

 

 

292

 

Other noncurrent assets

 

 

5

 

 

 

559

 

Increase (decrease) in:

 

 

 

 

 

 

Accounts payable

 

 

(763

)

 

 

2,654

 

Accrued expenses

 

 

(214

)

 

 

(2,684

)

Lease liabilities

 

 

(190

)

 

 

(184

)

Net cash used in operating activities

 

 

(7,770

)

 

 

(15,313

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(29

)

 

 

(717

)

Net cash used in investing activities

 

 

(29

)

 

 

(717

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

 

 

 

1,017

 

Net cash provided by financing activities

 

 

 

 

 

1,017

 

Net decrease in cash and cash equivalents

 

 

(7,799

)

 

 

(15,013

)

Cash and cash equivalents, beginning of period

 

 

76,054

 

 

 

115,069

 

Cash and cash equivalents, end of period

 

$

68,255

 

 

$

100,056

 

Supplementary disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

484

 

 

$

 

Amounts included in accrued expenses and accounts payable related to property and equipment

 

$

29

 

 

$

682

 

 

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

 

 

5


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.
Organization

Overview

Alaunos Therapeutics, Inc., which is referred to herein as “Alaunos,” or the “Company,” is a clinical-stage oncology-focused cell therapy company developing adoptive TCR-T cell therapies, designed to treat multiple solid tumor types in large cancer patient populations with unmet clinical needs. On January 25, 2022, the Company changed its corporate name from ZIOPHARM Oncology, Inc. to Alaunos Therapeutics, Inc. The Company is leveraging its proprietary, non-viral Sleeping Beauty gene transfer platform and its cancer hotspot mutation TCR library to design and manufacture personalized cell therapies that target neoantigens arising from shared tumor-specific mutations in key oncogenic genes, including KRAS, TP53, and EGFR.

The Company’s operations to date have consisted primarily of conducting research and development and raising capital to fund those efforts. In May 2021, the Company announced that it will be winding down its existing Controlled IL-12 clinical program. The Company continues to seek a partner for this program.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company follows the guidance of Accounting Standards Codification ("ASC") Topic 205-40, Presentation of Financial Statements - Going Concern, in order to determine whether there is substantial doubt about its ability to continue as a going concern for one year after the date its financial statements are issued.

The Company has operated at a loss since its inception in 2003 and has no recurring revenue from operations. The Company anticipates that losses will continue for the foreseeable future. As of March 31, 2022, the Company had approximately $68.3 million of cash and cash equivalents. The Company’s accumulated deficit at March 31, 2022 was approximately $852.6 million. Given its current development plans and cash management efforts, the Company anticipates cash resources will be sufficient to fund operations into the second quarter of 2023. The Company’s ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing or to achieve profitable operations, as to which no assurances can be given. Cash requirements may vary materially from those now planned because of changes in the Company’s focus and direction of its research and development programs, competitive and technical advances, patent developments, regulatory changes or other developments. If adequate additional funds are not available when required, management may need to curtail its development efforts and planned operations to conserve cash.

Based on the current cash forecast, management has determined that the Company's present capital resources will not be sufficient to fund its planned operations for at least one year from the issuance date of the financial statements, which raises substantial doubt as to the Company's ability to continue as a going concern. This forecast of cash resource is forward-looking information that involves risks and uncertainties, and the actual amount of expenses could vary materially and adversely as a result of a number of factors.

As of March 31, 2022, there were 215,950,561 shares of common stock outstanding and an additional 33,891,996 shares of common stock reserved for issuance pursuant to outstanding stock options and warrants.

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and note disclosures required by generally accepted accounting principles in the United States, or GAAP, have been condensed or omitted pursuant to such rules and regulations.

It is management’s opinion that the accompanying unaudited interim financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair presentation of the financial position of the Company and its results of operations and cash flows for the periods presented. The unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 30, 2022, or the Annual Report.

The results disclosed in the statements of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full fiscal year 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company regularly assesses

6


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

The Company’s most significant estimates and judgments used in the preparation of its financial statements are:

Clinical trial expenses and other research and development expenses;
Collaboration agreements;
Fair value measurements of stock-based compensation; and
Income taxes.

Impact of COVID-19 Pandemic

With the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business and operations. The Company continues to evaluate the impact of the COVID-19 global pandemic on patients, healthcare providers and its employees, as well as its operations and the operations of its business partners and healthcare communities. In response to the COVID-19 pandemic, the Company has implemented policies at its locations to mitigate the risk of exposure to COVID-19 by its personnel. The extent to which the COVID-19 pandemic impacts the Company’s business, clinical development and regulatory efforts and the value of its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements, the result of vaccination efforts and the effectiveness of any other actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the COVID-19 pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

2.
Financings

2021 Loan and Security Agreement

On August 6, 2021, the Company entered into a Loan and Security Agreement with Silicon Valley Bank and affiliates of Silicon Valley Bank (collectively, "SVB") (the "Loan and Security Agreement"). The Loan and Security Agreement provided for an initial term loan of $25.0 million funded at the closing ("Term A Tranche"), with an additional tranche of $25.0 million available if certain funding and clinical milestones were met by August 31, 2022 ("Term B Tranche").

Effective December 28, 2021, the Company, entered into a First Amendment (the “Amendment”) to the Loan and Security Agreement (as so amended, the "Amended Loan and Security Agreement").

The Amended Loan and Security Agreement extends the interest-only period through August 31, 2022, and provides for an automatic extension through August 31, 2023, if the Amended Milestones (as defined below) are met by August 31, 2022. The Amendment eliminated the Term B Tranche, which remained unfunded, leaving only the Term A Tranche (the "SVB Facility"). Under the Amended Loan and Security Agreement, the SVB Facility will mature on August 1, 2023; however, if the Company achieves the Amended Milestones on or prior to August 31, 2022, then the maturity will automatically extend to August 1, 2024.

Please refer to Note 4 - Debt, for further discussion of the Loan and Security Agreement and the Amended Loan and Security Agreement.

3.
Summary of Significant Accounting Policies

 

The Company’s significant accounting policies were identified in the Company’s Annual Report. There have been no material changes in those policies since the filing of its Annual Report.

4.
Debt

The carrying values of the Company's debt obligation were as follows:

 

7


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

 

March 31,

 

($ in thousands)

 

2022

 

Loan and Security Agreement

 

$

25,314

 

Unamortized discount on Loan and Security Agreement

 

 

(998

)

Total debt

 

 

24,316

 

Less: current portion of long-term debt

 

 

(13,993

)

Long-term debt

 

$

10,323

 

 

As of March 31, 2022, the SVB Facility was fully drawn in the amount of $25.0 million. The SVB Facility bears interest at a floating rate per annum on outstanding loans, payable monthly, at the greater of (a) 7.75% and (b) the current published U.S. prime rate, plus a margin of 4.5%. As of March 31, 2022, interest on the outstanding loans was 8.00%. The Amended Loan and Security Agreement provides for an interest-only period which extends through August 31, 2022 and may be automatically extended through August 31, 2023 if, on or prior to August 31, 2022, SVB receives evidence satisfactory to it, confirming that the Company has (i) received at least $50.0 million in net cash proceeds from the sale of the Company’s equity securities after the date of the Amended Loan and Security Agreement, on terms and conditions acceptable to SVB, and (ii) achieved positive data in the first cohort of the Library TCR-T Trial endorsed by an independent safety monitoring committee as a safe dose to proceed (together, the “Amended Milestones”). After the interest-only payment period, aggregate outstanding borrowings are payable in twelve consecutive, equal monthly installments of principal plus accrued interest.

 

All outstanding principal and accrued and unpaid interest under the SVB Facility and all other outstanding obligations under the Amended Loan and Security Agreement are due and payable on August 1, 2023; however, if the Company achieves the Amended Milestones on or prior to August 31, 2022, then the maturity will be automatically extended to August 1, 2024. In addition to the payment of the outstanding principal plus accrued interest due, the Company will also owe SVB 5.75% of the original principal amounts borrowed as a final payment (the "Final Payment"). The Company is permitted to make up to two prepayments, subject to the prepayment premium, of the SVB Facility, each payment of at least $5.0 million. Such prepayment premium would be 3.00% of the principal amount of the SVB Facility if prepaid prior to the first anniversary of the effective date, 2.00% of the principal amount of the SVB Facility if prepaid on or after the first anniversary of the effective date but prior to the second anniversary of the effective date and 1.00% of the principal amount of the SVB Facility if prepaid on or after the second anniversary of the effective date but prior to the maturity date. No amount that has been repaid may be reborrowed.

 

The Amended Loan and Security Agreement requires the Company to cash collateralize half of the sum of the then-outstanding principal amount of the SVB Facility, plus an amount equal to 5.75% of the original principal amount of the SVB Facility if the Company does not achieve the Amended Milestones on or prior to August 31, 2022. In the event a cash collateralization were to occur, so long as no event of default has occurred, $2.5 million will be released from the collateral account following the eighth scheduled payment of principal and interest, and a further $4.0 million will be released following the tenth scheduled payment of principal and interest on the SVB Facility, in each case, so long as (i) after subtracting such scheduled payment, the sum of (a) the aggregate outstanding principal, (b) accrued and unpaid interest and (c) the Final Payment is less than $9,770,933 and $5,604,167, respectively and (ii) the balance in the collateral account after the release would equal or exceed $10.0 million and $6.0 million, respectively. The SVB Facility and related obligations under the Amended Loan and Security Agreement are secured by substantially all of the Company’s properties, rights and assets, except for its intellectual property (which is subject to a negative pledge under the Amended Loan and Security Agreement). In addition, the Amended Loan and Security Agreement contains customary representations, warranties, events of default and covenants.

 

In connection with its entry into the Loan and Security Agreement, the Company issued to SVB warrants to purchase (i) up to 432,844 shares of the Company’s common stock, in the aggregate, and (ii) up to an additional 432,842 shares of common stock, in the aggregate, in the event the Company achieves certain clinical milestones, in each case at an exercise price per share of $2.22.

 

In connection with its entry into the Amendment, the Company amended and restated the warrants issued to SVB. As amended and restated, the warrants are for up to 649,615 shares of the Company's common stock, in the aggregate, at an exercise price per share of $1.16, or the SVB Warrants. The SVB Warrants expire on August 6, 2031.

 

The issuance costs for the Loan and Security Agreement, including the Amended Loan and Security Agreement, were approximately $1.2 million and primarily related to the SVB warrants, which will be amortized into interest expense over the period to August 1, 2023. Interest expense was $0.7 million for the three months ended March 31, 2022.

 

The fair value of the Amended Loan and Security Agreement as of March 31, 2022 approximates its face value due to proximity to the transaction.

8


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

5.
Fair Value Measurements

The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2022 and 2021 are as follows:

 

($ in thousands)

 

 

 

 

Fair Value Measurements at Reporting Date Using

Description

 

Balance as of
March 31,
2022

 

 

Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

Cash equivalents

 

$

67,255

 

 

$

67,255

 

 

 

 

 

 

($ in thousands)

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

Description

 

Balance as of
December 31,
2021

 

 

Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

Cash equivalents

 

$

75,222

 

 

$

75,222

 

 

$

 

 

$

 

 

The cash equivalents represent demand deposit accounts and deposits in a short-term United States treasury money market mutual fund quoted in an active market and classified as a Level 1 asset.

6.
Net loss per share

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. The Company’s potentially dilutive shares, which include outstanding common stock options, inducement stock options, unvested restricted stock and warrants, have not been included in the computation of diluted net loss per share for any of the periods presented as the result would be anti-dilutive. Such potentially dilutive shares of common stock consisted of the following as of March 31, 2022 and 2021, respectively:

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Common stock options

 

$

10,969,654

 

 

$

10,738,378

 

Inducement stock options

 

 

 

 

 

463,333

 

Unvested restricted stock

 

 

993,879

 

 

 

1,074,606

 

Warrants

 

 

22,922,342

 

 

 

22,272,727

 

 

 

$

34,885,875

 

 

$

34,549,044

 

 

7.
Related Party Transactions

Collaboration with Vineti Inc.

On July 9, 2020, the Company entered into a master service agreement and statement of work with Vineti, Inc., ("Vineti"). Pursuant to the agreements, Vineti has been developing a software platform to coordinate and orchestrate the order, cell collection and manufacturing process for the Company’s T-cell therapy, or TCR-T, clinical programs. Heidi Hagen, who became a director of the Company in June 2019 and resigned November 2, 2021 and the Company's Interim Chief Executive Officer on February 25, 2021 and resigned on August 30, 2021, is a co-founder and former officer, of Vineti. During the three months ended March 31, 2022, the Company recorded no expenses for Vineti, compared to $0.2 million of expenses for the three months ended March 31, 2021.

9


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

WaterMill Settlement Agreement

On February 4, 2021, the Company entered into an agreement, or the Settlement Agreement, with WaterMill Asset Management Corp. and Robert W. Postma (collectively, the "WaterMill Parties"). Pursuant to the Settlement Agreement, the Company increased the size of its board of directors from eight to nine directors and appointed Mr. Postma to fill the newly created directorship.

In accordance with the Settlement Agreement, the Company agreed to reimburse the WaterMill Parties for up to $0.4 million of their reasonable out-of-pocket expenses out of a total of approximately $0.7 million in fees and expenses actually incurred by the WaterMill Parties in connection with (i) the WaterMill Parties' solicitation of written consents from the Company's stockholders to vote in favor of certain proposals, as set forth in the definitive consent statement filed by the WaterMill Parties on October 30, 2020, and (ii) the negotiation, execution, and effectuation of the Settlement Agreement. As of February 19, 2021, the Company has fully reimbursed the WaterMill Parties an aggregate amount of $0.4 million.

Joint Venture with TriArm Therapeutics/Eden BioCell

On December 18, 2018, the Company and TriArm Therapeutics, Ltd. (“TriArm”) launched Eden BioCell, Ltd. (“Eden BioCell”) as a joint venture to lead commercialization of the Company’s Sleeping Beauty-generated CAR-T therapies in the People’s Republic of China (including Macau and Hong Kong), Taiwan and Korea. The Company licensed to Eden BioCell the rights in Greater China for its third-generation Sleeping Beauty-generated CAR-T therapies targeting the CD19 antigen. Eden BioCell is owned equally by the Company and TriArm and the parties share decision-making authority. TriArm has contributed $10.0 million to Eden BioCell and has committed up to an additional $25.0 million to this joint venture. TriArm also manages all clinical development in the territory pursuant to a Master Services Agreement between TriArm and Eden BioCell. James Huang was the founder and serves as managing partner of Panacea Venture, which is an investor in TriArm. Mr. Huang is the Chair of the Company's board of directors and has been a director since July 2020. He also serves as a member of Eden BioCell’s board of directors.

For the three months ended March 31, 2022, Eden BioCell incurred a net loss and the Company continues to have no commitment to fund its operations. In September 2021, TriArm and Alaunos mutually agreed to dissolve the Eden BioCell joint venture. Refer to Note 11 - Joint Venture, for further details.

8.
Commitments and Contingencies

License Agreements

Exclusive License Agreement with PGEN Therapeutics

On October 5, 2018, the Company entered into an exclusive license agreement, or License Agreement, with PGEN Therapeutics, or PGEN, a wholly owned subsidiary of Precigen Inc., or Precigen, which was formerly known as Intrexon Corporation. Pursuant to the terms of the License Agreement, the Company has exclusive, worldwide rights to research, develop and commercialize (i) TCR products designed for neoantigens for the treatment of cancer, (ii) products utilizing Precigen’s RheoSwitch® gene switch, or RTS, for the treatment of cancer, referred to as IL-12 Products and (iii) CAR products directed to (A) CD19 for the treatment of cancer, referred to as CD19 Products, and (B) BCMA for the treatment of cancer, subject to certain obligations to pursue such target under the Ares Trading Agreement. Under the License Agreement, the Company also has exclusive, worldwide rights for certain patents relating to the Sleeping Beauty technology to research, develop and commercialize TCR products for both neoantigens and shared antigens for the treatment of cancer, referred to as TCR Products.

The Company is solely responsible for all aspects of the research, development and commercialization of the exclusively licensed products for the treatment of cancer. The Company is required to use commercially reasonable efforts, as defined in the License Agreement, to develop and commercialize IL-12 products, CD19 products, BCMA products and TCR Products.

In consideration of the licenses and other rights granted by PGEN, the Company will pay PGEN an annual license fee of $0.1 million and the Company has agreed to reimburse PGEN for certain historical costs of the licensed programs up to $1.0 million, which was fully paid during the year ended December 31, 2019.

The Company will make milestone payments totaling up to an additional $52.5 million for each exclusively licensed program upon the initiation of later stage clinical trials and upon the approval of exclusively licensed products in various jurisdictions. In addition, the Company will pay PGEN tiered royalties ranging from low-single digit to high-single digit on the net sales derived from the sales of any approved IL-12 products and CAR products. The Company will also pay PGEN royalties ranging from low-single digit to mid-single digit on the net sales derived from the sales of any approved TCR products, up to a maximum royalty amount of $100.0 million in the aggregate. The Company will also pay PGEN twenty percent of any sublicensing

10


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

income received by us relating to the licensed products. The Company is responsible for all development costs associated with each of the licensed products.

PGEN will pay the Company royalties ranging from low-single digits to mid-single digits on the net sales derived from the sale of PGEN’s CAR products, up to a maximum royalty amount of $100.0 million.

In October 2020, the Company entered into an amendment to the License Agreement relating to the transfer of certain materials and PGEN’s obligations to provide transition assistance relating to the IL-12 products.

License Agreement and 2015 Research and Development Agreement —The University of Texas MD Anderson Cancer Center

On January 13, 2015, the Company, together with Precigen, entered into the MD Anderson License with MD Anderson (which Precigen subsequently assigned to PGEN). Pursuant to the MD Anderson License, the Company, together with PGEN, holds an exclusive, worldwide license to certain technologies owned and licensed by MD Anderson including technologies relating to novel CAR T-cell therapies, non-viral gene transfer systems, genetic modification and/or propagation of immune cells and other cellular therapy approaches, Natural Killer, or NK Cells, and TCRs, arising from the laboratory of Laurence Cooper, M.D., Ph.D., who served as the Company’s Chief Executive Officer from May 2015 until February 2021 and was formerly a tenured professor of pediatrics at MD Anderson.

On August 17, 2015, the Company, Precigen and MD Anderson entered into the 2015 R&D Agreement, to formalize the scope and process for the transfer by MD Anderson, pursuant to the terms of the MD Anderson License, of certain existing research programs and related technology rights, as well as the terms and conditions for future collaborative research and development of new and ongoing research programs. The rights and obligations of Precigen under the 2015 R&D Agreement were assigned to the Company pursuant to the Fourth Amendment to 2015 R&D Agreement which was entered into on September 19, 2019 (the “Fourth Amendment”) with an effective date of October 5, 2018. The activities under the 2015 R&D Agreement are directed by a joint steering committee comprised of two members from the Company and one member from MD Anderson.

As provided under the MD Anderson License, the Company provided funding for research and development activities in support of the research programs under the 2015 R&D Agreement for a period of three years and in an amount of no less than $15.0 million and no greater than $20.0 million per year. On November 14, 2017, the Company entered into an amendment to the 2015 R&D Agreement, extending its term until April 15, 2021. In connection with the execution of the 2019 R&D Agreement described below, on October 22, 2019, the Company amended the 2015 R&D Agreement to extend the term of the 2015 R&D Agreement until December 31, 2026 and to allow cash resources on hand at MD Anderson under the 2015 R&D Agreement to be used for development costs under the 2019 R&D Agreement.

The term of the MD Anderson License expires on the last to occur of (a) the expiration of all patents licensed thereunder, or (b) the twentieth anniversary of the date of the MD Anderson License; provided, however, that following the expiration of the term of the MD Anderson License, the Company, together with Precigen, shall then have a fully-paid up, royalty free, perpetual, irrevocable and sublicensable license to use the licensed intellectual property thereunder. After ten years from the date of the MD Anderson License and subject to a 90-day cure period, MD Anderson will have the right to convert the MD Anderson License into a non-exclusive license if the Company and Precigen are not using commercially reasonable efforts to commercialize the licensed intellectual property on a case-by-case basis. After five years from the date of the MD Anderson License and subject to a 180-day cure period, MD Anderson will have the right to terminate the MD Anderson License with respect to specific technology(ies) funded by the government or subject to a third-party contract if the Company and Precigen are not meeting the diligence requirements in such funding agreement or contract, as applicable. MD Anderson may also terminate the agreement with written notice upon material breach by the Company and Precigen, if such breach has not been cured within 60 days of receiving such notice. In addition, the MD Anderson License will terminate upon the occurrence of certain insolvency events for both the Company and Precigen and may be terminated by the mutual written agreement of the Company, PGEN, and MD Anderson.

2019 Research and Development Agreement—The University of Texas MD Anderson Cancer Center

On October 22, 2019, the Company entered into the 2019 Research and Development Agreement, or the 2019 R&D Agreement, with MD Anderson, pursuant to which the parties agreed to collaborate with respect to the TCR program. Under the 2019 R&D Agreement, the parties will, among other things, collaborate on programs to expand the Company's TCR library and conduct clinical trials. The activities under the 2019 R&D Agreement are directed by a joint steering committee comprised of two members from the Company and one member from MD Anderson.

The Company will own all inventions and intellectual property developed under the 2019 R&D Agreement and the Company will retain all rights to intellectual property for oncology products manufactured using non-viral gene transfer technologies under the 2019 R&D Agreement, including the Company's Sleeping Beauty technology. The Company has granted MD Anderson an exclusive license for such intellectual property outside the field of oncology and to develop and commercialize TCR products manufactured

11


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

using viral gene transfer technologies limited to autologous products if used for cancer treatment or prevention, and a non-exclusive license for allogenic anti-tumor TCR products manufactured using viral-based technologies.

Under the 2019 R&D Agreement, the Company agreed, beginning on January 1, 2021, to reimburse MD Anderson up to a total of $20.0 million for development costs under the 2019 R&D Agreement, after the funds from the 2015 R&D Agreement are exhausted. In addition, the Company will pay MD Anderson royalties on net sales of its TCR products at rates in the low single digits. The Company is required to make performance-based payments upon the successful completion of clinical and regulatory benchmarks relating to its TCR products. The aggregate potential benchmark payments are $36.5 million, of which only $3.0 million will be due prior to the first marketing approval of the Company's TCR products. The royalty rates and benchmark payments owed to MD Anderson may be reduced upon the occurrence of certain events. The Company also agreed to sell its TCR products to MD Anderson at preferential prices and will sell the Company's TCR products in Texas exclusively to MD Anderson for a limited period of time following the first commercial sale of the Company's TCR products. For the three months ended March 31, 2022, the Company incurred expenses of $0.4 million related to this agreement compared to $0 for the three months ended March 31, 2021.

The 2019 R&D Agreement will terminate on December 31, 2026 and either party may terminate the 2019 R&D Agreement following written notice of a material breach. The 2019 R&D Agreement also contains customary provisions related to indemnification obligations, confidentiality and other matters.

In connection with the execution of the 2019 R&D Agreement, on October 22, 2019, the Company issued MD Anderson a warrant to purchase 3,333,333 shares of the Company's common stock, which is referred to as the MD Anderson Warrant. Please refer to Note 10 - Warrants, for further discussion of the MD Anderson Warrant. The MD Anderson Warrant has an initial exercise price of $0.001 per share, expires on December 31, 2026, and vests upon the occurrence of certain clinical milestones. As of December 31, 2021, none of the milestones have been met.

License Agreement with the NCI

On May 28, 2019, the Company entered into a patent license agreement, or the Patent License, with the National Cancer Institute, or NCI. Pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property to develop and commercialize patient-derived (autologous), peripheral blood T-cell therapy products engineered by transposon-mediated gene transfer to express TCRs reactive to mutated KRAS, TP53 and EGFR neoantigens. In addition, pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property for manufacturing technologies to develop and commercialize autologous, peripheral blood T-cell therapy products engineered by non-viral gene transfer to express TCRs, as well as a non-exclusive, worldwide license to certain additional manufacturing technologies. On May 29, 2019, January 8, 2020, September 28, 2020, April 16, 2021, May 4, 2021, and August 13, 2021 the Company amended the Patent License to expand its TCR library to include additional TCRs reactive to mutated KRAS and TP53 neoantigens licensed from the NCI.

The terms of the Patent License require the Company to pay the NCI minimum annual royalties in the amount of $0.3 million, which amount will be reduced to $0.1 million once the aggregate minimum annual royalties paid by the Company equals $1.5 million.

The Company is also required to make performance-based payments upon successful completion of clinical and regulatory benchmarks relating to the licensed products. Of such payments, the aggregate potential benchmark payments are $4.3 million, of which aggregate payments of $3.0 million are due only after marketing approval in the United States or in Europe, Japan, Australia, China or India. The first benchmark payment of $0.1 million will be due upon the initiation of the Company's first sponsored Phase 1 clinical trial of a licensed product or licensed process in the field of use licensed under the Patent License.

In addition, the Company is required to pay the NCI one-time benchmark payments following aggregate net sales of licensed products at certain aggregate net sales ranging from $250.0 million to $1.0 billion. The aggregate potential amount of these benchmark payments is $12.0 million. The Company must also pay the NCI royalties on net sales of products covered by the Patent License at rates in the low to mid-single digits depending upon the technology included in a licensed product. To the extent the Company enters into a sublicensing agreement relating to a licensed product, the Company is required to pay the NCI a percentage of all consideration received from a sublicensee, which percentage will decrease based on the stage of development of the licensed product at the time of the sublicense.

The Patent License will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. The NCI may terminate or modify the Patent License in the event of a material breach, including if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the Patent License, or any portion thereof, in the Company's sole discretion at any time upon 60 days’ written notice to the NCI. In addition, the NCI has the right to: (i) require the Company to sublicense the rights to the product candidates covered by the Patent License upon certain conditions, including if the Company is not

12


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

reasonably satisfying required health and safety needs and (ii) terminate or modify the Patent License, including if the Company is not satisfying requirements for public use as specified by federal regulations.

For the three months ended March 31, 2022 and March 31, 2021, the Company recognized $0.3 million in license payments to the NCI under this agreement.

Cooperative Research and Development Agreement (CRADA) with the NCI

On January 9, 2017, the Company entered into a Cooperative Research and Development Agreement (the “CRADA”) with the NCI. The purpose of this collaboration was to advance a personalized TCR-T approach for the treatment of solid tumors. Using the Company's Sleeping Beauty technology, NCI would analyze a patient’s own cancer cells, identify their unique neoantigens and TCRs reactive against those neoantigens and then use the Company's Sleeping Beauty technology to transpose one or more TCRs into T cells for re-infusion. Research conducted under the CRADA will be at the direction of Steven A. Rosenberg, M.D., Ph.D., Chief of the Surgery Branch at the NCI, in collaboration with the Company's researchers.

The Company is responsible for providing NCI with the test materials necessary for them to conduct their studies, and eventually, clinical trials pursuant to the CRADA. Inventions, data and materials discovered or produced in connection with performance of the research plan under the CRADA will remain the sole property of the party who produced the discovery. The parties will jointly own all inventions jointly discovered under the research plan. The owner of any invention under the CRADA will make the decision to file a patent covering the invention, or in the case of a jointly owned invention, the Company will have the first opportunity to file a patent covering the invention. If the Company fails to provide timely notice of its decision to NCI or decide not to file a patent covering the joint invention, NCI has the right to make the filing. For any invention solely owned by NCI or jointly made by NCI and the Company for which a patent application was filed, the U.S. Public Health service grants the Company an exclusive option to elect an exclusive or non-exclusive commercialization license. For inventions owned solely by NCI or jointly owned by NCI and the Company, which are licensed according to the terms described above, the Company agreed to grant to the U.S. government a non-exclusive, non-transferable, irrevocable and paid up license to practice the invention or have the invention practiced on its behalf throughout the world. The Company is also required to grant the U.S. government a non-exclusive, non-transferable, irrevocable and paid up license to practice the invention or have the invention practiced on its behalf throughout the world for any of the Company's solely owned inventions. The agreement may be terminated by any of the parties upon 60 days prior written consent.

The NCI has a cleared Investigational New Drug Application, or IND, that would permit them to begin this trial. To the Company's knowledge, the trial has not yet enrolled due to matters internal to the NCI and unrelated to the Company's technology. The progress and timeline for this trial, including the timeline for dosing patients, are under control of the NCI.

In February 2019, the Company extended the CRADA with the NCI until January 9, 2022, committing an additional $5.0 million to this program. In March 2022, the Company entered into an amendment to the CRADA that is retroactive, effective January 9, 2022 to extend the term of the CRADA until January 9, 2023. The Company did not record expenses under the CRADA for the three months ended March 31, 2022, as compared to $0.6 million for the three months ended March 31, 2021.

Patent and Technology License Agreement—The University of Texas MD Anderson Cancer Center and the Texas A&M University System

On August 24, 2004, the Company entered into a patent and technology license agreement with MD Anderson and the Texas A&M University System, which the Company refers to, collectively, as the Licensors. Under this agreement, the Company was granted an exclusive, worldwide license to rights (including rights to U.S. and foreign patent and patent applications and related improvements and know-how) for the manufacture and commercialization of two classes of organic arsenicals (water- and lipid-based) for human and animal use. The class of water-based organic arsenicals includes darinaparsin.

Under the terms of the agreement, the Company may be required to make additional payments to the Licensors upon achievement of certain other milestones in varying amounts which, on a cumulative basis could total up to an additional $4.5 million. In addition, the Licensors are entitled to receive single digit percentage royalty payments on sales from a licensed product and will also be entitled to receive a portion of any fees that the Company may receive from a possible sublicense under certain circumstances. During the three months ended March 31, 2022 and March 31, 2021, no amounts were expensed or paid under the terms of the agreement.

Collaboration Agreement with Solasia Pharma K.K.

On March 7, 2011, the Company entered into a License and Collaboration Agreement with Solasia Pharma K. K. ("Solasia"), which was amended on July 31, 2014 to include an exclusive worldwide license. Pursuant to the License and Collaboration Agreement, the

13


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

Company granted Solasia an exclusive license to develop and commercialize darinaparsin in both intravenous and oral forms and related organic arsenic molecules, in all indications for human use.

As consideration for the license, the Company is eligible to receive from Solasia development- and sales-based milestones, a royalty on net sales of darinaparsin, once commercialized, and a percentage of any sublicense revenue generated by Solasia. Solasia will be responsible for all costs related to the development, manufacturing and commercialization of darinaparsin. The Company’s Licensors, as defined in the agreement, will receive a portion of all milestone and royalty payments made by Solasia to the Company in accordance with the terms of the license agreement with the Licensors. During the three months ended March 31, 2022 and March 31, 2021, the Company did not record collaboration revenue under the collaboration agreement with Solasia.

9.
Stock-Based Compensation

The Company recognized stock-based compensation expense on all employee and non-employee awards as follows:

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Research and development

 

 

315

 

 

 

733

 

General and administrative

 

 

538

 

 

 

1,464

 

Stock-based compensation expense

 

$

853

 

 

$

2,197

 

 

The Company granted an aggregate of 2,690,000 stock options during the three months ended March 31, 2022, with a weighted-average grant date fair value of $0.47 per share. The Company granted an aggregate of 4,314,438 stock options during the three months ended March 31, 2021, with a weighted-average grant date fair value of $2.43 per share.

For the three months ended March 31, 2022 and 2021, the fair value of stock options was estimated on the date of grant using a Black-Scholes option valuation model with the following assumptions:

 

 

 

For the Three Months Ended March 31,

 

 

2022

 

2021

Risk-free interest rate

 

1.63 – 2.43%

 

0.09 – 1.05%

Expected life in years

 

6.25

 

5.50 - 6.25

Expected volatility

 

74.49 - 76.27%

 

72.92 - 74.20%

Expected dividend yield

 

%

 

%

 

2.

Stock option activity under the Company’s stock option plans for the three months ended March 31, 2022 is as follows:

 

(in thousands, except share and per share data)

 

Number of Shares

 

 

Weighted- Average Exercise Price

 

 

Weighted- Average Contractual Term (Years)

 

 

Aggregate Intrinsic Value

 

Outstanding, December 31, 2021

 

 

10,665,869

 

 

$

2.87

 

 

 

 

 

 

 

Granted

 

 

2,690,000

 

 

 

0.69

 

 

 

 

 

 

 

Cancelled

 

 

(2,386,216

)

 

 

3.68

 

 

 

 

 

 

 

Outstanding, March 31, 2022

 

 

10,969,653

 

 

$

2.16

 

 

 

9.02

 

 

$

 

Options exercisable, March 31, 2022

 

 

3,394,055

 

 

$

3.35

 

 

 

7.86

 

 

$

 

Options exercisable, December 31, 2021

 

 

4,410,312

 

 

$

3.85

 

 

 

7.53

 

 

$

 

Options available for future grant

 

 

15,242,103

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2022, total unrecognized compensation costs related to unvested stock options outstanding amounted to $7.5 million. The cost is expected to be recognized over a weighted-average period of 2.08 years.

A summary of the status of unvested restricted stock for the three months ended March 31, 2022 is as follows:

 

14


Alaunos Therapeutics, Inc.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

 

Number of Shares

 

 

Weighted-Average Grant Date Fair Value

 

Unvested, December 31, 2021

 

 

1,198,580

 

 

$

2.10

 

Vested

 

 

(27,819

)

 

 

3.16

 

Cancelled

 

 

(176,882

)

 

 

2.79

 

Unvested, March 31, 2022

 

 

993,879

 

 

$

1.95

 

 

At March 31, 2022, total unrecognized compensation costs related to unvested restricted stock outstanding amounted to $1.5 million. The cost is expected to be recognized over a weighted-average period of 2.15 years.

10.
Warrants

In connection with the Company’s November 2018 private placement which provided net proceeds of approximately $47.1 million, the Company issued warrants to purchase an aggregate of 18,939,394 shares of common stock which became exercisable six months after the closing of the private placement (the "November 2018 Warrants"). The November 2018 Warrants had an exercise price of $3.01 per share and have a five-year term. The fair value of the November 2018 Warrants was estimated at $18.4 million using a Black-Scholes model with the following assumptions: expected volatility of 71%, risk free interest rate of 2.99%, expected life of five years and no dividends.

On July 26, 2019 and September 12, 2019, the Company entered into agreements with existing investors whereby the investors exercised the November 2018 Warrants for an aggregate of 17,803,031 shares of common stock, at an exercise price of $3.01 per share. Proceeds from the warrant exercise, after deducting placement agent fees and other related expenses of $1.1 million were approximately $52.5 million.

The Company issued participating investors new warrants to purchase up to 17,803,031 additional shares of common stock (the "2019 Warrants") as consideration for the warrant holders to exercise their November 2018 Warrants. The 2019 Warrants will expire on the fifth anniversary of the initial exercise date and have an exercise price of $7.00. The 2019 Warrants were valued using a Black-Scholes valuation model and resulted in a $60.8 million non-cash charge in the Company’s statement of operations in 2019.

On October 22, 2019, the Company entered into the 2019 R&D Agreement with MD Anderson. In connection with the execution of the 2019 R&D Agreement, the Company issued the MD Anderson Warrant to purchase 3,333,333 shares of common stock. The MD Anderson Warrant has an initial exercise price of $0.001 per share and grant date fair value of $14.5 million. The MD Anderson Warrant expires on December 31, 2026 and vests upon the occurrence of certain clinical milestones. The Company will recognize expense on the MD Anderson Warrant in the same manner as if the Company paid cash for services to be rendered. For the three months ended March 31, 2022 and March 31, 2021, the Company did not recognize any expense related to the MD Anderson Warrant as no clinical milestones had been achieved.

On August 6, 2021, the Company entered into the Loan and Security Agreement with SVB. Refer to Note 4 - Debt. In connection with the Loan and Security Agreement, the Company issued SVB warrants to purchase 432,844 shares of common stock with an exercise price of $2.22 per share. The warrants have a ten-year life and are fully vested upon issuance. The fair value of the warrants was estimated at $0.8 million using a Black-Scholes model with the following assumptions: expected volatility of 79%, risk free interest rate of 1.31%, expected life of ten years and