TransCode Therapeutics(RNAZ) - 2022 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements subject to risks and uncertainties, covered under safe harbor provisions - The report contains forward-looking statements covered by safe harbor provisions, identifiable by terms like 'may,' 'will,' 'expects,' 'plans,' 'intends,' 'anticipates,' 'believes,' 'estimates,' 'predicts,' 'potential,' or 'continue'[7] - These statements include estimates and expectations regarding capital requirements, R&D activities, regulatory approvals, and reliance on third parties[8][12] - Readers are cautioned not to place undue reliance on these statements due to inherent risks detailed in the 'Risk Factors' section[10] PART I. FINANCIAL INFORMATION This part presents the unaudited interim financial statements and management's analysis of the company's financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section presents unaudited interim financial statements, highlighting operating losses and liquidity challenges that raise going concern doubts Balance Sheets The balance sheets show a significant decrease in cash, total assets, and stockholders' equity during the first half of 2022 Balance Sheet Summary | Metric | June 30, 2022 (Unaudited) | December 31, 2021 | | :-------------------------------- | :-------------------------- | :------------------ | | Assets | | | | Cash | $13,438,385 | $20,825,860 | | Total current assets | $13,920,783 | $22,732,175 | | Total assets | $14,155,456 | $22,938,443 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $1,727,251 | $2,534,097 | | Total liabilities | $1,727,251 | $2,534,097 | | Total stockholders' equity (deficit) | $12,428,205 | $20,404,346 | | Accumulated deficit | $(18,446,583) | $(10,305,281) | - Cash decreased by approximately $7.39 million from December 31, 2021, to June 30, 2022[14] - Total assets decreased by approximately $8.78 million, and total stockholders' equity decreased by approximately $7.98 million during the six-month period[14] Statements of Operations The company's net loss widened significantly due to substantial increases in R&D and G&A expenses Statement of Operations Summary | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $2,620,028 | $211,752 | $4,501,604 | $475,511 | | General and administrative | $2,087,265 | $143,776 | $3,683,191 | $329,482 | | Total operating expenses | $4,707,293 | $355,528 | $8,184,795 | $804,993 | | Operating loss | $(4,707,293) | $(355,528) | $(8,184,795) | $(804,993) | | Net income (loss) | $(4,671,232) | $2,770,904 | $(8,141,302) | $(1,714,434) | | Basic earnings (loss) per share | $(0.36) | $0.60 | $(0.63) | $(0.37) | | Diluted earnings (loss) per share | $(0.36) | $0.51 | $(0.63) | $(0.37) | - Net loss significantly increased for the three and six months ended June 30, 2022, compared to the prior year, primarily due to substantial increases in R&D and G&A expenses[17] - Research and development expenses increased by $2.41 million (YoY for Q2) and $4.03 million (YoY for H1), reflecting expanded R&D activities[17][162] - General and administrative expenses increased by $1.94 million (YoY for Q2) and $3.35 million (YoY for H1), driven by public company costs and personnel expenses[17][163] Statements of Stockholders' Equity (Deficit) Stockholders' equity decreased substantially, driven by a growing accumulated deficit from ongoing net losses Stockholders' Equity Summary | Metric | December 31, 2021 | June 30, 2022 | | :-------------------------------- | :------------------ | :------------------ | | Common Stock Shares | 12,904,574 | 12,977,234 | | Common Stock Amount | $1,291 | $1,298 | | Additional Paid-In Capital | $30,708,336 | $30,873,490 | | Accumulated Deficit | $(10,305,281) | $(18,446,583) | | Total Stockholders' Equity (Deficit) | $20,404,346 | $12,428,205 | - The accumulated deficit increased significantly from $10.31 million at December 31, 2021, to $18.45 million at June 30, 2022, reflecting ongoing net losses[20] - Total stockholders' equity decreased by approximately $7.98 million during the six months ended June 30, 2022, primarily due to the net loss[20] - Share-based compensation contributed $159,172 to additional paid-in capital for the six months ended June 30, 2022[20][104] Statements of Cash Flows Cash used in operating activities increased dramatically, leading to a significant reduction in the company's cash position Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(7,320,760) | $(598,152) | | Net cash used in investing activities | $(72,704) | $(97,541) | | Net cash provided by (used in) financing activities | $5,989 | $(52,756) | | Net change in cash | $(7,387,475) | $(748,449) | | Cash, beginning of period | $20,825,860 | $828,016 | | Cash, end of period | $13,438,385 | $79,567 | - Net cash used in operating activities increased significantly to $7.32 million for the six months ended June 30, 2022, from $0.60 million in the prior year, primarily due to increased net loss and changes in working capital[23][177] - Cash at the end of the period decreased to $13.44 million as of June 30, 2022, from $20.83 million at the beginning of the period[23] Notes to Financial Statements The notes detail the company's early-stage operations, going concern uncertainty, and key agreements and accounting policies - The company is an early-stage biopharmaceutical company focused on developing drugs and diagnostics for metastatic disease, with its lead candidate TTX-MC138 targeting microRNA-10b[26][123] - TransCode has not generated revenue, incurred substantial losses, and has negative cash flows from operations, leading to substantial doubt about its ability to continue as a going concern without additional capital[28][30][31][32] - Current cash is projected to fund operations only into the first quarter of 2023, necessitating additional financing[34][35][36] - Research and development expenses are expensed as incurred; R&D payables to CROs/CMOs were $752,067 at June 30, 2022, up from $386,057 at December 31, 2021[44] - Grant income is recognized as earned from awards like the National Cancer Institute's SBIR Award, which is expected to provide $2,392,845 over three years[48][70] - The company has license agreements with Massachusetts General Hospital for intellectual property, including minimum annual fees and potential milestone payments up to $1,550,000[73][74][75][79] - Share-based compensation expense for the six months ended June 30, 2022, was $159,172, with approximately $2,044,859 remaining to be recognized over 2.3 years[104] - A strategic collaboration agreement was signed with The University of Texas M. D. Anderson Cancer Center on July 29, 2022, committing up to $10 million over five years[114] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses operational results, the TTX delivery platform, significant operating losses, and the critical need for additional funding Company Overview The company is an RNA oncology firm developing therapeutics with its proprietary TTX delivery platform, led by candidate TTX-MC138 - TransCode Therapeutics is an RNA oncology company developing RNA therapeutics using its proprietary TTX delivery platform, which leverages an iron oxide nanoparticle[120][121] - The TTX platform is modular, allowing for adaptation to various therapeutic loads and is designed to overcome stability and efficiency issues[122] - The lead therapeutic candidate, TTX-MC138, targets microRNA-10b, a regulator of metastatic cell viability in various cancers[123] - Other preclinical programs include TTX-siPDL1, TTX-siLIN28B, TTX-RIGA, TTX-CRISPR, and TTX-mRNA[124] - Research published in Cancer Nanotechnology demonstrated that radiolabeled TTX-MC138 accumulates in metastatic lesions in murine models, supporting a microdosing PET-MRI approach for human trials[128][129] Orphan Drug Designation The FDA granted Orphan Drug Designation for TTX-siPDL1, providing potential marketing exclusivity and financial benefits - In June 2022, the FDA granted Orphan Drug Designation (ODD) for TTX-siPDL1 for the treatment of pancreatic cancer[132] - ODD status provides potential benefits including seven years of marketing exclusivity, tax credits for R&D, and exemption from the PDUFA filing fee[132] SBIR Award The company received a multi-year SBIR Award from the National Cancer Institute to fund IND-enabling studies for TTX-MC138 - The company received a Fast-Track Small Business Innovation Research (SBIR) Award from the National Cancer Institute, expected to provide $2,392,845 over three years[133] - First-year funding of $308,861 was received in May 2021, and second-year funding of $1,129,316 was made available in May 2022[133] - The SBIR Award aims to fund IND-enabling studies and imaging studies for TTX-MC138[134][135] Financial Operations Overview The company has a history of net losses and requires substantial additional funding, with current cash lasting only into Q1 2023 - The company has not generated product revenue and incurred net losses of $8.1 million for the six months ended June 30, 2022, with an accumulated deficit of $18.4 million[137] - Substantial additional funding is required to support ongoing operations, preclinical and clinical trials, and public company costs[138][139] - As of June 30, 2022, cash was $13.4 million, expected to fund operations into Q1 2023, raising substantial doubt about going concern[141][172] Impact of the Novel Coronavirus (COVID-19) Pandemic The COVID-19 pandemic has caused and may continue to cause disruptions and delays to the company's development timelines - The COVID-19 pandemic has caused global disruptions which have affected and are expected to continue to affect the timeline for preclinical studies and planned clinical trials[142] - The full extent of the pandemic's impact on operations, expenses, and development timelines remains uncertain[142] Components of our results of operations The company's financial results are primarily driven by R&D and G&A expenses, with no product revenue to date - The company has not generated any revenue from product sales and does not expect to in the foreseeable future[143] - Research and development expenses include costs for drug discovery, preclinical/clinical development, CROs/CMOs, materials, and personnel[144] - General and administrative expenses cover staffing, insurance, professional fees, and corporate costs, expected to increase as a public company[154][155] - Other income (expense) includes interest income on cash balances and grant income from government programs[157][158][159] Results of Operations Operating expenses and net loss increased significantly year-over-year due to expanded R&D and public company costs Comparison of Operating Results (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (3 Months) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (6 Months) | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------------ | :--------------------------- | :--------------------------- | :------------------ | | Research and Development | $2,620 | $212 | $2,408 | $4,502 | $476 | $4,026 | | General and Administrative | $2,087 | $144 | $1,943 | $3,683 | $329 | $3,354 | | Total Operating Expenses | $4,707 | $356 | $4,351 | $8,185 | $805 | $7,380 | | Operating Loss | $(4,707) | $(356) | $(4,351) | $(8,185) | $(805) | $(7,380) | | Net income (loss) | $(4,671) | $2,771 | $(7,442) | $(8,141) | $(1,714) | $(6,427) | - R&D expenses increased by $2.41 million (QoQ) and $4.03 million (YoY H1) due to material purchases, compensation, and regulatory/purchased services[162] - G&A expenses increased by $1.94 million (QoQ) and $3.35 million (YoY H1) due to D&O insurance, personnel costs, and public company expenses[163] - Grant income decreased by $22 thousand (QoQ) and $15 thousand (YoY H1) as recognition was tied to work completion under the NIH grant[164] - Derivative and warrant liabilities, and interest expense, were $0 for the three and six months ended June 30, 2022, as these were extinguished or converted in connection with the IPO[165][166][167] Liquidity and Capital Resources Operations are funded by IPO proceeds and grants, but current cash is only sufficient into Q1 2023, necessitating future financing - The company has funded operations primarily through convertible promissory notes, IPO proceeds, and SBIR Award funds, totaling approximately $31 million in gross cash proceeds through June 30, 2022[168] - As of June 30, 2022, cash was $13.4 million, with an expected additional $2 million from the SBIR Award, projected to fund operations into Q1 2023[169][172] - Future funding requirements are substantial and depend on the progress of clinical development, manufacturing, regulatory approvals, and commercialization efforts[171][173] - The company anticipates financing future operations through equity offerings, debt financings, governmental funding, collaborations, and strategic partnerships[173] Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(7,321) | $(598) | | Net cash used in investing activities | $(73) | $(98) | | Net cash provided by (used in) financing activities | $6 | $(53) | | Net decrease in cash | $(7,388) | $(749) | - Net cash used in operating activities increased to $7.32 million in H1 2022, primarily due to the net loss and changes in working capital[177] - A strategic collaboration with MD Anderson, signed July 29, 2022, commits up to $10 million over five years for clinical and preclinical work[182] Critical Accounting Policies and Significant Judgments and Estimates Management makes significant estimates for accrued R&D expenses, share-based compensation, and historical common stock valuations - The preparation of financial statements requires management to make estimates and assumptions, particularly for accrued R&D expenses, share-based compensation, and the fair value of common stock[183][185] - Accrued R&D expenses are estimated based on progress towards completion of tasks by third-party service providers (CROs, CMOs)[186][187] - Share-based compensation expense is measured at grant-date fair value and recognized over the vesting period[190][191] - Prior to IPO, the fair value of common stock was determined by the Board with input from third-party appraisals[192][193][194] Factors that May Affect Future Results Important factors that could affect future results are detailed in the 'Risk Factors' section of the Annual Report on Form 10-K - Readers are directed to the 'Risk Factors' section in the Annual Report on Form 10-K for a discussion of important factors that may affect future results[198] Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements during the reporting periods - The company did not have any off-balance sheet arrangements during the periods presented[199] Recently Issued Accounting Pronouncements A description of recently issued accounting pronouncements can be found in Note 2 to the financial statements - A description of recently issued accounting pronouncements is provided in Note 2 to the financial statements[200] Internal Control Over Financial Reporting Material weaknesses in internal control over financial reporting identified prior to the IPO have not yet been remediated - Material weaknesses in internal control over financial reporting existed prior to the IPO and remain unremediated, as detailed in the Annual Report on Form 10-K[201] Emerging Growth Company and Smaller Reporting Company Status The company qualifies as an emerging growth and smaller reporting company, allowing for reduced reporting requirements - The company is an 'emerging growth company' (EGC) and 'smaller reporting company,' allowing it to take advantage of certain exemptions from reporting requirements[202][203][204] Information Technology Risks The company faces cybersecurity risks, evidenced by a 2021 phishing attack, and is implementing mitigation measures - The company's systems are subject to cyber-attacks; a phishing attack in July 2021 resulted in a temporary loss of $526,435, which was subsequently recovered[88][205] - Steps are being taken to mitigate cyberattack risks, including enhanced email screening, computer support, and security protocols[205] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's exposure to interest rate and foreign currency risks is currently immaterial but may increase with business development - The company's primary market risk exposure is interest income sensitivity, but an immediate 10% change in interest rates would not materially affect its financial position[206] - As of June 30, 2022, there was no outstanding debt, eliminating interest rate risk related to debt[207] - Foreign currency exchange risk primarily relates to the Euro for certain major purchases but is not currently material[208] - The company has not entered into foreign currency hedging contracts but expects foreign currency fluctuations to have a greater impact as the business develops[209] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls were ineffective as of June 30, 2022, due to unremediated material weaknesses - Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses in internal control over financial reporting[213] - No material changes in internal control over financial reporting occurred during the six months ended June 30, 2022[215] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, securities sales, and other required disclosures ITEM 1. LEGAL PROCEEDINGS The company is not currently party to any material legal proceedings - The company is not currently involved in any legal proceedings and is unaware of any pending or threatened legal actions that could have a material adverse effect[218] ITEM 1A. RISK FACTORS This section highlights risks from current economic uncertainty, rising inflation, and interest rate hikes - Current economic circumstances, including increased economic uncertainty, reduced credit availability, and volatility in financial markets, may adversely affect the business[220] - Rising inflation rates have increased operating costs and could negatively impact liquidity and access to capital[221] - Increases in interest rates by the Federal Reserve, coupled with economic uncertainty, may further heighten these risks[221] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company reports no unregistered sales of equity securities or use of IPO proceeds during the period - There were no unregistered sales of equity securities during the period[222] - There was no use of proceeds from the initial public offering of common stock during the period[223] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reports no defaults upon senior securities - There were no defaults upon senior securities[225] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Mine safety disclosures are not applicable to the company[226] ITEM 5. OTHER INFORMATION The company reports no other information required under this item - There is no other information to report under this item[227] ITEM 6. EXHIBITS This section lists the exhibits filed with the report, including officer certifications and XBRL documents - Exhibits include certifications of principal executive and financial officers (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents[230] SIGNATURES The report is duly signed by the CEO and CFO on August 15, 2022 - The report is signed by R. Michael Dudley, Chief Executive Officer, and Thomas A. Fitzgerald, Chief Financial Officer, on August 15, 2022[234]