Tourmaline Bio(TRML) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Talaris Therapeutics reported a $37.2 million net loss for H1 2023, with assets declining to $159.1 million, reflecting restructuring and going concern doubts Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,351 | $13,670 | | Marketable securities | $133,901 | $167,612 | | Total current assets | $156,207 | $185,613 | | Total assets | $159,121 | $193,715 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $10,134 | $11,462 | | Total liabilities | $10,689 | $13,660 | | Total stockholders' equity | $148,432 | $180,055 | | Total liabilities and stockholders' equity | $159,121 | $193,715 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $4,088 | $13,187 | $17,503 | $27,383 | | General and administrative | $6,026 | $5,228 | $12,208 | $9,446 | | Restructuring costs | $6,388 | $— | $10,869 | $— | | Total operating expenses | $16,502 | $18,415 | $40,580 | $36,829 | | Loss from operations | $(16,502) | $(18,415) | $(40,580) | $(36,829) | | Net loss | $(14,738) | $(18,096) | $(37,235) | $(36,355) | | Net loss per common share | $(0.35) | $(0.44) | $(0.89) | $(0.89) | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $180.1 million at December 31, 2022, to $148.4 million at June 30, 2023. The decrease was primarily driven by a net loss of $37.2 million for the six-month period[20] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(31,581) | $(33,560) | | Net cash provided by investing activities | $36,329 | $40,355 | | Net cash provided by financing activities | $183 | $109 | | Net increase in cash, cash equivalents and restricted cash | $4,931 | $6,904 | | Cash, cash equivalents and restricted cash at end of period | $18,601 | $25,518 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail significant corporate events, including the discontinuation of key clinical trials, substantial workforce reductions, and the pending merger with Tourmaline Bio. Management has concluded there is substantial doubt about the company's ability to continue as a going concern. The notes also cover restructuring costs of $10.9 million for the first six months of 2023, asset impairments of $3.4 million, and details of the merger agreement, which includes a potential special cash dividend to Talaris stockholders. A subsequent event notes the sale of FCR001-related assets to ImmunoFree for approximately $2.2 million in July 2023 - In February 2023, the company discontinued its FREEDOM-1 and FREEDOM-2 clinical trials and initiated a restructuring that reduced its workforce by 33%. A further 95% reduction of the remaining workforce occurred in April 2023[25][27] - On June 22, 2023, Talaris entered into a merger agreement with Tourmaline Bio, Inc. The transaction is subject to stockholder approval and other closing conditions[28] - Due to the discontinuation of all clinical trials, CMC operations, research activities, and significant workforce reductions, management has concluded there is substantial doubt about the company's ability to continue as a going concern[33] - In July 2023, the company sold certain clinical data and intellectual property related to its FCR001 product candidate to ImmunoFree, Inc. for approximately $2.2 million[109] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift post-FCR001 trial discontinuation, leading to a Tourmaline Bio merger, reduced R&D, and over 12 months of liquidity Overview - In February 2023, Talaris discontinued its FREEDOM-1 and FREEDOM-2 clinical trials for FCR001 due to slow enrollment and extended timelines[115] - Following a strategic review, the company entered into a merger agreement with Tourmaline Bio on June 22, 2023. If completed, Tourmaline's business will become the business of the combined company[119] - The company has incurred significant operating losses since inception, with a net loss of $37.2 million for the six months ended June 30, 2023, and an accumulated deficit of $202.0 million[126] Results of Operations For the three months ended June 30, 2023, the net loss decreased to $14.7 million from $18.1 million in the prior year, driven by a $9.1 million reduction in R&D expenses offset by $6.4 million in new restructuring costs. For the six-month period, the net loss was relatively flat at $37.2 million compared to $36.4 million, as a $9.9 million decrease in R&D was offset by $10.9 million in restructuring costs and a $2.8 million increase in G&A expenses related to the merger Comparison of Operating Expenses - Three Months Ended June 30 (in thousands) | Expense Category | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Research and development | $4,088 | $13,187 | $(9,099) | | General and administrative | $6,026 | $5,228 | $798 | | Restructuring costs | $6,388 | $— | $6,388 | Comparison of Operating Expenses - Six Months Ended June 30 (in thousands) | Expense Category | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Research and development | $17,503 | $27,383 | $(9,880) | | General and administrative | $12,208 | $9,446 | $2,762 | | Restructuring costs | $10,869 | $— | $10,869 | Liquidity and Capital Resources - As of June 30, 2023, the company had $18.4 million in cash and cash equivalents and $133.9 million in marketable securities, totaling $152.3 million[159] - Net cash used in operating activities for the six months ended June 30, 2023, was $31.6 million, a slight decrease from $33.6 million in the same period of 2022[160][161] - Management believes existing cash, cash equivalents, and marketable securities are sufficient to fund operating expenses and capital requirements for more than twelve months from the report's issuance date[166] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is U.S. interest rate changes on its $152.3 million cash and marketable securities, with minimal foreign currency or inflation impact - The company's primary market risk is interest rate changes on its $152.3 million portfolio of cash, cash equivalents, and marketable securities. A 100 basis point change in interest rates is not expected to have a material effect on the portfolio's fair value[187] - The company has minimal exposure to foreign currency fluctuations as all employees and operations are currently located in the United States[188] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - As of June 30, 2023, the company's interim Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at a reasonable assurance level[191] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[192] PART II. OTHER INFORMATION Legal Proceedings Talaris Therapeutics is not a party to any material legal proceedings expected to have a material adverse effect on its business as of June 30, 2023 - The company is not currently a party to any litigation or legal proceedings that management believes are probable to have a material adverse effect on the business[195] Risk Factors The company faces significant risks including potential merger failure, employee dependence, biopharmaceutical development uncertainties, manufacturing complexities, and intellectual property reliance Risks Related to Talaris' Strategic Alternative Process - Failure to complete the proposed merger with Tourmaline Bio could materially and adversely affect Talaris' operations, financial results, and stock price. The closing is subject to stockholder approval and other customary conditions[197][199] - If the merger is not consummated, the board may pursue dissolution and liquidation. The cash available for distribution to stockholders would depend on the timing and the amount reserved for liabilities[202] - The company is substantially dependent on its few remaining employees to facilitate the merger. As of June 30, 2023, Talaris had only four full-time employees[204] Risks Related to Talaris' Business and Product Candidates - Should Talaris resume development, its business would depend on the successful development and regulatory approval of a biopharmaceutical candidate, a lengthy, expensive, and uncertain process[211][215] - The company previously terminated its FREEDOM-1 and FREEDOM-2 trials primarily due to slow patient enrollment. Similar difficulties in enrolling patients for any future trials would have a material adverse effect[221] - Biopharmaceutical product candidates may cause undesirable side effects. A patient death occurred in the FREEDOM-1 trial, which triggered a temporary halt and review, highlighting the safety risks inherent in clinical development[241][243] Risks Related to Manufacturing - The company may fail to successfully operate its manufacturing facility, which would require substantial funds, personnel, and compliance with cGMP regulations to scale up for any potential commercial needs[309][310] - The manufacture of cell therapies is complex and susceptible to contamination, production yield issues, and quality control problems. A contamination event occurred in late 2021, requiring an additional apheresis from a donor[313] Risks Related to Intellectual Property - As the company lacks in-house research capabilities, it will depend on intellectual property licensed from third parties for any future product development. Termination of such licenses could result in the loss of significant rights[335] - The company's ability to commercialize products depends on obtaining and maintaining sufficient intellectual property protection, which is highly uncertain in the biotechnology field[340][341] Unregistered Sales of Equity Securities and Use of Proceeds The company's IPO raised approximately $137.2 million in net proceeds, with remaining funds now allocated for the Tourmaline Bio merger and other strategic alternatives following clinical program discontinuation - The company raised net proceeds of approximately $137.2 million from its IPO in May 2021[439] - Following the strategic review and merger agreement with Tourmaline, the planned use of remaining IPO proceeds will be partly for executing the merger and/or other strategic alternatives[440] Exhibits This section lists exhibits filed, including the Agreement and Plan of Merger with Tourmaline Bio, Inc., corporate governance documents, and officer certifications - Key exhibits filed include the Agreement and Plan of Merger with Tourmaline Bio, Inc. dated June 22, 2023, and certifications from the Principal Executive Officer and Principal Financial Officer[446]