Taysha Gene Therapies(TSHA) - 2023 Q4 - Annual Report

PART I Business Taysha Gene Therapies is a clinical-stage biotech company focused on AAV-based gene therapies for severe monogenic CNS diseases, prioritizing its lead program TSHA-102 for Rett syndrome Overview Taysha is a clinical-stage biotech company focused on AAV-based gene therapies for severe monogenic CNS diseases, with TSHA-102 for Rett syndrome as its lead program - The company's primary focus is on advancing AAV-based gene therapies for severe monogenic diseases of the central nervous system (CNS)[17] - The lead clinical program, TSHA-102, is in development for Rett syndrome, a rare neurodevelopmental disorder with no approved disease-modifying therapies addressing the genetic root cause[17] - Following strategic pipeline prioritization, the company discontinued the development of its TSHA-120 program for giant axonal neuropathy (GAN) in September 2023[17] - TSHA-102 is being evaluated in two REVEAL Phase 1/2 trials: one for adolescents and adults, and another for pediatric patients, with the first patients in both trials dosed in 2023[18][19] Our Pipeline The company's pipeline focuses on TSHA-102 for Rett Syndrome in Phase 1/2 trials, while other programs are deprioritized for external strategic options Development Stage of Rett Syndrome Program | Program | Indication | Preclinical | Phase 1/2 | Phase 3 | | :--- | :--- | :--- | :--- | :--- | | TSHA-102 | Rett Syndrome | | ✓ | | - The company has deprioritized company-sponsored evaluation of TSHA-120 (GAN), TSHA-105 (SLC13A5), TSHA-118 (CLN1), and TSHA-121 (CLN7), and is seeking external strategic options to enable their further development[22] TSHA-102 for Rett Syndrome TSHA-102 is an AAV9 gene therapy for Rett syndrome using miRARE technology, with Phase 1/2 trials showing a well-tolerated safety profile and clinical improvements - TSHA-102 utilizes a novel miRNA-Responsive Auto-Regulatory Element (miRARE) to mediate MeCP2 levels and prevent overexpression, a key risk in Rett syndrome gene therapy[24] - The first adult patient (Stage IV, severe phenotype) showed sustained improvements in motor function (sitting unassisted), hand function, communication (using eye-driven device), and autonomic function (normalized sleep) at 35 weeks post-treatment[31][32] - The second adult patient (Stage IV, milder phenotype) showed sustained improvements in motor function (improved hand stereotypies), social skills, and autonomic function at 19 weeks post-treatment, with a significant reduction in seizure frequency, being seizure-free for 17 weeks[33][34] Efficacy Data Summary for First Adult Patient (Low Dose) | Metric | Baseline | Post-Treatment (Week 25) | Change/Observation | | :--- | :--- | :--- | :--- | | CGI-S | 6 (Severely ill) | 5 (Markedly ill) | Clinically significant improvement | | CGI-I | N/A | 2 (Much improved) | Sustained improvement | | RSBQ Total Score | - | - | 30-point improvement | | RSHFS (Dominant Hand) | Hold 1 object | Hold 2 objects | Improvement in function | | RSHFS (Non-Dominant Hand) | No active grasping | Assisted to grasp 1 object | Gained basic grasping ability | License Agreements The company's pipeline relies on key license agreements with UT Southwestern and Abeona Therapeutics, including an option agreement with Astellas - Entered into a research, collaboration, and license agreement with UT Southwestern, obtaining an exclusive, worldwide, royalty-free license for certain patent rights in exchange for 2,179,000 shares of common stock[86][87][88] - Licensed TSHA-118 for CLN1 disease from Abeona Therapeutics, involving a $3.0 million upfront fee, up to $56.0 million in potential milestones, and high single-digit royalties[90][92] - Licensed TSHA-102 for Rett syndrome from Abeona Therapeutics, involving a $3.0 million upfront fee, up to $56.5 million in potential milestones, and high single-digit royalties, with a $3.5 million milestone triggered and paid in 2023 upon dosing the first patient[95][97][98] - Granted Astellas an exclusive option for TSHA-102 (Rett syndrome) and TSHA-120 (GAN), though Astellas later elected not to exercise the GAN option[101][102][103] Intellectual Property Taysha's intellectual property portfolio, as of February 27, 2024, consists of in-licensed patents and applications protecting its product candidates until 2038-2041 - As of February 27, 2024, the company in-licenses five U.S. patents, six foreign patents, and has 16 pending U.S. utility patent applications and 68 pending foreign patent applications[106] - For TSHA-102 (Rett Syndrome), the company in-licenses multiple patent families with patents, if issued, expected to expire between 2038 and 2041[107][108][109] - For the deprioritized TSHA-120 (GAN) program, in-licensed patents, if issued, are expected to expire in 2041[110] Government Regulation The company's gene therapies are subject to extensive regulation by the FDA and international authorities, involving multi-phase clinical trials, expedited programs, and post-approval compliance - Biological products are regulated under the Food, Drug, and Cosmetic Act (FDCA) and the Public Health Service Act (PHSA), requiring a multi-step approval process including preclinical studies, an effective IND, and adequate and well-controlled clinical trials before submitting a BLA[126][127] - The FDA offers expedited programs for serious conditions, including Fast Track, Breakthrough Therapy, and Regenerative Medicine Advanced Therapy (RMAT) designations, which can accelerate development and review[141][142][143] - The company may seek Orphan Drug Designation for products treating rare diseases (affecting less than 200,000 people in the U.S.), which provides incentives like market exclusivity for seven years upon approval[148][149] - In the EU, medicinal products require a Marketing Authorization (MA) granted through a centralized, decentralized, or national procedure, with Advanced Therapy Medicinal Products (ATMPs) like gene therapies requiring the centralized procedure managed by the EMA[166][167][176] Human Capital Resources Taysha's human capital strategy focuses on recruiting and retaining employees through a value-based culture, with 52 full-time employees as of December 31, 2023 - As of December 31, 2023, the company had 52 full-time employees, all located in the United States[213] - The company's human capital objectives include identifying, recruiting, retaining, and incentivizing employees, utilizing equity incentive plans to attract and motivate personnel[212] Risk Factors The company faces substantial financial, development, regulatory, manufacturing, commercialization, and intellectual property risks, requiring significant additional funding and careful navigation of complex regulations - Financial Risks: The company has a history of significant losses ($111.6 million in 2023) and expects to incur more, requiring substantial additional funding to continue operations and potentially curtailing plans if capital cannot be raised[219][220][227] - Development & Regulatory Risks: All product candidates are in early development stages, and the novelty of gene therapy creates a complex, unpredictable, and lengthy regulatory approval process, with early trial success not guaranteeing later stages[219][243][248] - Manufacturing & Reliance on Third Parties: Gene therapies are complex and difficult to manufacture, with the company relying on third-party CMOs, where any production issues could cause significant delays, and the collaboration with UT Southwestern is critical for the entire preclinical pipeline[219][307][345] - Commercialization Risks: Even if approved, products may not achieve market acceptance, and the company faces significant competition from other biotech firms, including those with approved or late-stage candidates for Rett syndrome, with securing adequate reimbursement from payors being a major uncertainty[318][328][335] - Intellectual Property Risks: The company's success depends on its ability to obtain and protect intellectual property rights for its product candidates, facing risks of patent infringement claims and challenges to its licensed patents[219][358][376] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[492] Cybersecurity The company manages cybersecurity risks through an information security program overseen by the VP of Engineering and Operations and the Audit Committee - The company's information technology team, led by the VP of Engineering and Operations, identifies, assesses, and manages cybersecurity threats[494] - The Board of Directors' Audit Committee is responsible for overseeing the cybersecurity risk management processes[500] - The company utilizes a vendor management process to manage cybersecurity risks associated with third-party providers like CROs and CMOs[498] Properties The company leases administrative, manufacturing, and laboratory facilities in Texas and North Carolina, deemed suitable for current operations - Leases administrative space in Dallas, TX (approx. 33,000 sq ft)[504] - Leases a manufacturing facility in Durham, NC (approx. 187,500 sq ft)[504] - Leases laboratory space in Research Triangle Park, NC (approx. 13,000 sq ft)[504] Legal Proceedings In January 2024, the company was named a nominal defendant in a stockholder derivative lawsuit alleging breach of fiduciary duty related to a 2023 private placement - In January 2024, the company was named a nominal defendant in a putative stockholder derivative action related to the August 2023 Private Placement[506] - The complaint asserts claims for breach of fiduciary duty and unjust enrichment against certain current and former directors[506] - The company has not recorded a liability for this lawsuit as the outcome is not currently probable or estimable[506] Mine Safety Disclosures This item is not applicable to the company - Not applicable[508] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "TSHA", with 40 holders of record as of March 19, 2024, and no history of cash dividends or share repurchases - Common stock is listed on The Nasdaq Global Market under the symbol "TSHA"[511] - As of March 19, 2024, there were 40 holders of record of the common stock[511] - The company has never paid cash dividends and does not intend to in the foreseeable future[512] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's financial performance and liquidity, showing a reduced net loss in 2023 and cash to fund operations into 2026 Results of Operations In 2023, revenue increased to $15.5 million while operating expenses decreased, leading to a reduced net loss compared to 2022 Results of Operations Summary (in thousands) | | For the Year Ended December 31, | | :--- | :--- | :--- | | | 2023 | 2022 | | Revenue | $15,451 | $2,502 | | Research and development | $56,778 | $91,169 | | General and administrative | $30,047 | $37,360 | | Impairment of long-lived assets | $1,065 | $36,420 | | Total operating expenses | $87,890 | $164,949 | | Loss from operations | $(72,439) | $(162,447) | | Net loss | $(111,566) | $(166,014) | - Revenue increased to $15.5 million in 2023 from $2.5 million in 2022, derived entirely from the Astellas Transactions, including $13.2 million from Rett syndrome R&D activities and $2.3 million from the expiration of the GAN Option[550] - Research and development expenses decreased by $34.4 million year-over-year, primarily due to a $21.7 million reduction in compensation expense from lower headcount and a $24.6 million decrease in manufacturing and consulting fees, partially offset by an $11.9 million increase in Rett clinical trial expenses[551] - General and administrative expenses decreased by $7.4 million year-over-year, mainly due to a $10.9 million reduction in compensation expenses from lower headcount[552] Liquidity and Capital Resources As of December 31, 2023, the company had $143.9 million in cash, expected to fund operations into 2026, bolstered by a $140.3 million private placement and a new $40.0 million term loan - As of December 31, 2023, the company had cash and cash equivalents of $143.9 million[559] - The company believes its existing cash and cash equivalents will fund operating expenses and capital requirements into 2026[573] - In August 2023, the company raised $140.3 million in net proceeds from a private placement[570] - In November 2023, the company entered into a new $40.0 million term loan agreement with Trinity Capital and used the proceeds to terminate and repay its previous loan with Silicon Valley Bank[561][563] Summary of Cash Flows (in thousands) | | For the Year Ended December 31, | | :--- | :--- | :--- | | | 2023 | 2022 | | Net cash used in operating activities | $(73,018) | $(88,390) | | Net cash used in investing activities | $(7,352) | $(24,930) | | Net cash provided by financing activities | $136,393 | $52,097 | | Net change in cash, cash equivalents and restricted cash | $56,023 | $(61,223) | Critical Accounting Policies and Significant Judgments and Estimates The company's critical accounting policies involve significant judgments and estimates, particularly in revenue recognition, stock-based compensation, and fair value measurement of debt - Revenue Recognition (Astellas): The company identified three performance obligations in the Astellas Option Agreement and allocated the $36.1 million transaction price based on estimated standalone selling prices, using a probability-weighted expected return method for the options[593][594] - Stock-Based Compensation: Fair value of stock options is estimated using the Black-Scholes model, which requires assumptions for expected term, volatility, and risk-free interest rate[588] - Fair Value Option: The company elected the fair value option for its Trinity Term Loan, meaning the liability is remeasured at fair value each reporting period, with changes recorded in the statement of operations[597] - Research and Development Costs: The company records accruals for estimated ongoing research costs, analyzing the progress of studies, invoices received, and contracted costs to evaluate the adequacy of liabilities[585] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Taysha is not required to provide information for this item - The company is a smaller reporting company and is not required to provide the information under this item[603] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023 and 2022, including balance sheets, statements of operations, equity, and cash flows, with an unqualified opinion from Deloitte & Touche LLP Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $143,940 | $87,880 | | Total assets | $172,731 | $126,276 | | Total current liabilities | $36,756 | $62,790 | | Total liabilities | $97,794 | $125,327 | | Total stockholders' equity | $74,937 | $949 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Revenue | $15,451 | $2,502 | | Total operating expenses | $87,890 | $164,949 | | Loss from operations | $(72,439) | $(162,447) | | Net loss | $(111,566) | $(166,014) | | Net loss per common share | $(0.96) | $(3.78) | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[826] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[828] - Management concluded that as of December 31, 2023, the company's internal control over financial reporting was effective[829] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023[831] Other Information The company reports no other information for this item - None[833] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[834] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement - The information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[837] Executive Compensation Information on executive and director compensation is incorporated by reference from the 2024 proxy statement - The information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[839] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and related matters is incorporated by reference from the 2024 proxy statement - The information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[840] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 proxy statement - The information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[841] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2024 proxy statement - The information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[842] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits included in the Annual Report on Form 10-K, with all financial statement schedules omitted - The report includes the company's consolidated financial statements[845] - All financial statement schedules have been omitted as they are not required or applicable[846] Form 10-K Summary This item is not applicable to the company - Not applicable[854]