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 September 30, 2022

 

OR

 

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

 

For the transition period from                      to                     

 

Commission File Number 001-39138

 

JASPER THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   84-2984849

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     

2200 Bridge Pkwy Suite #102

Redwood City, CA

  94065
(Address of Principal Executive Offices)   (Zip Code)

 

(650) 549-1400

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act

 

Title of Each Class   Trading Symbol   Name of Each Exchange on
Which Registered
Voting Common Stock, par value $0.0001 per share   JSPR   The Nasdaq Stock Market LLC
Redeemable Warrants, each whole warrant exercisable for one share of Voting Common Stock at an exercise price of $11.50   JSPRW   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 (§232.405 of this chapter) 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, a 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 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class  

Number of Shares Outstanding

as of November 7, 2022

Voting Common Stock, $0.0001 par value   37,073,346
Non-Voting Common Stock, $0.0001 par value   911,022

 

 

 

 

 

 

JASPER THERAPEUTICS, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

SEPTEMBER 30, 2022

 

TABLE OF CONTENTS

 

    PAGE
  PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 1
     
  Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 2
     
  Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2022 and 2021 3
     
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 4
     
  Notes to Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
     
Item 4 Controls and Procedures 35
     
  PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 36
     
Item 1A. Risk Factors 36
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 98
     
Item 3. Defaults Upon Senior Securities 98
     
Item 4 Mine Safety Disclosures 98
     
Item 5. Other Information 98
     
Item 6 Exhibits 98
     
SIGNATURES 100

 

i

 

 

JASPER THERAPEUTICS, INC.

 

As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to the “Company”, “Jasper”, “we”, “us”, “our”, and similar terms refer to Jasper Therapeutics, Inc., a Delaware corporation formerly known as Amplitude Healthcare Acquisition Corporation (“AMHC”), and its consolidated subsidiary. References to “Old Jasper” refer to the private Delaware corporation that is now our wholly-owned subsidiary and named Jasper Tx Corp. (formerly known as Jasper Therapeutics, Inc.).

 

Unless otherwise noted or the context requires otherwise, references to our “common stock” refer to our voting common stock, par value $0.0001 per share.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of federal securities laws. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions (including the negative of any of the foregoing) may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

 

Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, but are not limited to, statements about:

 

  our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future;

 

  our ability to research, discover and develop additional product candidates;

 

  the success, cost and timing of our product development activities and clinical trials;

 

  the potential attributes and benefits of our product candidates;

 

  our ability to obtain and maintain regulatory approval for our product candidates;

 

  our ability to obtain funding for our operations;

 

  our projected financial information, anticipated growth rate and market opportunity;

 

  our ability to maintain the listing of our public securities on the Nasdaq Capital Market;

 

  our public securities’ potential liquidity and trading;

 

  our success in retaining or recruiting, or changes required in, officers, key employees or directors;

 

  our ability to grow and manage growth profitably;

 

  the implementation, market acceptance and success of our business model, developments and projections relating to our competitors and industry;

 

  our ability to obtain and maintain intellectual property protection and not infringe on the rights of others;

 

  our ability to identify, in-license or acquire additional technology;

 

  our ability to maintain our existing license agreements and manufacturing arrangements; and

 

  the effect of the continuing COVID-19 pandemic on the foregoing.

 

These forward-looking statements are based on current expectations and beliefs concerning future developments and their potential effects. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the continuing COVID-19 pandemic, and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

ii

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

   September 30,   December 31, 
   2022   2021 
Assets        
Current assets:        
Cash and cash equivalents  $50,950   $84,701 
Prepaid expenses and other current assets   1,461    3,130 
Total current assets   52,411    87,831 
Property and equipment, net   3,759    3,686 
Operating lease right-of-use assets   1,980    1,147 
Restricted cash   417    345 
Other non-current assets   543    645 
Total assets  $59,110   $93,654 
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $3,117   $3,919 
Current portion of operating lease liabilities   840    505 
Accrued expenses and other current liabilities   3,464    3,596 
Total current liabilities   7,421    8,020 
Non-current portion of operating lease liabilities   3,014    2,380 
Common stock warrant liability   300    7,350 
Earnout liability   103    5,743 
Other non-current liabilities   707    643 
Total liabilities   11,545    24,136 
           
Commitments and contingencies (Note 9)   
 
      
Stockholders’ equity          
Preferred stock: $0.0001 par value — 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; none issued and outstanding at September 30, 2022 and December 31, 2021   
-
    
-
 
Common stock: $0.0001 par value — 492,000,000 shares authorized at September 30, 2022 and December 31, 2021; 37,984,368 and 37,855,114 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively   4    4 
Additional paid-in capital   139,485    136,964 
Accumulated deficit   (91,924)   (67,450)
Total stockholders’ equity   47,565    69,518 
Total liabilities and stockholders’ equity  $59,110   $93,654 

 

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

 

1

 

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Operating expenses                
Research and development  $9,022   $7,188   $25,345   $16,764 
General and administrative   3,686    2,891    12,104    7,987 
Total operating expenses   12,708    10,079    37,449    24,751 
Loss from operations   (12,708)   (10,079)   (37,449)   (24,751)
Change in fair value of earnout liability   422    6,226    5,640    6,226 
Change in fair value of common stock warrant liability   155    450    7,050    450 
Change in fair value of derivative liability   
-
    
-
    
-
    (3,501)
Interest and other expense (income), net   268    (9)   285    (4)
Total other income, net   845    6,667    12,975    3,171 
Net loss and comprehensive loss  $(11,863)  $(3,412)  $(24,474)  $(21,580)
Net loss per share attributable to common stockholders, basic and diluted
  $(0.32)  $(0.69)  $(0.67)  $(7.13)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
   36,565,650    4,966,226    36,425,000    3,028,277 

 

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

 

2

 

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

 

 Preferred Stock   Common Stock   Additional
Paid-In
   Accumulated   Total
Stockholders’
 
   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balance as of January 1, 2022   
-
   $
-
    37,855,114   $4   $136,964   $(67,450)  $69,518 
Issuance of common stock upon exercise of stock options   -    
-
    19,073    
-
    13    
-
    13 
Issuance of common stock upon exercise of common stock warrants   -    
-
    20    
-
    
-
    
-
    
-
 
Vesting of founders’ restricted stock   -    
-
    -    
-
    3    
-
    3 
Stock-based compensation expense   -    
-
    -    
-
    778    
-
    778 
Net loss   -    
-
    -    
-
    
-
    (2,207)   (2,207)
Balance as of March 31, 2022   
-
    
-
    37,874,207    4    137,758    (69,657)   68,105 
Issuance of common stock upon exercise of stock options   -    
-
    17,138    
-
    13    
-
    13 
RSU settlements   -    
-
    89,972    
-
    
-
    
-
    
-
 
Vesting of founders’ restricted stock   -    
-
    -    
-
    2    
-
    2 
Stock-based compensation expense   -    
-
    -    
-
    1,065    
-
    1,065 
Net loss   -    
-
    -    
-
    
-
    (10,404)   (10,404)
Balance as of June 30, 2022   -  
-
    37,981,317   4   138,838   (80,061)     58,781 
Issuance of common stock upon exercise of stock options     -       -       1,176        -       1        -       1   
RSU settlements     -       -       1,875        -               -        
Vesting of founders’ restricted stock     -       -             -       2        -       2   
Stock-based compensation expense     -       -             -       644        -       644   
Net loss     -       -             -               (11,863)       (11,863)  
Balance as of September 30, 2022            -     $         -       37,984,368      $         4       $ 139,485     $ (91,924)     $ 47,565  

 

  Preferred Stock   Common Stock   Additional
Paid-In
   Accumulated   Total
Stockholders’
 
  Shares (1)   Amount   Shares (1)   Amount   Capital   Deficit   Deficit 
Balance as of January 1, 2021   15,480,195   $43,840    2,770,702   $1   $1,682   $(36,813)  $(35,130)
Issuance of common stock upon exercise of stock options   -    
-
    2,872    
-
    2    
-
    2 
Issuance of Series A-1 redeemable convertible preferred stock for cash   4,042,565    10,750    -    
-
    
-
    
-
    
-
 
Settlement of the redeemable convertible preferred stock tranche liability   -    11,659    -    
-
    
-
    
-
    
-
 
Vesting of founders restricted stock   -    
-
    -    
-
    3    
-
    3 
Stock-based compensation expense   -    
-
    -    
-
    327    
-
    327 
Net loss   -    
-
    -    
-
    
-
    (9,754)   (9,754)
Balance as of March 31, 2021   19,522,760    66,249    2,773,574    1    2,014    (46,567)   (44,552)
Issuance of common stock upon exercise of stock options   
-
    
-
    95,654    
-
    68    
-
    68 
Vesting of founders restricted stock   -    
-
    -    
-
    2    
-
    2 
Stock-based compensation expense   -    
-
    -    
-
    295    
-
    295 
Net loss   -    
-
    -    
-
         (8,414)   (8,414)
Balance as of June 30, 2021   19,522,760    66,249    2,869,228   1   2,379   (54,981)  (52,601)
Issuance of common stock upon exercise of stock options   
-
    -    186,520    -    132    -    132 
Conversion of redeemable convertible preferred stock into common stock in connection with Reverse Recapitalization (Note 3)   (19,522,760)   (66,249)   21,722,661    2    66,247    -    66,249 
Issuance of common stock upon the Reverse Recapitalization and PIPE Financing, net of issuance costs   
-
    -    13,037,901             1    68,035    -    68,036 
Vesting of founders restricted stock   -    -    -    -    3    -    3 
Stock-based compensation expense   -    -    -    -    195    -    195 
Net loss   -    -    -    -         (3,412)   (3,412)
Balance as of September 30, 2021   
-
   $-    37,816,310   $4   $136,991   $(58,393)  $    78,602

 

(1) The shares of the Company’s common and redeemable convertible preferred stock, prior to the Reverse Recapitalization (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of 0.282378, except for 100 shares of Series A-2 redeemable convertible preferred stock as described in Note 3.

 

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

 

3

 

 

JASPER THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

   Nine months ended
September 30,
 
   2022   2021 
Cash flows from operating activities        
Net loss  $(24,474)  $(21,580)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation and amortization expense   702    183 
Non-cash lease expense   241    153 
Stock-based compensation expense   2,487    817 
Change in fair value of derivative liability   
-
    3,501 
Change in fair value of common stock warrant liability   (7,050)   (450)
Change in fair value of earnout liability   (5,640)   (6,226)
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   1,669    (286)
Other receivables   
-
    600 
Other non-current assets   102    
-
 
Accounts payable   (802)   1,220 
Accrued expenses and other current liabilities   (132)   3,072 
Operating lease liability   (386)   
-
 
Other non-current liabilities   71    (98)
Net cash used in operating activities   (33,212)   (19,094)
Cash flows used in investing activities          
Purchases of property and equipment   (494)   (1,717)
Net cash used in investing activities   (494)   (1,717)
Cash flows from financing activities          
Net proceeds from Reverse Recapitalization and PIPE Financing   
-
    95,271 
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs   
-
    10,750 
Proceeds from exercise of common stock options   27    202 
Payment of Reverse Recapitalization related expenses   
-
    (4,345)
Net cash provided by financing activities   27    101,878 
Net increase (decrease) in cash, cash equivalents and restricted cash   (33,679)   81,067 
Cash, cash equivalents and restricted cash          
Cash, cash equivalents and restricted cash at beginning of the period   85,046    20,183 
Cash, cash equivalents and restricted cash at end of the period  $51,367   $101,250 
           
Supplemental and non-cash items reconciliations:          
Accounts payable and accrued expenses for purchases of property and equipment  $
-
   $108 
Right-of-use asset obtained in exchange for lease liabilities  $1,074   $
-
 
Non-cash leasehold improvements  $281   $1,378 
Vesting of founders’ restricted stock  $7   $8 
Reverse Recapitalization related expenses unpaid at period end  $
-
   $651 
Conversion of redeemable convertible preferred stock into common stock in connection with Reverse Recapitalization  $
-
   $(66,249)
Net liabilities assumed upon the closing of Reverse Recapitalization  $
-
   $(7,222)
Recognition of earnout liability  $
-
   $15,020 
Settlement of derivative tranche liability  $
-
   $(11,659)
Deferred issuance costs reclassified to additional paid in capital  $
-
   $4,996 

 

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

 

4

 

 

JASPER THERAPEUTICS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Description of Business

 

Jasper Therapeutics, Inc. (“Jasper” or the “Company”), formerly known as Amplitude Healthcare Acquisition Corporation (“AMHC”), is a clinical-stage biotechnology company dedicated to enabling cures through hematopoietic stem cell therapy. The Company is focused on the development and commercialization of safer and more effective conditioning agents and mRNA-based stem cell engineering to allow for expanded use of stem cell transplantation and ex vivo gene therapy, a technique in which genetic manipulation of cells is performed outside of the body prior to transplantation. The Company is also developing novel therapeutics directed at diseased hematopoietic stem cells. Its drug development pipeline includes multiple product candidates designed to improve hematopoietic stem cell therapy. The lead product candidate, JSP191, is in clinical development as a novel conditioning antibody that clears hematopoietic stem cells from bone marrow in patients prior to undergoing allogeneic stem cell therapy or stem cell gene therapy. The Company plans to initiate a registrational clinical study in acute myeloid leukemia patients undergoing stem cell transplantation by the end of the first quarter of 2023. The Company is also initiating a pilot study of JSP191 as a therapeutic in lower-risk myelodysplastic syndrome, which it expects to commence in the first quarter of 2023. The Company is headquartered in Redwood City, California.

 

On September 24, 2021 (the “Closing Date”), the Company consummated the previously announced business combination (the “Business Combination” or “Reverse Recapitalization” for accounting purposes) pursuant to the terms of the Business Combination Agreement, dated as of May 5, 2021 (the “BCA”), by and among AMHC, Ample Merger Sub, Inc., a then-wholly-owned subsidiary of AMHC (“Merger Sub”), and the pre-Business Combination Jasper Therapeutics, Inc. (now named Jasper Tx Corp.) (“Old Jasper”). Pursuant to the terms of the BCA, on the Closing Date, (i) Merger Sub merged with and into Old Jasper, with Old Jasper as the surviving company in the Business Combination, and, after giving effect to such Business Combination, Old Jasper became a wholly owned subsidiary of AMHC and changed its name to “Jasper Tx Corp.”, and (ii) AMHC changed its name to “Jasper Therapeutics, Inc.”.

 

In addition, concurrently with the execution of the BCA, certain investors (“PIPE Investors”) entered into Subscription Agreements with AMHC whereby such investors subscribed for the purchase of an aggregate of 10,000,000 shares of AMHC’s Class A Common Stock at a price of $10.00 per share for aggregate gross proceeds of $100.0 million (“PIPE Financing”). The PIPE Financing was consummated concurrently with the closing of the Business Combination.

 

Please refer to Note 3, “Reverse Recapitalization”, for further details of the Business Combination.

 

Liquidity and Going Concern

 

The Company has incurred significant losses and negative cash flows from operations since its inception. During the nine months ended September 30, 2022 and 2021, the Company incurred net losses of $24.5 million and $21.6 million, respectively. During the nine months ended September 30, 2022 and 2021, the Company had negative operating cash flows of $33.2 million and $19.1 million, respectively. As of September 30, 2022 and December 31, 2021, the Company had an accumulated deficit of $91.9 million and $67.5 million, respectively. The Company expects to continue to incur substantial losses, and its ability to achieve and sustain profitability will depend on the successful development, approval, and commercialization of product candidates and on the achievement of sufficient revenues to support the Company’s cost structure.

 

The Company’s cash and cash equivalents of $51.0 million as of September 30, 2022 are not sufficient for the Company to continue as a going concern for at least one year from the issuance date of these condensed consolidated financial statements. Additional funds are necessary to maintain current operations and to continue research and development activities. The Company’s management plans to monitor expenses and raise additional capital through a combination of public and private equity, debt financings, strategic alliances, and licensing arrangements. The Company’s ability to access capital when needed is not assured and, if capital is not available to the Company when, and in the amounts, needed, the Company could be required to delay, scale back or abandon some or all of its development programs and other operations, which could materially harm the Company’s business, financial condition and results of operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

 

Coronavirus Pandemic

 

In March 2020, the World Health Organization declared the global novel coronavirus disease 2019 (“COVID-19”) outbreak a pandemic. The Company is following, and will continue to follow, recommendations from the U.S. Centers for Disease Control and Prevention as well as federal, state, and local governments regarding working-from-home practices for non-essential employees as well as return-to-work policies and procedures. The Company expects to continue to take actions as may be required or recommended by government authorities or as the Company determines are in the best interests of its employees and other business partners in light of the pandemic.

 

5

 

 

While the Company’s operations to date have not been significantly impacted by the COVID-19 pandemic, it cannot at this time predict the specific extent, duration, or full impact that the continuing COVID-19 pandemic will have on its business, financial condition and operations, including ongoing and planned clinical trials and clinical development timelines. The Company experienced slower than anticipated patient enrollment in its severe combined immunodeficiency clinical trial in 2020 due to reluctance of these immunocompromised patients to travel and undergo hospitalization during the pandemic. The Company may continue to experience interruptions to its clinical trials due to the COVID-19 pandemic, including the spread of variants. The impact of the COVID-19 pandemic on the Company’s financial performance will depend on future developments, including the duration and spread of the pandemic, its impact on the Company’s clinical trial enrollment, trial sites, contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other third parties with whom it does business, its impact on regulatory authorities and the Company’s key scientific and management personnel, progress of vaccination and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The condensed consolidated financial statements and accompanying notes are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting.

 

The accompanying condensed financial statements are consolidated for the three and nine months ended September 30, 2022 and include the accounts of Jasper Therapeutics, Inc. (i.e., formerly known as AMHC) and its wholly-owned subsidiary, Jasper Tx Corp., following the Reverse Recapitalization as further discussed in Note 3, “Reverse Recapitalization”. All intercompany transactions and balances have been eliminated upon consolidation.

 

All historical share data and per-share amounts were retrospectively adjusted to reflect the effect of the exchange ratio of 0.2823780 per one share, which was determined at the closing of the Reverse Recapitalization, except for the 100 shares of Series A-2 redeemable convertible preferred stock. The Series A-2 shares were not subject to the exchange ratio as a part of the recapitalization; rather, the shares were converted into 2,200,000 shares of common stock upon the closing of the Business Combination.

 

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on the Form 10-K filed with the SEC on March 18, 2022. The information as of December 31, 2021, included in the condensed consolidated balance sheets was derived from the Company’s audited financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial statements. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other interim period or for any other future year.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgements that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include but are not limited to the valuation of common and redeemable convertible preferred stock before the Reverse Recapitalization, the determination of the incremental borrowing rate used for operating lease liabilities, valuation of derivative liability, valuation of earnout liability and the measurement of stock-based compensation expense. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

 

Cash, Cash Equivalents, and Restricted Cash

 

The following table provides a reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets that sum to the total amount shown in the condensed consolidated statements of cash flows (in thousands):

 

   September 30,   December 31, 
   2022   2021 
Cash and cash equivalents  $50,950   $84,701 
Restricted cash   417    345 
Total cash, cash equivalents and restricted cash  $51,367   $85,046 

 

Cash and cash equivalents consist of a checking account and investments in money market funds with an original maturity of three months or less at the time of purchase. The recorded carrying amount of cash and cash equivalents approximates their fair value. Restricted cash relates to the letter of credit secured in conjunction with the operating lease (Note 9).

 

6

 

 

Net Loss per Share Attributable to Common Stockholders

 

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders adjusted for income (expenses), net of tax, related to any diluted securities, by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock, common stock subject to repurchase, common stock subject to restricted stock awards, the Earnout Shares, the Common Stock Warrants and stock options are considered to be potentially dilutive securities.

 

Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities.

 

The Company considers all series of its redeemable convertible preferred stock, common stock subject to repurchase, common stock subject to restricted stock awards and the Earnout Shares to be participating securities as the holders are entitled to receive dividends on a pari passu basis in the event that a dividend is paid on common stock. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss is attributed entirely to common stockholders. For the three and nine months ended September 30, 2022 and 2021, the diluted net loss per common share was the same as basic net loss per common share, as the impact of potentially dilutive securities was antidilutive to the net loss per common share. The Earnout Shares and common stock subject to restricted stock awards are contingently issuable shares and are not included in the diluted net loss per share calculation until contingencies are resolved.

 

Segment Reporting

 

The Company has determined it operates as a single operating and reportable segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources. All long-lived assets are located in the United States.

 

Recent Accounting Pronouncements

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public companies, this ASU is effective for fiscal years beginning after December 15, 2020. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company used the extended transition period for emerging growth companies and adopted this ASU on January 1, 2022. The adoption of this ASU did not have a material effect on the Company’s condensed consolidated financial statements and related disclosures.

 

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires annual disclosures about certain types of government assistance received. ASU No. 2021-10 is effective for fiscal years beginning after December 15, 2021. The Company adopted this ASU on January 1, 2022. The adoption of this ASU resulted in additional disclosures related to the CIRM grant (Note 6). The adoption of this ASU did not have a material effect on the Company’s condensed consolidated financial statements.

 

7

 

 

NOTE 3. REVERSE RECAPITALIZATION

 

On the Closing Date, the Company consummated the Business Combination in accordance with the BCA. Merger Sub merged with Old Jasper, with Old Jasper as the surviving company and as a wholly owned subsidiary of AMHC. AMHC was renamed Jasper Therapeutics, Inc., and Old Jasper was renamed Jasper Tx Corp.

 

In accordance with the BCA, at the closing of the Business Combination, each share of Old Jasper common stock and Old Jasper redeemable convertible preferred stock outstanding immediately prior to the closing was automatically cancelled, extinguished and converted into the number of shares of the Company’s common stock or, in certain circumstances, the Company’s non-voting common stock, based on Old Jasper’s equity value of $275.0 million divided by $10.00. The exchange ratio agreed between the parties was one-for-0.282378 share of the Company’s common stock for all Old Jasper stockholders, except for Amgen Inc. (“Amgen”). Amgen’s 100 shares of Series A-2 redeemable convertible preferred stock were converted into 2,200,000 shares of the Company’s common stock, which represented 8% of the Old Jasper equity value, as per the terms of the Amgen’s agreement with Old Jasper. Each vested and unvested option to purchase shares of Old Jasper’s common stock outstanding at the closing of the Business Combination was converted into a comparable option to purchase shares of the Company’s common stock, with the same terms after giving effect of the exchange ratio. Each unvested award of restricted shares of Old Jasper common stock outstanding immediately prior to the closing was converted into a comparable right to receive restricted shares of the Company’s common stock, after giving effect of the same exchange ratio.

 

In connection with the Business Combination, the Company received $95.3 million in net cash proceeds. This amount was comprised of $5.5 million of cash held in AMHC’s trust account from its initial public offering (after payment of redemptions and public offering expenses paid at the closing of the Business Combination) and $100.0 million of cash received by AMHC in connection with the PIPE Financing, net of AMHC’s transaction costs and placement agents’ fees of $9.0 million and operating expense payments of $1.2 million. The Company incurred $5.3 million of transaction costs, consisting of legal, professional, and banking fees, which were recorded as a reduction to additional paid-in capital.

 

NOTE 4. FAIR VALUE MEASUREMENTS

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 

  Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

 

  Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

 

  Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

 

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

 

The fair value of Level 1 securities is determined using quoted prices in active markets for identical assets. Level 1 securities consist of highly liquid money market funds. In addition, restricted cash collateralized by money market funds is a financial asset measured at fair value and is a Level 1 financial instrument under the fair value hierarchy.

 

8

 

 

Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data, such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. The Company had no financial instruments classified at Level 2 as of September 30, 2022 and December 31, 2021.

 

Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques and at least one significant model assumption or input is unobservable. Level 3 liabilities that are measured at fair value on a recurring basis included the derivative tranche liability, which was extinguished in February 2021, and earnout liability, which was recognized in connection with the Business Combination in September 2021.

 

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at estimated fair value using Level 3 inputs. There were no transfers within the hierarchy during the three or nine months ended September 30, 2022 and 2021.

 

The following tables set forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):

 

   September 30, 2022 
   Level 1   Level 2   Level 3   Total 
                 
Financial assets                
Money market funds  $49,950   $
   -
   $
-
   $49,950 
Total fair value of assets  $49,950   $
-
   $
-
   $49,950 
                     
Financial liabilities                    
Common stock warrant liability  $300   $
-
   $
-
   $300 
Earnout liability   
-
    
-
    103    103 
Total fair value of financial liabilities  $300   $
-
   $103   $403 

 

   December 31, 2021 
   Level 1   Level 2   Level 3   Total 
                 
Financial assets                
Money market funds  $83,701   $
-
   $
-
   $83,701 
Total fair value of assets  $83,701   $
-
   $
-
   $83,701 
                     
Financial liabilities                    
Common stock warrant liability  $7,350   $
-
   $
-
   $7,350 
Earnout liability   
-
    
-
    5,743    5,743 
Total fair value of financial liabilities  $7,350   $
     -
   $5,743   $13,093 

 

9

 

 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

 

   Derivative
Tranche
Liability
   Earnout
Liability
 
         
Fair Value as of January 1, 2022  $
   $5,743 
Change in the fair value included in other income   
    (5,640)
Fair Value as of September 30, 2022  $
   $103 
           
Fair Value as of January 1, 2021  $8,158   $
 
Initial fair value of earnout liability        15,020 
Change in the fair value included in other expense (income)   3,501    (6,226)
Settlement of obligation   (11,659)   
 
Fair Value as of September 30, 2021  $
   $8,794 

 

The derivative tranche liability was measured using the option pricing method by estimating the value using the Black-Scholes model. The significant inputs used in the Black-Scholes model include the fair value of the redeemable convertible preferred stock, the risk-free interest rate, the expected volatility and the expected term when each tranche will be settled. The fair value of the derivative tranche liability equaled its intrinsic value, a difference between the issued redeemable convertible preferred stock shares’ fair value and the price paid by investors, at the date of settlement in February 2021.

 

 The estimated fair value of the earnout liability is determined using a Monte Carlo simulation model, which uses a distribution of potential outcomes on a monthly basis over the earnout period prioritizing the most reliable information available. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones, including the current Company’s common stock price, expected volatility, risk-free rate and expected term. The estimates of fair value are uncertain and changes in any of the estimated inputs used as of the date of this report could have resulted in significant adjustments to the fair value.

 

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurement classified in Level 3 of the fair value hierarchy at September 30, 2022:

 

    Fair value
(in thousands)
    Valuation
methodology
  Significant
unobservable input
 
Earnout liability   $ 103     Monte Carlo Simulation   Common stock price   $ 0.79  
                Expected term (in years)    

1.98

 
                Expected volatility    

104.00

%
                           Risk-free interest rate    

4.13

%

 

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurement classified in Level 3 of the fair value hierarchy at December 31, 2021:

 

    Fair value (in thousands)     Valuation
methodology
  Significant
unobservable input
 
Earnout liability   $     5,743     Monte Carlo Simulation   Common stock price   $ 7.85  
                Expected term (in years)     2.73  
                Expected volatility     74.00 %
                Risk-free interest rate     0.90 %

 

10

 

 

NOTE 5. CONDENSED CONSOLIDATED BALANCE SHEET COMPONENTS

 

Prepaid expenses and other current assets

 

The following table summarizes the details of prepaid expenses and other current assets as of the dates set forth below (in thousands):

 

    September 30,     December 31,  
    2022     2021  
Research and development prepaid expenses   $ 444     $      139  
Payroll tax credit receivable     267       548  
Prepaid insurance     203       2,074  
Other prepaid expenses and current assets     430       219  
Other receivables     117       150  
Total   $ 1,461     $ 3,130  

 

Property and equipment, net

 

The following table summarizes the details of property and equipment, net as of the dates set forth below (in thousands):

 

   September 30,   December 31, 
   2022   2021 
Leasehold improvements  $     2,477   $   2,056 
Lab equipment   1,655    1,569 
Office furniture & fixtures   476    208 
Computer equipment   140    140 
Capitalized software   90    90 
Property and equipment, gross   4,838    4,063 
Less: accumulated depreciation and amortization   (1,079)   (377)
Property and equipment, net  $3,759   $3,686 

 

Depreciation and amortization expenses were $0.3 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $0.7 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively.

  

Accrued expenses and other current liabilities

 

The following table summarizes the details of accrued expenses and other current liabilities as of the dates set forth below (in thousands):

 

    September 30,     December 31,  
    2022     2021  
Research and development accrued expenses   $ 1,430     $   1,660  
Accrued employee and related compensation expenses     1,218       1,151  
License option liability, current     -       200  
Other     816       585  
Total   $ 3,464     $ 3,596  

 

11

 

 

Other non-current liabilities

 

The following table summarizes the details of other non-current liabilities as of the dates set forth below (in thousands):

 

   September 30,
2022
   December 31,
2021
 
CIRM grant liability  $  600   $      600 
Accrued employee and related compensation expenses   95    
-
 
Restricted stock liability   12    19 
Accrued tax liability   
-
    24 
Total  $707   $643 

 

NOTE 6. CIRM GRANT

 

In November 2020, California Institute for Regenerative Medicine (“CIRM”) awarded the Company $2.3 million in support of the research project related to a monoclonal antibody that depletes blood stem cells and enables chemotherapy-free transplants. The award is payable to the Company upon achievement of milestones over the next three years that are primarily based on patients’ enrollment to the Company’s clinical trials. CIRM may permanently cease disbursements if milestones are not met within four months of the scheduled completion date. Additionally, if CIRM determines, in its sole discretion, that the Company has not complied with the terms and conditions of the grant, CIRM may suspend or permanently cease disbursements. Funds received under this grant may only be used for allowable project costs specifically identified with the CIRM-funded project. Such costs can include but are not limited to salary for personnel, itemized supplies, consultants, and itemized clinical study costs. Under the terms of the grant, both CIRM and the Company will co-fund the research project and the amount of the Company’s co-funding requirement is predetermined as a part of the award. Under the terms of the CIRM grant, the Company is obligated to pay royalties and licensing fees based on 0.1% of net sales of CIRM-funded product candidates or CIRM-funded technology per $1.0 million of CIRM grant. As an alternative to revenue sharing, the Company has the option to convert the award to a loan. In the event the Company exercises its right to convert the award to a loan, it would be obligated to repay the loan within ten business days of making such election. Repayment amounts vary dependent on when the award is converted to a loan, ranging from 60% of the award granted to amounts received plus interest at the rate of the three-month LIBOR rate plus 25% per annum. Since the Company may be required to repay some or all of the amounts awarded by CIRM, the Company accounted for this award as a liability. Given the uncertainty in amounts due upon repayment, the Company has recorded amounts received without any discount or interest recorded, and upon determination of amounts that would become due, the Company will adjust accordingly. In the absence of explicit US GAAP guidance on contributions received by business entities from government entities, the Company has applied to the CIRM grant the recognition and measurement guidance in Accounting Standards Codification Topic 958-605 by analogy. As of December 31, 2020, the Company met a milestone and had recorded $0.6 million in other receivables for the milestone that was met and $0.6 million in other long-term liabilities related to this grant. The Company received an aggregate of $0.6 million from CIRM in January and March 2021. As of September 30, 2022, the Company recorded $0.6 million in other long-term liabilities related to this grant. As of September 30, 2022, $1.7 million is available for future distribution to the Company under the grant upon achievement of milestones. In October 2022, the Company met the second milestone and will record $1.0 million in other receivables and $1.0 million in other long-term liabilities related to this grant.

 

NOTE 7. SIGNIFICANT AGREEMENTS

 

Amgen License Agreement

 

On November 21, 2019, the Company entered into a license agreement with Amgen (the “Amgen License Agreement”), pursuant to which the Company obtained an exclusive, sublicensable license for certain patents, data, and non-data know-how related to Amgen’s proprietary monoclonal antibody known as AMG 191, as renamed to JSP191 (“JSP191”).

 

The Amgen License Agreement terminates on a country-by-country basis on the 10th anniversary of the date on which the exploitation of the licensed products is no longer covered by a valid claim under a licensed patent in such country. On a country-by-country basis, upon the expiration of the term in each country with respect to the licensed products, the licenses to the Company by Amgen become fully paid and non-exclusive. The Company and Amgen have the right to terminate the agreement for a material breach as specified in the agreement.

 

12

 

 

Stanford License Agreement

 

In March 2021, the Company entered into a definitive license agreement (the “Stanford License Agreement”) with Stanford University (“Stanford”). The Company received a worldwide, exclusive license with a right to sublicense for JSP191 in the field of depleting endogenous blood stem cells in patients for whom hematopoietic cell transplantation is indicated. Stanford transferred to the Company certain know-how and patents related to JSP191 (together, the “Licensed Technology”). Under the terms of this agreement, the Company will use commercially reasonable efforts to develop, manufacture, and sell licensed product and to develop markets for a licensed product. In addition, the Company will use commercially reasonable efforts to meet the milestones as specified in the agreement over the six years from execution of the Stanford License Agreement and must notify Stanford in writing as each milestone is met.

 

The Company will pay annual license maintenance fees, beginning on the first anniversary of the effective date of the agreement and ending upon the first commercial sale of a product, method, or service in the licensed field of use, as follows: $25,000 for each first and second year, $35,000 for each third and fourth year, and $50,000 at each anniversary thereafter ending upon the first commercial sale. The Company is also obligated to pay late-stage clinical development milestones and first commercial sales milestone payments of up to $9.0 million in total. The Company will also pay low single-digit royalties on net sales of licensed products, if approved. The Company paid a $25,000 license maintenance fee in March 2022, which was recognized as research and development expense in the condensed statements of operations and comprehensive loss for the nine months ended September 30, 2022.

 

The Stanford License Agreement expires on a country-by-country basis on the last-to-expire valid claim of a licensed patent in such country. The Company may terminate the agreement by giving Stanford written notice at least 12 months in advance of the effective date of termination. The Company may also terminate the agreement solely with respect to any particular patent application or patent by giving Stanford written notice at least 60 days in advance of the effective date of termination. Stanford may terminate the agreement after 90 days from a written notice by Stanford, specifying a problem, including a delinquency on any report required pursuant to agreement or any payment, missing a milestone or for a material breach, unless the Company remediates the problem in that 90-day period.

 

NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS

 

Common Stock Warrants

 

The Common Stock Warrants are traded on the Nasdaq Capital Market and may only be exercised for a whole number of shares. The Common Stock Warrants became exercisable on October 24, 2021 and will expire on September 24, 2026, unless early redeemed or if the Company extends the exercise period. The fair value of $7.9 million of Common Stock Warrants was recognized as a liability on September 24, 2021, the Closing Date, based on the closing market price. 130 Common Stock Warrants have been exercised from the Closing Date through September 30, 2022.

 

The Company recognized a gain of $0.2 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively, and recognized a gain of $7.1 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively, classified within change in fair value of common stock warrant liability in the condensed consolidated statements of operations and comprehensive loss. The Common Stock Warrants’ fair value was $0.3 million and $7.4 million as of September 30, 2022 and December 31, 2021, respectively.

 

Contingent Earnout Liability

 

Upon the closing of the Business Combination and pursuant to the Sponsor Support Agreement, the Sponsor agreed to place the Earnout Shares into escrow, which will be released as follows: (a) 250,000 Earnout Shares will be released if, during the period from and after September 24, 2021 until September 24, 2024 (the “Earnout Period”), over any twenty trading days within any thirty day consecutive trading day period, the volume-weighted average price of the Company’s common stock (the “Applicable VWAP”) is greater than or equal to $11.50, (b) 500,000 Earnout Shares will be released if, during the Earnout Period, the Applicable VWAP is greater than or equal to $15.00, and (c) 300,000 Earnout Shares will be released if, during the Earnout Period, the Applicable VWAP is greater than or equal to $18.00 (the “triggering events”).

 

13

 

 

The Earnout Shares placed in escrow are legally issued and outstanding shares that participate in voting and dividends. The Earnout Shares (along with related escrowed dividends, if any) will be forfeited and not released from escrow at the end of the Earnout Period unless the triggering events described above are achieved during the Earnout Period. Upon the closing of the Business Combination, the contingent obligation to release the Earnout Shares was accounted for as a liability classified financial instrument upon their initial recognition because the triggering events that determine the number of shares required to be released from escrow include events that were not solely indexed to the common stock of the Company. The earnout liability is remeasured each reporting period with changes in fair value recognized in earnings.

 

The estimated fair value of the earnout liability was $0.1 million and $5.7 million as of September 30, 2022 and December 31, 2021, respectively, based on a Monte Carlo simulation model. Assumptions used in the valuations are described in Note 4. No triggering event occurred as of September 30, 2022. The Company recognized a gain of $0.4 million and $6.2 million for the three months ended September 30, 2022 and 2021, respectively, and recognized a gain of $5.6 million and $6.2 million for the nine months ended September 30, 2022 and 2021, respectively, classified within change in fair value of earnout liability in the condensed consolidated statements of operations and comprehensive loss.

 

NOTE 9. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

In August 2020, the Company entered into a 68-month operating lease for laboratory and office space in Redwood City, California, with a lease commencement date in September 2020. In January 2022, the Company amended its operating lease in Redwood City, California to add an additional 5,611 rentable square feet with a lease commencement date on March 1, 2022. The total additional lease payments for the extra space from the commencement date are estimated at $1.8 million. In March 2022, the Company entered into an agreement for 5,144 square feet of temporary office space in Redwood City, California, for use while the extra space leased in January 2022 was under construction. The Company paid $26,000 monthly for the temporary office space rent.

 

The Company’s operating lease will expire in August 2026. In conjunction with signing the lease, the Company secured a letter of credit in favor of the lessor in the amount of $0.4 million. The funds related to this letter of credit are presented as restricted cash on the Company’s condensed consolidated balance sheets. The lease agreement includes an escalation clause for increased base rent and a renewal provision allowing the Company to extend this lease for an additional 60 months at the prevailing rental rate, which the Company is not reasonably certain to exercise. In addition to base rent, the Company will pay its share of operating expenses and taxes.

 

To complete certain leasehold improvements, the lessor agreed to provide the Company a tenant improvement allowance of $1.5 million as well as an option to take an additional allowance of $0.4 million to be repaid over the lease term at an interest rate of 9% per annum, which the Company exercised. The Company recognized $1.6 million in leasehold improvements covered by these allowances as of December 31, 2021. As of September 30, 2022, $0.3 million of additional leasehold improvements covered by these allowances have been recognized. In accordance with the lease agreement, the lessor managed and supervised the construction of the improvements. In exchange for these services, the Company paid the lessor a fee equal to 5% of total construction costs. The leasehold improvements constructed are presented under property and equipment on the Company’s condensed consolidated balance sheets and will be depreciated on a straight-line basis over the remaining lease term.

 

In addition to the construction management and supervision fee noted above, the Company pays variable costs related to its share of operating expenses and taxes. These variable costs are recorded as lease expense as incurred and presented as operating expenses in the condensed consolidated statements of operations and comprehensive loss.

 

The components of lease costs, which were included in the Company’s statements of operations and comprehensive loss, are as follows (in thousands):

 

   Nine Months Ended
September 30,
 
   2022   2021 
Lease cost        
Operating lease cost  $454   $336 
Short-term lease cost   129   248 
Total lease cost  $583   $584 

 

14

 

 

Supplemental information related to the Company’s operating leases is as follows:

 

    Nine Months Ended
September 30,
 
    2022     2021  
             
Cash paid for amounts included in the measurement of lease liabilities (in thousands)   $

594

    $ 91.1  
Weighted average remaining lease term (years)    

3.9

      4.8  
Weighted average discount rate     8.00 %     8.00 %

 

The following table summarizes a maturity analysis of the Company’s operating lease liabilities showing the aggregate lease payments as of September 30, 2022 (in thousands):

 

Year ending December 31,   Amount  
2022 (remainder)   $

269

 
2023     1,121  
2024     1,154  
2025     1,189  
2026     743  
Total undiscounted lease payments     4,476  
Less imputed interest    

(622

) 
Total discounted lease payments    

3,854

Less current portion of lease liability     (840 ) 
Noncurrent portion of lease liability   $

3,014

 

Stanford Sponsored Research Agreement

 

In September 2020, the Company entered into a sponsored research agreement with Stanford for a research program related to the treatment of Fanconi Anemia patients in Bone Marrow Failure requiring allogeneic transplant with non-sibling donors at Stanford Lucile Packard Children’s Hospital (the “Research Project”) using JSP191. Stanford will perform the Research Project and is fully responsible for costs and operations related to the Research Project. In addition, Stanford owns the entire right, title, and interest, in and to all technology developed using Stanford facilities and by Stanford personnel through the performance of the Research Project under this agreement (the “Fanconi Anemia Research Project IP”). Under this agreement, Stanford granted the Company an exclusive option to license Stanford’s rights in the Fanconi Anemia Research Project IP (the “Fanconi Anemia Option”) in the field of commercialization of JSP191. There is no license granted or other intellectual property transferred under this agreement until the Fanconi Anemia Option is exercised. As of September 30, 2022, the Company has not yet exercised the Fanconi Anemia Option.

 

As consideration for the services performed by Stanford under this sponsored research agreement, the Company agreed to pay Stanford a total of $0.9 million over approximately 3 years upon the achievement of development and clinical milestones, including FDA filings and patients’ enrollment. As of December 31, 2020, the Company had accrued $0.3 million related to the achievement of the first milestone under this agreement, which was paid in February 2021. In February 2022, the second milestone was achieved. The Company paid $0.3 million in March 2022 and recognized this as a research and development expense in the condensed statements of operations and comprehensive loss for the nine months ended September 30, 2022. The third milestone is based on the progress of the clinical trials and will be recognized when achieved.

 

15

 

 

License Agreements

 

In March 2021, the Company entered into the Stanford License Agreement (Note 7), pursuant to which the Company is required to pay annual license maintenance fees, beginning on the first anniversary of the effective date of the agreement and ending upon the first commercial sale of a product, method, or service in the licensed field of use, as follows: $25,000 for each first and second year, $35,000 for each third and fourth year, and $50,000 at each anniversary thereafter ending upon the first commercial sale. The Company is also obligated to pay late-stage clinical development milestones and first commercial sales milestone payments of up to $9.0 million in total. The Company will also pay low single-digit royalties on net sales of licensed products. All products were in development as of September 30, 2022, and no such royalties were due as of such date. The Company paid a $25,000 license maintenance fee in March 2022 and recognized this as a research and development expense in the condensed statements of operations and comprehensive loss for the nine months ended September 30, 2022.

 

Legal Proceedings

 

The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the nine months ended September 30, 2022 and the year ended December 31, 2021, and, to the best of its knowledge, no material legal proceedings are currently pending.

 

Guarantees and Indemnifications

 

In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of September 30, 2022 and December 31, 2021, the Company does not have any material indemnification claims that are probable or reasonably possible and consequently has not recorded related liabilities.

 

NOTE 10: COMMON STOCK

 

On September 24, 2021, upon the closing of the Business Combination, the Company issued (1) 13,037,901 shares of voting common stock in exchange for AMHC’s outstanding shares of Class A common stock, (2) 23,482,387 shares of voting common stock and (3) 1,296,022 shares of non-voting common stock in exchange for outstanding shares of Old Jasper preferred stock and common stock.

 

The Company is authorized to issue 490,000,000 shares of voting common stock, 2,000,000 shares of non-voting common stock, and 10,000,000 shares of undesignated preferred stock. There were 37,073,346 shares of voting common stock, 911,022 shares of non-voting common stock and no shares of preferred stock issued and outstanding as of September 30, 2022.

 

Holders of the voting common stock and the non-voting common stock have similar rights, except that non-voting stockholders are not entitled to vote, including for the election of directors. Holders of voting common stock do not have conversion rights, while holders of non-voting common stock have the right to convert each share of non-voting common stock held by such holder into one share of voting common stock at such holder’s election by providing written notice to the Company, provided that as a result of such conversion, such holder, together with its affiliates, would not beneficially own in excess of 9.9% of the Company’s voting common stock following such conversion.

 

As of September 30, 2022 and December 31, 2021, the Company had shares of its common stock reserved for future issuance as follows:

 

   September 30,   December 31, 
   2022   2021 
Outstanding and issued common stock options   6,279,930    2,660,383 
Common stock warrants   4,999,863    4,999,883 
Shares available for grant under 2021 Equity Incentive Plan   3,889,106    4,422,480 
Shares available for grant under 2022 Inducement Equity Incentive Plan   1,295,672    
-
 
Shares available for grant under 2021 Employee Stock Purchase Plan   928,551    550,000 
Outstanding restricted stock units   3,125    
-
 
Total shares of common stock reserved   17,396,247    12,632,746 

 

16

 

 

NOTE 11. STOCK-BASED COMPENSATION

 

On September 23, 2021, the 2021 Equity Incentive Plan (“2021 Plan”) and the 2021 Employee Stock Purchase Plan (“ESPP”) became effective upon the prior approval of Old Jasper’s board of directors and stockholders. The 2021 Plan and ESPP provide for annual automatic increases in the number of shares reserved under each plan, beginning on January 1, 2022. The number of shares available for issuance under the 2021 Plan will increase annually in an amount equal to the least of (i) 2,750,000 shares, (ii) a number of shares equal to 4% of the total number of shares of all classes of common stock of the Company outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares determined by the Company’s Board of Directors (“Board”) no later than the last day of the immediately preceding fiscal year. The number of shares of common stock available for issuance under the ESPP will increase annually in an amount equal to the least of (i) 550,000 shares of common stock, (ii) a number of shares of common stock equal to 1% of the total number of shares of all classes of common stock of the Company on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the Board. As of September 30, 2022, 5,906,146 shares were reserved for issuance under the 2021 Plan, of which 3,889,106 shares were available for future grant and 2,017,040 shares were subject to outstanding options and restricted stock units (“RSUs”), including performance-based awards. As of September 30, 2022, no shares have been issued under the ESPP and 928,551 shares were reserved and available for future issuance.

 

On March 14, 2022, the compensation committee of the board adopted the 2022 Inducement Equity Incentive Plan (the “2022 Inducement Plan”) under which the Company may grant equity awards to new employees. The only persons eligible to receive grants under the 2022 Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq guidance. As of September 30, 2022, 3,000,000 shares were reserved for issuance under the 2022 Inducement Plan, of which 1,295,672 shares were available for future grant and 1,704,328 shares were subject to an outstanding stock option.

 

Under the 2021 Plan, the Company can grant incentive stock options, nonstatutory stock options, restricted stock awards, stock appreciation rights, restricted stock units, performance awards and other awards to employees, directors and consultants. Under the 2022 Inducement Plan, the Company can grant nonstatutory stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards and other awards, but only to an individual, as a material inducement to such individual to enter into employment with the Company or an affiliate of the Company, who (i) has not previously been an employee or director of the Company or (ii) is rehired following a bona fide period of non-employment with the Company. Under the ESPP, the Company can grant purchase rights to employees to purchase shares of common stock at a purchase price which equal to 85% of the fair market value of common stock on the offering date or on the exercise date, whichever is lower.

 

Stock options under the 2021 Plan and the 2022 Inducement Plan may be granted for periods of up to 10 years and at prices no less than 100% of the fair market value of the shares on the date of grant, provided, however, that the exercise price of an ISO (which cannot be granted pursuant to the 2022 Inducement Plan) granted to a 10% stockholder may not be less than 110% of the fair market value of the shares. Stock options granted to employees and non-employees generally vest ratably over four years.

 

Stock Options

 

The following table summarizes the activity under the 2021 Plan, the 2022 Inducement Plan and the Company’s 2019 Equity Incentive Plan for the nine months ended September 30, 2022:

 

       Options Outstanding         
   Shares
Available
for Grant
   Number of
Shares
   Weighted
Average
Exercise
Price
   Weighted -
Average
Remaining
Contractual
Life (Years)
   Aggregate
Intrinsic
Value
 
Balance, January 1, 2022   4,422,480    2,660,383   $0.81    8.54   $18,731,908 
Shares authorized   4,514,204                     
Options granted   (3,919,553)   3,919,553   $3.37           
Options exercised   
-
    (37,387)  $0.71           
Options cancelled/forfeited   262,619    (262,619)  $3.16           
Balance, September 30, 2022   5,279,750    6,279,930   $2.31    8.05    194,469 
Vested and expected to vest, September 30, 2022        6,279,930   $2.31    8.05    194,469 
Exercisable – September 30, 2022        2,104,767   $1.05    6.84    145,143 

 

The aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of the options exercised during the nine months ended September 30, 2022 was $0.1 million.

 

The total fair value of options that vested during the nine months ended September 30, 2022 was $1.0 million. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2022 was $1.88 per share.

 

17

 

 

Future stock-based compensation for unvested options as of September 30, 2022 was $6.1 million, which is expected to be recognized over a weighted-average period of 2.9 years, including $0.1 million related to performance-based stock options, which is expected to be recognized over a weighted-average period of 0.5 years.

 

During the nine months ended September 30, 2022, the Company granted 157,500 shares subject to performance-based stock options with the weighted-average exercise price of $2.71 which are included in the table above. As of September 30, 2022, 463,959 shares subject to the performance-based stock options with the weighted-average exercise price of $1.71 per share and weighted-average contractual life of 8.3 years were outstanding.

 

Restricted Stock Units (RSUs)

 

The following table provides a summary of RSUs activity under the 2021 Plan during the nine months ended September 30, 2022:

 

   Number of
Shares
   Weighted
Average
Grant date
Fair Value
 
Unvested restricted stock units at January 1, 2022   
-
   $
-
 
Granted   94,972   $3.54 
Vested   (91,847)  $3.54 
Unvested restricted stock units at September 30, 2022   3,125   $3.54 
Vested and unreleased   
-
   $
-
 
Outstanding restricted stock units at September 30, 2022   3,125   $3.54 

 

Unamortized stock-based compensation for restricted stock units as of September 30, 2022 was less than $0.1 million, which is expected to be recognized over a weighted-average period of 0.4 years.

 

Employee Stock Purchase Plan

 

The first offering period commenced in June 2022 and will end in December 2022. The Company did not issue any shares of common stock under the ESPP as of September 30, 2022. The Company recorded $0.1 million in accrued liabilities related to contributions withheld as of September 30, 2022.

 

Unamortized stock-based compensation for shares issuable under the ESPP as of September 30, 2022 was less than $0.1 million, which is expected to be recognized over a weighted-average period of 0.1 years.

 

Stock-Based Compensation Expense

 

The following table presents stock-based compensation expenses related to options and RSUs granted to employees and non-employees, ESPP awards and restricted common stock shares issued to founders (in thousands):

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
General and administrative  $475   $80   $1,511   $337 
Research and development   169    115    976    480 
Total  $644   $195   $2,487   $817 

 

The Company recognized $0.1 million of stock-based compensation expense related to performance-based options and RSUs during each of the three and nine months ended September 30, 2022, respectively. The Company recognized less than $0.1 million and $0.1 million of stock-based compensation expense related to performance-based options during the three and nine months ended September 30, 2021, respectively.  

 

On March 15, 2022, William Lis, who had been serving as the Company’s Chief Executive Officer and Executive Chairman, transitioned to the position of non-employee Chairperson of the Board. During the three and nine months ended September 30, 2022, in connection with Mr. Lis’ transition, the Company recognized zero and $0.4 million, respectively, of general and administrative expense on certain stock options and RSUs granted to Mr. Lis for his Chief Executive Officer and Executive Chairman services to the Company.

 

18

 

 

Valuation of Stock Options

 

The grant date fair value of stock options was estimated using a Black-Scholes option-pricing model with the following assumptions:

 

    Three Months
Ended
September 30,
    Nine Months
Ended
September 30,
 
    2022     2022     2021  
Expected term (in years)     6.016.08       1.006.08       5.296.08  
Expected volatility     88.17% – 88.47 %     43.25% – 88.47 %     75.27% – 75.79 %
Risk-free interest rate     2.99% – 3.27 %     1.40% – 3.27 %     0.65% – 0.80 %
Expected dividend yield                           

 

No stock options were granted during the three months ended September 30, 2021.

 

Valuation of ESPP Awards

 

The grant date fair value of ESPP awards was estimated using a Black-Scholes option-pricing model with the following assumptions:

 

   Three Months
Ended
September 30,
   Nine Months
Ended
September 30,
 
   2022   2022 
Expected term (in years)   0.50    0.50 
Expected volatility   75.60%   75.60%
Risk-free interest rate   1.81%   1.81%
Expected dividend yield   
    
 

 

19

 

 

NOTE 12. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Numerator:                
Net loss attributable to common stockholders  $(11,863)  $(3,412)  $(24,474)  $(21,580)
Denominator:                    
Weighted average common shares outstanding   37,983,458    5,696,303    37,913,135    3,775,454 
Less: Weighted-average unvested restricted shares   (367,808)   (650,186)   (438,135)   (720,254)
Less: Shares subject to earnout   (1,050,000)   (79,891)   (1,050,000)   (26,923)
Weighted average shares used to compute basic and diluted net loss per share   36,565,650    4,966,226    36,425,000    3,028,277 
                     
Net loss per share attributable to common stockholders – basic and diluted  $(0.32)  $(0.69)  $(0.67)  $(7.13)

 

The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have had an antidilutive effect were as follows:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2022   2021   2022   2021 
Outstanding and issued common stock options   6,279,930    2,721,557    6,279,930    2,721,557 
Common stock warrants   4,999,863    
-
    4,999,863    
-
 
Unvested restricted common stock   329,441    611,818    329,441    611,818 
Outstanding RSUs   3,125    
-
    3,125    
-
 
Total   11,612,359    3,333,375    11,612,359    3,333,375 

 

NOTE 13. RELATED PARTIES

 

The Company entered into consulting agreements with two founders, who also received founders’ common stock shares for services and assigned patents. The Company recorded $0.1 million for the founders’ advisory and consulting services performed for each of the three months ended September 30, 2022 and 2021, and $0.4 million and $0.2 million for the founders’ advisory and consulting services performed for the nine months ended September 30, 2022 and 2021, respectively. These expenses were recorded as research and development expenses in the consolidated statements of operations and comprehensive loss. Also, the Company’s Licensed Technology from Stanford (see Note 7) was created in the Stanford laboratory of Professor Judith Shizuru, one of the Company’s founders and a member of the Board.

 

In December 2020, the Company entered into a material transfer agreement with Zai Lab Limited where both companies will collaborate on a research project and share total expenses of up to $0.3 million equally. The Company recorded zero and $36,000 as a reduction to research and development expenses for expenses reimbursed by Zai Lab Limited for the nine months ended September 30, 2022 and 2021, respectively. There were no such expenses incurred for the three months ended September 30, 2022 and 2021. The Company’s chairman is a board member of Zai Lab Limited.

 

NOTE 14. SUBSEQUENT EVENT

 

On November 10, 2022, the Company entered into a Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company may offer and sell through or to the Agent, as sales agent or principal, shares of its voting common stock from time to time.

 

20

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on March 18, 2022. Certain of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors”, in Part II, Item 1A of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section of this Quarterly Report entitled “Cautionary Note Regarding Forward-Looking Statements.” The events and circumstances reflected in our forward-looking statements may not be achieved or may not occur, and actual results could differ materially from those described in or implied by the forward-looking statements contained in the following discussion and analysis. As a result of these risks, you should not place undue reliance on these forward-looking statements. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

 

Overview

 

We are a clinical-stage biotechnology company dedicated to enabling cures through hematopoietic stem cell therapy. We are focused on the development and commercialization of safer and more effective conditioning agents and mRNA-based stem cell engineering to allow for expanded use of stem cell transplantation and ex vivo gene therapy, a technique in which genetic manipulation of cells is performed outside of the body prior to transplantation. We are also developing novel therapeutics directed at diseased hematopoietic stem cells.

 

Our drug development pipeline includes multiple product candidates designed to improve hematopoietic stem cell therapy. Our lead product candidate, JSP191, is in clinical development as a novel conditioning antibody that clears hematopoietic stem cells from bone marrow in patients prior to undergoing allogeneic stem cell therapy or stem cell gene therapy. We plan to initiate a registrational clinical study in acute myeloid leukemia (“AML”) patients undergoing stem cell transplantation by the end of the first quarter of 2023. Based on the single agent depletion observed in our Phase 1 study of myelodysplastic syndrome (“MDS”) patients undergoing stem cell transplant, we are also initiating a pilot study of JSP191 as a therapeutic in lower-risk MDS, which we expect to commence in the first quarter of 2023. Beyond JSP191, we are developing stem cell grafts transiently reprogrammed using mRNA that have a competitive advantage over endogenous hematopoietic stem cells (“HSCs”), enabling higher levels of engraftment designed to remove the need for highly toxic conditioning of the patient and lower the risk of other serious complications that limit current stem cell transplants. We plan to continue to expand our pipeline to include other novel stem cell therapies based on immune modulation, graft engineering and cell or gene therapies. Our goal is to expand the use of curative stem cell transplant and gene therapies for all patients, including children and the elderly.

 

Stem cell transplantation is among the most widely practiced forms of cellular therapy and has the potential to cure a wide variety of diseases, including cancers, genetic disorders, and autoimmune diseases. Yet currently, patients must receive highly toxic and potentially life-threatening conditioning agents to prepare their bone marrow for transplantation with either donor stem cells or their own gene-edited stem cells. Younger, fitter patients capable of surviving these toxic side effects are typically given myeloablative, or high-intensity, conditioning whereas older or less fit patients are typically given reduced intensity, but still toxic, conditioning which leads to less effective transplants. These toxicities include a range of acute and chronic effects to the gastrointestinal tract, kidneys, liver, lung, endocrine, and neurologic tissues. Depending upon the conditioning regimen, fitness of the patient, and compatibility between the donor and recipient, the risk of transplant-related mortality ranges from 10% to more than 50% in older patients. Less toxic ways to condition patients have been developed to enable transplant for older patients or those with major comorbidities, but these regimens risk less potent disease elimination and higher rates of disease relapse. Even though stem cell therapy can be one of the most powerful forms of disease cure, these limitations of non-targeted conditioning regimens have seen little innovation over the past decade.

 

Our lead product candidate, JSP191, is a monoclonal antibody designed to block the specific signal on stem cells required for survival. It is currently in development as a highly targeted conditioning agent prior to stem cell transplant and as a therapeutic agent in lower-risk MDS patients, which we expect to evaluate in a study commencing in the first quarter of 2023. We are sponsoring two clinical studies of JSP191 as a conditioning agent prior to stem cell transplant. The first clinical study is an open label Phase 1/2 trial in two cohorts of severe combined immunodeficiency (“SCID”) patients: patients with a history of a prior allogeneic transplant for SCID but with poor graft outcomes and newly diagnosed SCID patients. The primary endpoint in this study is to evaluate the safety and tolerability of JSP191. The secondary goal of this study is to evaluate the efficacy of JSP191 as a conditioning agent in conjunction with a stem cell transplant. Based on preliminary results from our ongoing Phase 1/2 clinical trial, we believe JSP191 has demonstrated the ability as a single agent to enable engraftment of donor HSCs as determined by donor chimerism, or the percentage of bone marrow cells in the patient that are of donor origin after transplant. Engraftment was observed in seven out of ten T-B-NK+ SCID patients with prior allogeneic transplant, as evidenced by CD15+ donor chimerism of more than 5% averaged from 12-24 weeks post-transplant. Increased naïve donor T cell production was observed in the majority of T-B-NK+ subjects, as well as clinical improvement. No JSP191 treatment-related serious adverse events (“SAEs”) have been reported to date and pharmacokinetics have been consistent with earlier studies in healthy volunteers. We expect to complete enrollment in this Phase 1/2 clinical trial by mid-2023.

  

21

 

 

The FDA has granted rare pediatric disease designation to JSP191 as a conditioning treatment for patients with SCID. In addition, the FDA granted orphan drug designation to JSP191 for conditioning treatment prior to hematopoietic stem cell transplantation.

 

We also are evaluating JSP191 in an open label Phase 1 clinical trial in patients with MDS or AML undergoing donor stem cell transplant, but ineligible for myeloablative conditioning. The primary endpoints are to evaluate the safety, tolerability, and pharmacokinetic parameters of JSP191. Data from the initial dose finding Phase 1a portion of this trial as well as the Phase 1b dose expansion cohort have been reported. Initial results from the first twenty-four patients show that 0.6 mg/kg JSP191-based conditioning was well-tolerated with all twenty-four patients achieving successful primary engraftment. These initial results also show that twelve of twenty Phase 1a and 1b patients with MRD at screening achieved clearance of multimodality MRD using three methods of detection: conventional cytogenetics, flow cytometry, and next generation sequencing. No JSP191 related serious adverse events have been reported. As of reporting of these initial results, four patients have come off study due to relapse or progression. We presented these data at the 2022 Transplant and Cellular Therapy (TCT) meeting on April 26, 2022.

 

We have entered into a clinical collaboration with Stanford University (“Stanford”) to study JSP191-based conditioning in patients with Fanconi anemia undergoing stem cell transplant. This study is currently open for patient recruitment and the first two Fanconi anemia patients receiving JSP191 achieved 100% donor chimerism with no treatment-adverse events or toxicities observed. These data were presented at the annual conference of the Inborn Errors Working Party (IEWP), a research group of the European Society of Blood and Marrow Transplantation, held on September 23-25, 2022, in Paris, France. We are also collaborating with the National Institutes of Health to conduct clinical trials of JSP191-based conditioning in patients with sickle cell disease (“SCD”), with chronic granulomatous disease (“CGD”) and with GATA-2 mutated MDS. We believe that JSP191 may also be useful for conditioning in allogenic transplant for other diseases beyond which we are currently studying, including autoimmune diseases. We also believe that targeted JSP191-based conditioning may improve the efficacy and safety of gene therapies. We are working with Graphite Bio, Inc. (“Graphite Bio”) for gene therapy in patients with X-linked severe combined immunodeficiency (“X-SCID”) first as a non-clinical collaboration with an option to expand to clinical trials, as well as with AVROBIO, Inc. (“Avrobio”) for gene therapy in patients with Gaucher disease.  

  

We plan to evaluate JSP191 as a therapeutic for patients with disorders of the hematopoietic stem cell. MDS is a heterogeneous disorder of the bone marrow which typically occurs in an older population and can progress to AML. Lower-risk MDS patients typically suffer from anemia, thrombocytopenia or neutropenia and are given drug therapies such as an erythropoiesis stimulating agent (“ESA”) to stimulate production of new red blood cells to correct their deficiency. However, these agents do not target the diseased hematopoietic stem cell and patients who become refractory to ESA are dependent on routine blood transfusions, which is associated with poor survival. ESA-refractory low-risk MDS patients have few treatment options and are a significant unmet medical need.

 

JSP191 and other anti-CD117 monoclonal antibodies have been shown to deplete normal and diseased MDS human hematopoietic stem cells in clinical and pre-clinical studies. In studies of non-human primates and healthy volunteers, administration of a single dose of JSP191 resulted in depletion of healthy hematopoietic stem cells followed by recovery in approximately six weeks. Additional recent clinical data in MDS patients undergoing stem cell transplant showed depletion of hematopoietic stem cells after administration of JSP191 alone. By depleting diseased and healthy hematopoietic stem cells, we believe that JSP191 may allow for preferential recovery of healthy hematopoietic stem cells and restoration of normal hematopoiesis. We intend to study JSP191 monotherapy in lower-risk MDS patients with documented cytopenia who are refractory to ESA therapy.

 

Our mRNA stem cell grafts platform is designed to overcome key limitations of stem cell transplant and stem cell gene therapy. By using mRNA delivery and/or gene editing, we believe we can transiently reprogram donor or gene corrected stem cells to have a transient proliferative and survival advantage over a patient’s existing cells. We believe our initial preclinical experiments demonstrate multiple different mRNAs can be used to improve engraftment of modified stem cells. One approach engineers mRNA stem cell grafts that express variants of CXCR4 designed to improve stem cell homing and engraftment in the bone marrow. Another approach leverages expression of a modified stem cell factor receptor that can lead to cell line proliferation independent of stem cell factor (“SCF”) concentration, enabling our mRNA stem cell grafts to outcompete unmodified HSCs through better survival and engraftment. Also, since JSP191 only blocks signaling through the stem cell factor receptor, these grafts are not affected by JSP191 when used in combination. Other initial experiments have shown that mRNA can be used to express these receptor variants on the cell surface. We have identified other potential receptor modifications that prevent the binding of JSP191 but retain the ability to bind SCF, therefore allowing the mRNA stem cell grafts to proliferate normally even in the presence of JSP191.

 

22

 

 

We intend to become a fully integrated discovery, development and commercial company in the field of hematopoietic stem cell therapy. We are developing our product candidates to be used individually or, in some cases, in combination with one another. As a result, we believe our pipeline could be tailored to the patient-specific disease so that a patient may receive more than one of our therapies as part of his or her individual allogeneic or gene-edited stem cell therapy. Our goal is to advance our product candidates through regulatory approval and bring them to the commercial market based on the data from our clinical trials and communications with regulatory agencies and payor communities. We expect to continue to advance our pipeline and innovate through our research platform.

 

We have an exclusive license agreement with Amgen Inc. (“Amgen”) for the development and commercialization of the JSP191 monoclonal antibody in all indications and territories worldwide. We also have an exclusive license agreement with Stanford for the right to use JSP191 in the clearance of stem cells prior to the transplantation of HSCs. We also entirely own the intellectual property for our mRNA stem cell grafts platform, which has been internally developed.

 

AMHC was incorporated in the State of Delaware in August 2019. Old Jasper was incorporated in the State of Delaware in March 2018 and did not have any significant operations or research and development activities until November 2019, when it entered into a license agreement with Amgen for a license to certain patents and know-how related to Amgen’s proprietary monoclonal antibody known as AMG-191, which we later renamed as JSP191.

 

Since Old Jasper’s inception in March 2018, we have devoted substantially all of our resources to performing research and development, enabling manufacturing activities in support of our product development efforts, hiring personnel, acquiring and developing our technology and product candidates, performing business planning, establishing our intellectual property portfolio, raising capital and providing general and administrative support for these activities. We do not have any products approved for sale and have not generated any revenue from product sales. We expect to continue to incur significant and increasing expenses and substantial losses for the foreseeable future as we continue our development of and seek regulatory approvals for our product candidates and commercialize any approved products, seek to expand our product pipeline and invest in our organization. We expect to incur increased expenses associated with operating as a public company, including significant legal, audit, accounting, regulatory, tax-related, director and officer insurance, investor relations and other expenses.

 

We have incurred significant losses and negative cash flows from operations since our inception. During the nine months ended September 30, 2022 and 2021, we incurred net losses of $24.5 million and $21.6 million, respectively. We generated negative operating cash flows of $33.2 million and $19.1 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $91.8 million.

 

We had cash and cash equivalents of $51.0 million as of September 30, 2022. Given our recurring losses from operations and negative cash flows, and based on our current operating plan, these funds would not be sufficient to fund our operations in the foreseeable future and we will need to raise additional financing. As a result, we concluded that there is substantial doubt about our ability to continue as a going concern within one year after the date of our consolidated financial statements included in Part I, Item 1 of this Quarterly Report.  We expect to continue to incur substantial losses for the foreseeable future, and our transition to profitability will depend upon successful development, approval and commercialization of our product candidates and upon achievement of sufficient revenues to support our cost structure. We do not expect to generate any revenue from commercial product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates. We may never achieve profitability, and unless we do and until then, we will need to continue to raise additional capital.

 

23

 

 

Our management plans to monitor expenses and raise additional capital through a combination of public and private equity, debt financings, strategic alliances, and licensing arrangements. Our ability to access capital when needed is not assured and, if capital is not available to us when, and in the amounts, needed, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially harm our business, financial condition and results of operations.

 

We expect our expenses will increase substantially in connection with our ongoing and planned activities, as we:

 

  advance product candidates through preclinical studies and clinical trials;

 

  procure the manufacture of supplies for our preclinical studies and clinical trials;

 

  acquire, discover, validate, and develop additional product candidates;

 

  attract, hire and retain additional personnel;

 

  operate as a public company;

 

  implement operational, financial and management systems;

 

  pursue regulatory approval for any product candidates that successfully complete clinical trials;

 

  establish a sales, marketing, and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval and related commercial manufacturing build-out; and

 

  obtain, maintain, expand, and protect our portfolio of intellectual property rights.

 

We do not currently own or operate any manufacturing facility. We rely on contract manufacturing organizations (“CMOs”) to produce our drug candidates in accordance with the FDA’s current good manufacturing practices (“cGMP”) regulations for use in our clinical studies. Under our license agreement with Amgen, we received a substantial amount of drug product to support initiation of our planned clinical trials of JSP191. Since November 2019, we have entered into development and manufacturing agreements with Lonza Sales AG (“Lonza”) relating to the manufacturing of JSP191 drug substance and drug product and product quality testing. The facility of Lonza in Slough, United Kingdom is responsible for production and testing of drug substance. The facility of Lonza in Stein, Switzerland is responsible for production and testing of drug product. Labelling, packaging and storage of finished drug product is provided by PCI Pharma Services, in San Diego, California.

 

Given our stage of development, we do not yet have a marketing or sales organization or commercial infrastructure. Accordingly, if we obtain regulatory approval for any of our product candidates, we also expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution.

 

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from the sale of our product candidates, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce our operations.

 

24

 

 

Business Impact of the COVID-19 Pandemic

 

In March 2020, the World Health Organization declared the global COVID-19 outbreak a pandemic. The global COVID-19 pandemic continues to evolve rapidly, including with respect to the spread of variants, and we will continue to monitor it closely. While our operations to date have not been significantly impacted by the COVID-19 pandemic, we cannot at this time predict the specific extent, duration, or full impact that the continuing COVID-19 pandemic will have on our business, financial condition and operations, including ongoing and planned clinical trials and clinical development timelines, particularly as we advance our product candidates to clinical development, the continued spread of COVID-19 and its variants, including Omicron, and the measures taken by the governmental authorities could disrupt the supply chain and the manufacture or shipment of drug substances and finished drug products for our product candidates for use in our clinical trials, impede our clinical trial initiation and recruitment and the ability of patients to continue in clinical trials, impede testing, monitoring, data collection and analysis and other related activities. The COVID-19 pandemic could also potentially affect the business of the FDA or other regulatory authorities, which could result in delays in meetings related to our ongoing and planned clinical trials. We experienced slower than anticipated patient enrollment in our SCID clinical trial in 2020 due to reluctance of these immunocompromised patients to travel and undergo hospitalization during the pandemic. We may continue to experience interruptions to our clinical trials due to the COVID-19 pandemic. The impact of the COVID-19 pandemic on our financial performance will depend on future developments, including the duration and spread of the pandemic, its impact on our clinical trial enrollment, trial sites, contract research organizations (“CROs”), CMOs, and other third parties with whom we do business, its impact on regulatory authorities and our key scientific and management personnel, progress of vaccination and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets or the overall economy are impacted for an extended period, our business may be materially adversely affected.

 

Business Impact of the Geopolitical Events

 

We are unable to predict the effect that geopolitical events, including the conflict in Ukraine and global inflation, may have on our operations. To the extent that geopolitical events adversely affect our business prospects, financial condition, and results of operations, they may also have the effect of exacerbating many of the other risks described or referenced in the section of our Form 10-Q titled “Risk Factors,” such as those relating to the supply of materials for our product candidates, and the timing and possible disruptions of our ongoing and future preclinical studies and clinical trials, and our access to the financial markets.

 

Components of Results of Operations

 

Operating Expenses

 

Research and Development

 

The largest component of our total operating expenses since our inception has been research and development activities, including the preclinical and clinical development of our product candidates. Research and development expenses consist primarily of compensation and benefits for research and development employees, including stock-based compensation; expenses incurred under agreements with CROs and investigative sites that conduct preclinical and clinical studies; the costs of acquiring and manufacturing clinical study materials and other supplies; payments under licensing and research and development agreements; other outside services and consulting costs; and facilities, information technology and overhead expenses. Research and development costs are expensed as incurred.

 

External research and development costs include:

 

  costs incurred under agreements with third-party CROs, CMOs and other third parties that conduct preclinical and clinical activities on our behalf and manufacture our product candidates;

 

  costs associated with acquiring technology and intellectual property licenses that have no alternative future uses;

 

  consulting fees associated with our research and development activities; and

 

  other costs associated with our research and development programs, including laboratory materials and supplies.

 

25

 

 

Internal research and development costs include:

 

  employee-related costs, including salaries, benefits and stock-based compensation expense for our research and development personnel; and

 

  other expenses and allocated overheads incurred in connection with our research and development programs.

 

We expect our research and development expenses to increase substantially for the foreseeable future as we advance our product candidates into and through preclinical studies and clinical trials, pursue regulatory approval of our product candidates and expand our pipeline of product candidates. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates, early clinical data, investment in our clinical programs, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or if, when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if approved.

 

Our future research and development costs may vary significantly based on factors, such as:

 

  the scope, rate of progress, expense and results of our discovery and preclinical development activities;

 

  the costs and timing of our chemistry, manufacturing and controls activities, including fulfilling cGMP-related standards and compliance, and identifying and qualifying suppliers;

 

  per patient clinical trial costs;

 

  the number of trials required for approval;

 

  the number of sites included in our clinical trials;

 

  the countries in which the trials are conducted;

 

  delays in adding a sufficient number of trial sites and recruiting suitable patients to participate in our clinical trials;

 

  the number of patients that participate in the trials;

 

  the number of doses that patients receive;

 

  patient drop-out or discontinuation rates;

 

  potential additional safety monitoring requested by regulatory agencies;

 

  the duration of patient participation in the trials and follow up;

 

  the cost and timing of manufacturing our product candidates;

 

  the phase of development of our product candidates;

 

  the efficacy and safety profile of our product candidates;

 

  the timing, receipt, and terms of any approvals from applicable regulatory authorities, including the FDA and non-U.S. regulators;

 

  maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates;

 

26

 

 

  significant and changing government regulation and regulatory guidance;

 

  changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;

 

  the extent to which we establish additional strategic collaborations or other arrangements; and

 

  the impact of any business interruptions to our operations or to those of the third parties with whom we work, particularly in light of the current COVID-19 pandemic environment.

 

General and Administrative

 

General and administrative expenses consist primarily of personnel costs and expenses, including salaries, employee benefits, stock-based compensation for our executive and other administrative personnel; legal services, including relating to intellectual property and corporate matters; accounting, auditing, consulting and tax services; insurance; and facility and other allocated costs not otherwise included in research and development expenses. We expect our general and administrative expenses to increase substantially for the foreseeable future as we anticipate an increase in our personnel headcount to support expansion of research and development activities, as well as to support our operations generally. We also expect an increase in expenses associated with being a public company, including costs related to accounting, audit, legal, regulatory, and tax-related services associated with maintaining compliance with applicable Nasdaq and SEC requirements; additional director and officer insurance costs; and investor and public relations costs.

 

Other Income, Net

 

Other income, net includes changes in the fair value of common stock warrant liability and earnout liability, which were recorded at the closing of the Business Combination, changes in the fair value of our derivative tranche liabilities, which were settled in February 2021, foreign currency transactions gains and losses, and interest income. These financial instruments were classified as liabilities in our consolidated balance sheets and re-measured at each reporting period end until they are exercised, settled or have expired.

  

Results of Operations

 

Three Months Ended September 30, 2022 and 2021

 

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021 (in thousands, except percentages):

 

   Three Months Ended
September 30,
   Change   Change 
   2022   2021   $   % 
Operating expenses                
Research and development  $9,022   $7,188   $1,834    26%
General and administrative   3,686    2,891    795    27%
Total operating expenses   12,708    10,079    2,629    26%
Loss from operations   (12,708)   (10,079)   (2,629)   26%
Change in fair value of earnout liability   422    6,226    (5,804)   -93%
Change in fair value of common stock warrant liability   155    450    (295)   -66%
Interest and other income (expense), net   268    (9)   277    * 
Total other income, net   845    6,667    (5,822)   -87%
Net loss and comprehensive loss  $(11,863)  $(3,412)  $(8,451)   248%

 

* not meaningful

 

27

 

 

Research and Development Expenses

  

The following table summarizes our research and development expenses for the three months ended September 30, 2022 and 2021 (in thousands, except percentages): 

 

   Three Months Ended
September 30,
   Change   Change 
   2022   2021   $   % 
External costs:                
CRO, CMO and other third-party preclinical studies and clinical trials  $4,094   $4,997   $(903)   -18%
Consulting costs   1,299    665    634    95%
Other research and development costs, including laboratory materials and supplies   813    232    581    250%
                     
Internal costs:                    
Personnel-related costs   1,849    1,234    615    50%
Facilities and overhead costs   967    60    907    * 
Total research and development expense:  $9,022   $7,188   $1,834    26%

   

* not meaningful

 

Research and development expenses increased by $1.8 million, from $7.2 million for the three months ended September 30, 2021 to $9.0 million for the three months ended September 30, 2022.

 

External clinical research organizations (“CRO”), contract manufacturing organization (“CMO”) and other third-party preclinical studies and clinical trials expenses decreased by $0.9 million, from $5.0 million for the three months ended September 30, 2021 to $4.1 million for the three months ended September 30, 2022. The decrease is primarily due to decreased CMO product development and manufacturing expenses. Expenses related to professional consulting services increased by $0.6 million, from $0.7 million for the three months ended September 30, 2021 to $1.3 million for the three months ended September 30, 2022. The increase is related to external consulting expenses incurred to supplement our research and development personnel. Other external research and development costs increased by $0.6 million from $0.2 million for the three months ended September 30, 2021 to $0.8 million for the three months ended September 30, 2022 due to increases in purchases of laboratory materials and supplies and other miscellaneous costs.

 

Our external costs by program for the three months ended September 30, 2022 and 2021 were as follows (in thousands):

 

   Three Months Ended
September 30,
 
   2022   2021 
JSP191 platform  $3,389   $3,297 
MDS/AML clinical trial   1,358    1,215 
SCID clinical trial   626    1,101 
Other   833    281 
Total external costs  $6,206   $5,894 

 

Personnel-related costs increased by $0.6 million, from $1.2 million for the three months ended September 30, 2021 to $1.8 million for the three months ended September 30, 2022, due to an increase in headcount in our research and development organization in 2022 compared to the 2021 period. Employee stock-based compensation expenses were $0.2 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively.   Facilities and allocated overhead expenses increased by $0.9 million, as we commenced using our laboratory space from July 2021 and increased our research and development headcount.

 

28

 

 

General and Administrative Expenses

 

General and administrative expenses increased by $0.8 million, from $2.9 million for the three months ended September 30, 2021 to $3.7 million for the three months ended September 30, 2022. Employee payroll and related expenses increased by $0.2 million, from $0.7 million for the three months ended September 30, 2021 to $0.9 million for the three months ended September 30, 2022, as a result of continued hiring of executives and administrative employees. Stock-based compensation expenses related to our employees and directors were $0.5 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively. Expenses related to professional services decreased by $0.2 million, from $1.9 million for the three months ended September 30, 2021 to $1.7 million for the three months ended September 30, 2022.

  

Other Income, Net

 

Total other income, net decreased by $5.9 million from $6.7 million for the three months ended September 30, 2021, to $0.8 million for the three months ended September 30, 2022.

 

As of September 30, 2022, we have outstanding warrants to purchase an aggregate of 4,999,863 shares of our common stock, which were recognized upon the closing of the Business Combination on September 24, 2021. The warrants were concluded to be derivative financial instruments and are measured at fair value at each reporting period end until these are exercised, have expired or are redeemed. The warrants are publicly traded, and the fair value is estimated using the closing price of a warrant at the period end. We recognized $0.2 million and $0.5 million of other income related to the change in fair value of common stock warrants for the three months ended September 30, 2022 and 2021, respectively, due to the decrease in the closing price of the warrants during the respective period.

 

Upon the closing of the Business Combination on September 24, 2021, we recognized earnout liability related to the Sponsor Earnout Shares placed in escrow. These shares will be released from escrow upon achieving agreed upon common stock price targets within the specified period. This liability is recorded at fair value using a Monte Carlo simulation model and is re-measured at each period end until shares are released or forfeited. The significant inputs used in the Monte Carlo model include the expected volatility of our common stock and the expected term when shares will be released. We recognized $0.4 million and $6.2 million of other income related to the change in the fair value of the earnout liability for the three months ended September 30, 2022 and 2021, respectively, mainly due to the decrease in our common stock price during the respective period.

 

Nine Months Ended September 30, 2022 and 2021

 

The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021 (in thousands, except percentages):

 

   Nine Months Ended
September 30,
   Change   Change 
   2022   2021   $   % 
Operating expenses                
Research and development  $25,345   $16,764   $8,581    51%
General and administrative   12,104    7,987    4,117    52%
Total operating expenses   37,449    24,751    12,698    51%
Loss from operations   (37,449)   (24,751)   (12,698)   51%
Change in fair value of earnout liability   5,640    6,226    (586)   -9%
Change in fair value of common stock warrant liability   7,050    450    6,600    * 
Change in fair value of derivative liability   -    (3,501)   3,501    -100%
Interest and other (expense) income, net   285    (4)   289    * 
Total other income, net   12,975    3,171    9,804    309%
Net loss and comprehensive loss  $(24,474)  $(21,580)  $(2,894)   13%

 

* not meaningful

 

29

 

 

Research and Development Expenses

 

The following table summarizes our research and development expenses for the nine months ended September 30, 2022 and 2021 (in thousands, except percentages):

 

   Nine Months Ended
September 30,
   Change   Change 
   2022   2021   $   % 
External costs:                
CRO, CMO and other third-party preclinical studies and clinical trials  $9,599   $9,937   $(338)   -3%
Consulting costs   3,450    2,445    1,005    41%
Other research and development costs, including laboratory materials and supplies   2,508    384    2,124    553%
                     
Internal costs:                    
Personnel-related costs   6,261    3,865    2,396    62%
Facilities and overhead costs   3,527    133    3,394    *  
Total research and development expense:  $25,345   $16,764   $8,581    51%

 

* not meaningful

 

Research and development expenses increased by $8.5 million, from $16.8 million for the nine months ended September 30, 2021, to $25.3 million for the nine months ended September 30, 2022, mainly due to progression in the clinical trials, product development activities and hiring additional personnel.

 

External CRO, CMO and other third-party preclinical studies and clinical trials expenses decreased by $0.3 million, from $9.9 million for the nine months ended September 30, 2021 to $9.6 million for the nine months ended September 30, 2022. Expenses related to professional consulting services increased by $1.0 million, from $2.4 million for the nine months ended September 30, 2021 to $3.4 million for the nine months ended September 30, 2022 and include costs related to external consulting incurred to supplement our research and development personnel. Other external research and development costs increased by $2.1 million from $0.4 million for the nine months ended September 30, 2021 to $2.5 million for the nine months ended September 30, 2022 due to increases in purchases of laboratory materials and supplies and other miscellaneous costs.

 

Our external costs by program for the nine months ended September 30, 2022 and 2021 were as follows (in thousands):

 

   Nine Months Ended
September 30,
 
   2022   2021 
JSP191 platform  $7,989   $7,525 
MDS/AML clinical trial   3,346    2,619 
SCID clinical trial   1,977    2,004 
Other   2,245    618 
Total external costs  $15,557   $12,766 

 

Personnel-related costs increased by $2.4 million, from $3.9 million for the nine months ended September 30, 2021 to $6.3 million for the nine months ended September 30, 2022, as we continued hiring employees in our research and development organization. Employee stock-based compensation expenses were $0.9 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively. Facilities and allocated overhead expenses increased by $3.4 million, as we commenced using our laboratory space from July 2021 and increased our research and development headcount.

 

30

 

 

General and Administrative Expenses

 

General and administrative expenses increased by $4.1 million, from $8.0 million for the nine months ended September 30, 2021 to $12.1 million for the nine months ended September 30, 2022. Employee payroll and related expenses increased by $1.7 million, from $1.7 million for the nine months ended September 30, 2021 to $3.4 million for the nine months ended September 30, 2022, as a result of continued hiring of executives and administrative employees. Stock-based compensation expenses related to our employees and directors were $0.8 million and $0.3 million for the nine months ended September 30, 2022 and 2021, respectively. Expenses related to professional services increased by $1.5 million, from $4.9 million for the nine months ended September 30, 2021 to $6.4 million for the nine months ended September 30, 2022, due to increased spending on consulting, insurance costs, recruiting, legal, audit, accounting and other services to support our growing operations as a public company and as we continued to expand our operations to support our business strategy and product development.

 

Other Income, Net

 

Other income, net increased by $9.8 million, from $3.2 million for the nine months ended September 30, 2021 to $13.0 million for the nine months ended September 30, 2022.

 

As of September 30, 2022, we have outstanding warrants to purchase an aggregate of 4,999,863 shares of our common stock, which were recognized upon the closing of the Business Combination on September 24, 2021. The warrants were concluded to be derivative financial instruments and are measured at fair value at each reporting period end until these are exercised, have expired or are redeemed. The warrants are publicly traded, and the fair value is estimated using the closing price of a warrant at the period end. We recognized $7.1 million and $0.5 million of other income related to the change in fair value of common stock warrants for the nine months ended September 30, 2022 and 2021, respectively, due to the decrease in the closing price of the warrants during the respective period.

 

Upon the closing of the Business Combination on September 24, 2021, we recognized earnout liability related to the Sponsor Earnout Shares placed in escrow. These shares will be released from escrow upon achieving agreed upon common stock price targets within the specified period. This liability is recorded at fair value using a Monte Carlo simulation model and is re-measured at each period end until shares are released or forfeited. The significant inputs used in the Monte Carlo model include the expected volatility of our common stock and the expected term when shares will be released. We recognized $5.6 million and $6.2 million of other income related to the change in the fair value of the earnout liability for the nine months ended September 30, 2022 and 2021, respectively, mainly due to the decrease in our common stock price during the respective period.

 

We recognized a loss of $3.5 million during the nine months ended September 30, 2021 related to the change in fair value of our derivative tranche liability and did not have such expense in the 2022 period, as the derivative was settled in February 2021 and was no longer outstanding.

 

Liquidity and Capital Resources

 

Prior to the closing of the Business Combination, we funded our operations primarily from the issuance of redeemable convertible preferred stock shares and the issuance of convertible promissory notes. We received net cash proceeds of $95.3 million at the closing of the Business Combination, which includes the remaining cash in our trust account after redemptions and the payment of the closing costs and $100.0 million received from the PIPE Investors. As of September 30, 2022, we had $51.0 million of cash and cash equivalents.

  

On November 10, 2022, we entered into a Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which we may offer and sell through or to the Agent, as sales agent or principal, shares of our voting common stock from time to time.

 

Future Funding Requirements – Going ConcernSM

 

Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our programs and, to a lesser extent, general and administrative expenditures. We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to advance our product candidates, expand our corporate infrastructure, operate as a public company, further our research and development initiatives for our product candidates, scale our laboratory and manufacturing operations, and incur marketing costs associated with potential commercialization. We are subject to all the risks typically related to the development of new drug candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need substantial additional funding in connection with our continuing operations.

 

We have incurred significant losses and negative cash flows from operations since our inception. As of September 30, 2022, we had an accumulated deficit of $91.9 million. Given our recurring losses from operations and negative cash flows, and based on our current operating plan, we have concluded that there is substantial doubt about our ability to continue as a going concern within one year after the issuance date of these condensed consolidated financial statements. We expect to finance our future cash needs through public or private equity or debt financings, collaborations or a combination of these approaches. The sale of equity or convertible debt securities may result in dilution to our stockholders, and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. Debt financings may subject us to covenant limitations or restrictions on our ability to take specific actions, such as incurring additional debt or making capital expenditures. Our ability to raise additional funds may be adversely impacted by negative global economic conditions and any disruptions to and volatility in the credit and financial markets in the United States and worldwide or other factors. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us. If we are unable to obtain adequate financing when needed or on terms favorable or acceptable to us, we may be forced to delay, reduce the scope of or eliminate one or more of our research and development programs.

 

31

 

 

Our future financing requirements will depend on many factors, including:

 

  the timing, scope, progress, results and costs of research and development, preclinical and non-clinical studies and clinical trials for our current and future product candidates;

 

  the number, scope and duration of clinical trials required for regulatory approval of our current and future product candidates;

 

  the outcome, timing and costs of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities for our product candidates, including any requirement to conduct additional studies or generate additional data beyond that which we currently expect would be required to support a marketing application;

 

  the costs of manufacturing clinical and commercial supplies of our current and future product candidates;

 

  the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

 

  any product liability or other lawsuits related to our product candidates;

 

  the revenue, if any, received from commercial sales of any product candidates for which we may receive marketing approval;

 

  our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party and government payers;

 

  the costs to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing our patents or other intellectual property rights;

 

  expenses incurred to attract, hire and retain skilled personnel; and

 

  the costs of operating as a public company.

 

A change in the outcome of any of these or other variables could significantly change the costs and timing associated with the development of our product candidates. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such change.

 

Cash Flows

 

The following table summarizes our sources and uses of cash for the periods presented (in thousands):

 

   Nine Months Ended
September 30,
 
   2022   2021 
Net cash used in operating activities  $(33,212)  $(19,094)
Net cash used in investing activities   (494)   (1,717)
Net cash provided by financing activities   27    101,878 

Net (decrease) increase in cash and cash equivalents and restricted cash

  $(33,679)  $81,067

 

32

 

 

Cash Flows Used in Operating Activities

 

Net cash used in operating activities was $33.2 million and $19.1 million for the nine months ended September 2022 and 2021, respectively.

 

Cash used in operating activities in the nine months ended September 30, 2022 was primarily due to our net loss for the period of $24.5 million, adjusted by non-cash net gain of $9.3 million and a net change of $0.5 million in our net operating assets and liabilities. The non-cash amounts consisted of $12.7 million net gain related to the changes in fair value of common stock warrant liability and the earnout liability, reduced by non-cash expenses, which included $2.5 million related to stock-based compensation expense, $0.7 million related to depreciation and amortization expense and $0.2 million non-cash lease expense. The changes in our net operating assets and liabilities were primarily due to a decrease of $1.7 million in prepaid expenses and other current assets, a decrease of $0.1 million in other non-current assets and an increase of $0.1 million in other non-current liabilities, partially offset by a decrease of $0.8 million in accounts payable, a decrease of $0.4 million in operating lease liabilities and a decrease of $0.1 million in accrued expenses and other current liabilities.

 

Cash used in operating activities in the nine months ended September 30, 2021 was primarily due to our net loss for the period of $21.6 million, adjusted by non-cash net gain of $2.0 million and a net change of $4.5 million in our net operating assets and liabilities. The non-cash net gain consisted of $3.2 million net gain related to the changes in fair value of a derivative liability, common stock warrant liability and the earnout liability, reduced by non-cash expenses, which included $0.8 million related to stock-based compensation expense, $0.2 million related to depreciation and amortization expense and $0.2 million related to non-cash lease expense. The changes in our net operating assets and liabilities were primarily due to an increase of $3.2 million in accrued expenses and other current liabilities, and an increase in accounts payable of $1.2 million due to the timing of payments to our vendors.

 

Cash Flows Used in Investing Activities

 

Cash used in investing activities was $0.5 million and $1.7 million for the nine months ended September 2022 and 2021, respectively, which primarily consisted of purchases of the lab equipment and leasehold improvements.

 

Cash Flows from Financing Activities

 

Cash provided by financing activities for the nine months ended September 30, 2022 was less than $0.1 million, which consisted of cash received from exercised of stock options.

 

Cash provided by financing activities for the nine months ended September 30, 2021 was $101.9 million, which consisted of $95.3 million net proceeds received at the closing of the Business Combination, which included the PIPE Financing, $10.8 million net proceeds received in February 2021 upon the issuance of Series A-1 redeemable convertible preferred stock shares and $0.2 million of cash received from exercised of stock options. Cash received was reduced by $4.3 million related to expenses paid by us related to the Business Combination.

 

Contractual Obligations and Commitments

 

We enter into contracts in the normal course of business with CROs for clinical trials, with CMOs for clinical supplies manufacturing and with other vendors for preclinical studies, supplies and other services and products for operating purposes. These contracts generally provide for termination on notice or may have a potential termination fee if a purchase order is cancelled within a specified time, and therefore are cancelable contracts. We do not expect any such contracts terminations and do not have any non-cancellable obligations under these agreements as of September 30, 2022.

 

33

 

 

We have contractual obligations and commitments as described in Note 9, “Commitments and Contingencies”, within our consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

 

Leases

 

In August 2020, we leased approximately 7,781 square feet of space for our headquarters in Redwood City, California. In January 2022, we amended our lease agreement and added 5,611 square feet, previously leased on a month-to-month basis, to our lease agreement. The lease will expire in August 2026, but we have an option to extend the term for an additional five years to August 2031. In addition to base rent, we pay our share of operating expenses and taxes. As of September 30, 2022, our rent commitments under the amended lease agreement are $1.1 million within the next 12 months from September 30, 2022 and $3.4 million for the remainder of the lease term.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our critical accounting policies are disclosed in Note 2 of the notes to the consolidated financial statements included in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 18, 2022. Since the date of such financial statements, there have been no material changes to our significant accounting policies other than those described in Note 2 of the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

 

Recently Issued Accounting Pronouncements

 

See Note 2 to the condensed consolidated financial statements for more information regarding recently issued accounting pronouncements.

 

JOBS Act

 

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a U.S. Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have opted to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our consolidated financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

We will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following November 22, 2024, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; and (ii) the date on which we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.

 

34

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rate Risk

 

We had cash and cash equivalents of $51.0 million as of September 30, 2022, which consisted of checking account and money market funds. Historical fluctuations in interest rates have not been significant for us, and we believe a hypothetical 10% change in interest rates during any of the periods presented would not have had a material effect on our consolidated financial statements included in Part I, Item 1 of this Quarterly Report. We had no outstanding debt as of September 30, 2022. To minimize risk in the future, we intend to maintain our portfolio of cash equivalents in institutional market funds that are composed of U.S. Treasury and U.S. Treasury-backed repurchase agreements or short-term U.S. Treasury securities.

 

Foreign Currency Exchange Risk

 

All of our employees are currently located in the United States; however, we do utilize certain vendors outside of the United States for our manufacturing of drug substances and clinical supplies. As such, our expenses are denominated in both U.S. dollars and foreign currencies. Therefore, our operations are and will continue to be subject to fluctuations in foreign currency exchange rates. To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not had a formal hedging program with respect to foreign currency. We believe a hypothetical 10% chance in exchange rates during any of the periods presented would not have a material effect on our consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

 

Effects of Inflation

 

Inflation generally affects us by increasing our cost of labor and in the future our clinical trial costs. We believe that inflation has not had a material effect on our interim condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. As required by Rule 13a-15(b) or Rule 15d-15(b) promulgated by the Securities and Exchange Commission under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q at the reasonable assurance level.

 

Changes in Internal Controls

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

35

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not currently party to, and none of our property is currently the subject of, any material legal proceedings.

 

Item 1A. Risk Factors

 

Investing in our common stock involves a high degree of risk. Before making an investment decision, you should carefully consider the risks described below before deciding whether to invest in our common stock. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements”, you should carefully consider the specific risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.

 

Risk Factor Summary

 

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (the “SEC”) before making an investment decision regarding our common stock. Risk factors marked with an asterisk (*) below include a substantive change from or an update to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 18, 2022.

 

  Risks Related to Our Financial Position and Need for Additional Capital, including, among others, that:

 

  We have incurred significant net losses and negative operating cash flows since our inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain profitability.

 

  We will need substantial additional funding, which may not be available on acceptable terms, or at all. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our research and product development programs or future commercialization efforts.

 

  As a result of our history of losses and negative cash flows from operations, our consolidated financial statements contain a statement regarding a substantial doubt about our ability to continue as a going concern.

 

  Risks Related to Discovery, Development, Manufacturing and Commercialization, including, among others, that:

 

  We are substantially dependent on the success of our most advanced product candidate, JSP191. If we are unable to complete development of, obtain approval for and commercialize our product candidates, including JSP191, in a timely manner or at all, our business will be harmed.

 

  We may not be successful in our efforts to identify, develop and commercialize additional product candidates. If these efforts are unsuccessful, we may never become a commercial stage company or generate any revenues.

 

  mRNA stem cell grafts are a novel technology that is not yet clinically validated for human use. The approaches we are taking to create mRNA stem cell grafts are unproven and may never lead to marketable products.

 

36

 

 

  If any of our product candidates cause serious adverse events, undesirable side effects or unexpected characteristics, such events, side effects or characteristics could delay or prevent regulatory approval of the product candidate, limit our commercial potential or result in significant negative consequences following any potential marketing approval.

 

  Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials, and such results do not guarantee approval of a product candidate by regulatory authorities. In addition, our clinical trials to date have been limited in scope, and results received to date may not be replicated in expanded or additional future clinical trials.

 

  We have never obtained regulatory approval for a drug, may never receive regulatory approval for any of our product candidates, and may therefore never generate revenues from product sales.

 

  We face significant competition in an environment of rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer or more advanced or effective than ours, which may harm our financial condition and our ability to successfully market or commercialize our product candidates.

 

  Risks Related to Regulatory Review, including, among others, that:

 

  If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates.

 

  Stem cell transplant is a high-risk procedure with curative potential that may result in complications or adverse events for patients in our clinical trials or for patients that use any of our product candidates, if approved.

 

  Risks Related to Our Relationships with Third Parties, including, among others, that:

 

  We rely on third parties to conduct our preclinical and clinical trials and will rely on them to perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

 

  We currently rely on a single manufacturer for our clinical supply of our product candidates. In the event of a loss of this manufacturer, or a failure by such manufacturer to comply with FDA regulations, we may not be able to find an alternative source on commercially reasonable terms, or at all. In addition, third-party manufacturers and any third-party collaborators may be unable to successfully scale-up manufacturing of our current or future product candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing approved products, if any.

 

37

 

 

  Risks Related to Our Intellectual Property, including, among others, that:

 

  We are highly dependent on intellectual property licensed from third parties, and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

 

  Our commercial success depends on our ability to obtain, maintain and protect our intellectual property and proprietary technology.

 

  Risks Related to Ownership of Our Common Stock and Warrants, including, among others, that we will incur significant increased expenses and administrative burdens as a public company, which could negatively impact our business, financial condition and results of operations.

 

Risks Related to Our Financial Position and Need for Additional Capital

 

*We have incurred significant net losses and negative operating cash flows since our inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain profitability.

 

We are a clinical-stage biotechnology company dedicated to enabling cures through hematopoietic stem cell therapy and have a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses and negative operating cash flows in each period since our inception. For the nine months ended September 30, 2022 and 2021, we reported net losses of $24.5 million and $21.6 million, respectively. For the nine months ended September 30, 2022 and 2021, we reported negative operating cash flows of $33.2 million and $19.1 million, respectively. As of September 30, 2022, we had an accumulated deficit of $91.9 million. We have devoted all of our efforts to organizing and staffing our company, business and scientific planning, raising capital, acquiring and developing technology, identifying potential product candidates, undertaking research and preclinical studies of potential product candidates, developing manufacturing capabilities and evaluating a clinical path for our pipeline programs. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates.

 

The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:

 

  continue the open label Phase 1/2 clinical trial for JSP191 for SCID, and the open label Phase 1 clinical trial for JSP191 in patients with MDS or AML;

 

  continue the clinical development of JSP191 in autoimmune diseases and other indications;

 

  continue our current research programs and development of other potential product candidates from our current research programs;

 

  seek to identify additional product candidates and research programs;

 

  initiate preclinical testing and clinical trials for any other product candidates we identify and develop;

 

  maintain, expand, enforce, defend and protect our intellectual property portfolio, and provide reimbursement of third-party expenses related to our patent portfolio;

 

  seek marketing approvals for any product candidates that successfully complete clinical trials;

 

  ultimately establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;

 

38

 

 

  adapt our regulatory compliance efforts to incorporate requirements applicable to any approved product candidates;

 

  further develop our genome engineering capabilities;

 

  hire additional research and development and clinical personnel;

 

  hire commercial personnel and advance market access and reimbursement strategies;

 

  add operational, financial and management information systems and personnel, including personnel to support our product development;

 

  acquire or in-license product candidates, intellectual property and technologies;

 

  develop or in-license manufacturing and distribution technologies;

 

  should we decide to do so and receive approval for any of our product candidates, build and maintain, or purchase and validate, commercial-scale manufacturing facilities designed to comply with current Good Manufacturing Practices (“cGMP”) requirements; and

 

  incur additional legal, accounting and other expenses in operating as a public company.

 

As a company, we have not completed clinical development of any product candidate and expect that it will be several years, if ever, before we have a product candidate ready for commercialization. To become and remain profitable, we must develop and, either directly or through collaborators, eventually commercialize a product or products with significant market potential. This will require us to be successful in a range of challenging activities, including identifying product candidates, completing preclinical testing and clinical trials of product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we may obtain marketing approval and satisfying any post-marketing requirements.

 

We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. Our product candidates and research programs are currently only in the early stages of development. Because of the numerous risks and uncertainties associated with developing product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

 

*We will need substantial additional funding, which may not be available on acceptable terms, or at all. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our research and product development programs or future commercialization efforts.

 

We expect to spend substantial amounts of cash to conduct further research and development and preclinical testing and clinical trials of our product candidates, to seek regulatory approvals for our product candidates and to launch and commercialize any product candidates for which we receive regulatory approval. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in order to maintain our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and product development programs or future commercialization efforts. As of September 30, 2022, our cash and cash equivalents were $51.0 million and we had an accumulated deficit of $91.9 million. Our future financing requirements will depend on many factors, including:

 

  the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates, including any COVID-19-related delays or other effects on our development programs;

 

  the costs of continuing to build our technology platform, including in-licensing additional genome engineering technologies for use in developing our product candidates;

 

  the costs of developing, acquiring or in-licensing additional targeted therapies to use in combination with JSP191 and other product candidates we may develop;

 

39

 

 

  the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending intellectual property-related claims in the United States and internationally;

 

  the number and characteristics of product candidates that we develop or may in-license;

 

  our ability to establish and maintain collaborations on favorable terms, if at all;

 

  the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we enter into;

 

  the outcome, timing and cost of meeting regulatory requirements established by the FDA, the European Medical Agency (the “EMA”) and other comparable foreign regulatory authorities;

 

  the cost and timing of completion of commercial-scale outsourced manufacturing activities;

 

  the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own; and

 

  the costs of operating as a public company.

 

Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, even if we successfully develop product candidates and those are approved, we may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.

 

We currently have an effective universal shelf registration statement on Form S-3, which we filed with the SEC on October 7, 2022, and which was declared effective on October 18, 2022 and will expire on October 18, 2025. We may use the shelf registration statement on Form S-3 to offer from time to time up to $150.0 million of securities, including any combination of common stock, preferred stock, debt securities, warrants, rights, units and depositary shares. On November 10, 2022, we entered into a Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which we may offer and sell through or to the Agent, as sales agent or principal, shares of our voting common stock from time to time (the “ATM Offering”). However, for so long as the aggregate market value of our outstanding common stock held by non-affiliates is less than $75.0 million, in no event will we be able to sell securities pursuant to the shelf registration statement (including pursuant to the ATM Offering) with a value more than one-third of the aggregate market value of our common stock held by non-affiliates in any 12-month period.

 

If we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that equity issuances are the most common type of fundraising for similarly situated companies, the risk of dilution is particularly significant for our stockholders.

 

Any additional fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize product candidates. We cannot be certain that additional funding will be available on acceptable terms, or at all. We have no committed source of additional capital and, if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of product candidates or other research and development initiatives. Our license agreements and any future collaboration agreements may also be terminated if we are unable to meet the payment or other obligations under the agreements. We could be required to seek collaborators for product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves.

 

As a result of our recurring losses from operations and recurring negative cash flows from operations, our management concluded that there is a substantial doubt about our ability to maintain liquidity sufficient to operate our business effectively, which raise substantial doubt about our ability to continue as a going concern. See the risk factor below titled, “As a result of our history of losses and negative cash flows from operations, our consolidated financial statements contain a statement regarding a substantial doubt about our ability to continue as a going concern.” Based on our current operating plan, we will need to raise additional financing to continue our products’ development for the foreseeable future, and until we become profitable. If we are unable to obtain funding when and as needed on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

 

40

 

 

We have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.

 

We are a clinical stage company. Old Jasper was founded and commenced operations in March 2018. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential product candidates and undertaking preclinical studies and clinical trials. Although we have initiated clinical trials for JSP191, we have not yet demonstrated an ability to successfully complete clinical trials of our product candidates; obtained marketing approvals; manufactured a commercial-scale medicine or therapy, or arranged for a third party to do so on our behalf; or conducted sales and marketing activities necessary for successful commercialization. Typically, it takes about 10 to 15 years to develop a new medicine from the time it is discovered to when it is available for treating patients. Consequently, any predictions we make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

 

In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

 

We have never generated revenue from product sales and may never be profitable.

 

Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, product candidates. We do not anticipate generating revenues from product sales for the next several years, if ever. Our ability to generate future revenue from product sales depends heavily on our, or our future collaborators’, ability to successfully:

 

  identify product candidates and complete research and preclinical and clinical development of any product candidates we may identify;

 

  seek and obtain regulatory and marketing approvals for any product candidates for which we complete clinical trials;

 

  launch and commercialize any product candidates for which we obtain regulatory and marketing approval by establishing a sales force, marketing and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

 

  qualify for coverage and adequate reimbursement by government and third-party payors for any product candidates for which we obtain regulatory and marketing approval;

 

  develop, maintain, and enhance a sustainable, scalable, reproducible, and transferable manufacturing process for the product candidates we may develop;

 

41

 

 

  establish and maintain supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for any product candidates for which we obtain regulatory and marketing approval;

 

  obtain market acceptance of product candidates as viable treatment options;

 

  address competing technological and market developments;

 

  implement internal systems and infrastructure, as needed;

 

  negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter, and perform our obligations in such arrangements;

 

  maintain, protect, enforce, defend and expand our portfolio of intellectual property rights, including patents, trade secrets and know-how, in the United States and internationally;

 

  avoid and defend against third-party interference, infringement and other intellectual property claims in the United States and internationally; and

 

  attract, hire and retain qualified personnel.

 

Even if one or more of the product candidates we develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or other regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate.

 

Many of the factors listed above are beyond our control, and could cause us to experience significant delays or prevent us from completing the development of our product candidates, obtaining regulatory approvals or commercializing our product candidates. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. A failure to become or remain profitable could result in a decline in the value of our company and could also cause you to lose all or part of your investment.

 

As a result of our history of losses and negative cash flows from operations, our consolidated financial statements contain a statement regarding a substantial doubt about our ability to continue as a going concern.

 

Our history of operating losses and negative cash flows from operations combined with our anticipated use of cash to fund operations raises substantial doubt about our ability to continue as a going concern beyond the 12-month period from the issuance date of our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Based on our current operating plan, we will need to raise additional financing to continue our products’ development for the foreseeable future, and until we become profitable. Our future viability as an ongoing business is dependent on our ability to generate cash from our operating activities or to raise additional capital to finance our operations.

 

The perception that we might be unable to continue as a going concern may also make it more difficult to obtain financing for the continuation of our operations on terms that are favorable to us, or at all, and could result in the loss of confidence by investors and employees. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that our investors will lose all or a part of their investment.

42

 

 

Our ability to utilize our net operating loss carryforwards and certain other tax attributes to offset taxable income or taxes may be limited.

 

As of December 31, 2021, we had net operating loss carryforwards for federal income tax purposes of $53.1 million that can be carried forward indefinitely. As of December 31, 2021, we had net operating loss carryforwards for state income tax purposes of $45.4 million that begin to expire in 2038. Portions of these net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), U.S. federal net operating losses incurred in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal net operating losses in taxable years beginning after December 31, 2020 is limited. It is uncertain how various states will respond to the Tax Act and the CARES Act. For state income tax purposes, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. Our existing net operating loss carryforwards may be subject to limitations arising out of previous ownership changes and we may be limited as to the amount that can be utilized each year as a result of such previous ownership changes, including our business combination with AMHC that was completed in September 2021 (the “Business Combination”) and related transactions. In addition, future changes in our stock ownership, including future offerings, as well as other changes that may be outside of our control, could result in additional ownership changes. We have completed a Section 382 analysis covering taxable periods from our inception through the year ended December 31, 2021. We experienced an ownership change on November 21, 2019 for both federal and California tax purposes related to our Series A redeemable convertible preferred stock financing. Any net operating loss generated for taxable periods in 2018 and through November 21, 2019 in excess of $2.87 million will be permanently limited for California tax purposes. We reduced our California net operating loss deferred tax assets balance by the permanently limited amount of $0.6 million. There would be no permanent loss of federal net operating loss based on the limits. We experienced an additional ownership change on September 24, 2021. However, we do not expect there are additional tax attributes that will expire unused before the expiration periods. There is a full valuation allowance for net deferred tax assets, including net operating loss carryforwards for the year ended December 31, 2021.

 

Our business could be adversely affected by the effects of health pandemics or epidemics, including the current COVID-19 pandemic and future outbreaks of the disease, in regions where we or third parties on which we rely have concentrations of clinical trial sites or other business operations.

 

Our business could be adversely affected by the effects of health pandemics or epidemics, including the current COVID-19 pandemic and future outbreaks of the disease, including any variants thereof. For example, enrollment in clinical trials may be delayed. Although we have reopened our offices and some employees have transitioned back to working on site, there is a lack of uniformity of restrictions and requirements among our clinical trial sites, and future restrictions could be imposed. We are subject to risk of outbreaks at our facilities, and potential exposure to employee claims regarding workplace safety, and unanticipated shutdowns or quarantines could be imposed in the future, which would disrupt our operations. This uncertainty and the evolving nature of policies and restrictions may negatively impact productivity, disrupt our business and further delay clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course, which could negatively impact our business, operating results and financial condition.

 

The spread of COVID-19, which has caused a broad impact globally, may affect us economically. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, it has resulted in significant disruption of global financial markets. This disruption, if sustained or recurrent, could make it more difficult for us to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 or the global impacts thereof could materially affect our business and the value of our common stock. The global COVID-19 pandemic continues to evolve, and its ultimate impact or that of any similar health pandemic or epidemic is highly uncertain. We do not yet know the full extent of potential delays or impacts on our business, our planned and ongoing clinical trials, the hospitals and healthcare systems or the global economy as a whole. These effects could have an adverse impact on our operations, and we will continue to monitor the COVID-19 situation closely.

 

43

 

 

Business disruptions caused by natural or man-made disasters, acts of war or other hostilities could seriously harm our future revenues and financial condition and increase our costs and expenses generally.

 

Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. Our suppliers may also experience a disruption in their business as a result of natural or man-made disasters. A significant natural or man-made disaster, such as an earthquake, prolonged or repeated power outage, hurricane, flood, fire, drought or other extreme weather events and changing weather patterns, which are increasing in frequency due to the impacts of climate change, could severely damage or destroy our headquarters or facilities or the facilities of our manufacturers or suppliers, which could have a material and adverse effect on our business, financial condition and results of operations. In addition, terrorist acts, acts of war or the outbreak of hostilities against the U.S. or other countries globally, could cause damage or disruption to us, our employees, facilities, partners and suppliers, which could have a material adverse effect on our business, financial condition and results of operations.

 

Risks Related to Discovery, Development, Manufacturing and Commercialization

 

We are substantially dependent on the success of our most advanced product candidate, JSP191. If we are unable to complete development of, obtain approval for and commercialize our product candidates, including JSP191, in a timely manner or at all, our business will be harmed.

 

Our future success is dependent on our ability to timely advance and complete clinical trials, obtain marketing approval for and successfully commercialize our product candidates. We are not permitted to market or promote JSP191 or any other product candidate before we receive marketing approval from the FDA and comparable foreign regulatory authorities, and we may never receive such marketing approvals.

 

The success of our product candidates will depend on several factors, including the following:

 

  the acceptance of individual investigational review boards (“IRBs”) and scientific review committees at each clinical trial site as to the adequacy of the preclinical data package to support clinical development of JSP191 and their overall general agreement with the use of JSP191 in the intended patient population in the intended manner;

 

  the willingness of clinical investigators to place patients in the clinical trials, and the willingness of patients to enroll in a clinical trial studying a first-in-human cell therapy;

  

  the initiation and successful patient enrollment and completion of additional clinical trials of JSP191 on a timely basis;

 

  the frequency and severity of adverse events in the clinical trials;

 

  the successful and timely completion of our ongoing Phase 1/2 clinical trial of JSP191 for the treatment of SCID and the ongoing Phase 1 clinical trial of JSP191 for AML or MDS;

 

44

 

 

  maintaining and establishing relationships with contract research organizations (“CROs”) and clinical sites for the clinical development of JSP191 both in the United States and internationally;

 

  successful completion of toxicology studies, biodistribution studies and minimally efficacious dose studies in animals, where applicable;

 

  successful completion of clinical trials, under the FDA’s current Good Clinical Practices (“cGCPs”) and the FDA’s current Good Laboratory Practices;

 

  effective investigational new drug (“IND”) applications or Clinical Trial Authorizations that allow commencement of our planned clinical trials or future clinical trials for our product candidates;

 

  the results of clinical trials conducted by third parties in hematopoietic stem cell transplant (“HSCT”) if such trials result in changes to the standard of care for HSCT or otherwise cause us to change our clinical trial protocols;

 

  the efficacy, safety and tolerability profiles that are satisfactory to the FDA, EMA or any comparable foreign regulatory authority for marketing approval;

 

  the timely receipt of marketing approvals for our product candidates from applicable regulatory authorities;

 

  the extent of any required post-marketing approval commitments to applicable regulatory authorities;

 

  the maintenance of existing or the establishment of new supply arrangements with third-party suppliers and manufacturers for clinical development of JSP191;

 

  the maintenance of existing, or the establishment of new, scaled production arrangements with third-party manufacturers to obtain finished products that are appropriate for commercial sale of JSP191, if it is approved;

 

  obtaining and maintaining patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally;

 

  a continued acceptable safety profile following any marketing approval;

 

  commercial acceptance by patients, the medical community and third-party payors;

 

  our ability to obtain coverage and adequate reimbursement from third-party payors for our products, and patients’ willingness to pay out-of-pocket in the absence of such coverage and adequate reimbursement; and

 

  our ability to compete with other treatments.

 

We do not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator. If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize JSP191, which would materially harm our business. If we do not receive marketing approvals for JSP191, we may not be able to continue our operations.

 

45

 

 

We may not be successful in our efforts to identify, develop and commercialize additional product candidates. If these efforts are unsuccessful, we may never become a commercial stage company or generate any revenues.

 

The success of our business depends primarily upon our ability to identify, develop and commercialize additional product candidates based on, or complementary with, our technology platform. While we are currently conducting a Phase 1/2 clinical trial of JSP191 as a conditioning agent prior to allogenic transplant for SCID patients, a Phase 1 clinical trial of JSP191 as a conditioning agent prior to allogenic transplant for patients with AML or MDS, and are planning a registrational clinical trial of JSP191 as a conditioning agent prior to allogenic transplant, all of our other product development programs, including our mRNA stem cell grafts platform, are still in the research or preclinical stage of development. Our research programs may fail to identify additional product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential product candidates, our potential product candidates may be shown to have harmful side effects in preclinical in vitro experiments or animal model studies, they may not show promising signals of efficacy in such experiments or studies or they may have other characteristics that may make the product candidates impractical to manufacture, unmarketable or unlikely to receive marketing approval. The historical failure rate for product candidates is high due to risks relating to safety, efficacy, clinical execution, changing standards of medical care and other unpredictable variables. In addition, although we believe our technology platform will position us to rapidly expand our portfolio of product candidates beyond our current product candidates, our ability to expand our portfolio may never materialize.

 

If any of these events occur, we may be forced to abandon our research or development efforts for a program or programs, which would have a material adverse effect on our business, financial condition, results of operations and prospects. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful, which would be costly and time-consuming.

 

*We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

 

Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications among many potential options. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial medicines or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing, or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. Any such event could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

mRNA stem cell grafts are a novel technology that is not yet clinically validated for human use. The approaches we are taking to create mRNA stem cell grafts are unproven and may never lead to marketable products.

 

We are developing mRNA stem cell grafts for transplant into the human body. Although there have been significant advances in the field of use of RNA or DNA to edit cells ex vivo prior to transplant in recent years, these technologies have only more recently been applied to HSCs, and our approach is new and unproven. The scientific evidence to support the feasibility of developing mRNA stem cell grafts is both preliminary and limited. Successful development of mRNA stem cell grafts by us will require solving a number of challenges, including:

 

  obtaining regulatory authorization from the FDA and other regulatory authorities;

 

  identifying appropriate molecular or genetic targets for modification within HSCs;

 

  developing and deploying consistent and reliable processes for procuring cells from consenting third-party donors, isolating HSCs from such donor cells, modifying target molecules within such HSCs, storing and transporting the resulting mRNA stem cell grafts for therapeutic use and finally infusing these mRNA stem cell grafts into patients;

 

46

 

 

  utilizing these mRNA stem cell graft product candidates in combination or in sequence with companion therapeutics, which may increase the risk of adverse side effects;

 

  avoiding potential complications of mRNA stem cell graft transplants, including failure to engraft, rejection by host or lack of functionality, any of which could result in serious side effects or death;

 

  educating medical personnel regarding the potential side effect profile of our product candidates, particularly those that may be unique to our mRNA stem cell grafts;

 

  understanding and addressing variability in the quality of a donor’s cells, which could ultimately affect our ability to manufacture product in a reliable and consistent manner;

 

  developing processes for the safe administration of mRNA stem cell graft product candidates, including long-term follow-up and registries, for all patients who receive these product candidates;

 

  relying on third parties to find suitable healthy donors;

 

  manufacturing product candidates to our specifications and in a timely manner to support our clinical trials and, if approved, commercialization;

 

  sourcing clinical and, if approved by applicable regulatory authorities, commercial supplies for the materials used to manufacture and process product candidates;

 

  developing a manufacturing process and distribution network that can provide a stable supply with a cost of goods that allows for an attractive return on investment; and

 

  establishing sales and marketing capabilities ahead of and after obtaining any regulatory approval to gain market acceptance, and obtaining coverage, adequate reimbursement and pricing by third-party payors and governmental healthcare programs.

 

We may decide to alter or abandon our initial mRNA stem cell grafts platform as new data become available and we gain experience in developing mRNA stem cell grafts. We cannot be sure that our programs will yield satisfactory products that are safe and effective, scalable or profitable in our initial indication or any other indication we pursue.

 

Moreover, actual or perceived safety issues, including as a result of adverse developments in our mRNA stem cell graft platform or in genome engineering programs undertaken by third parties or of the adoption of novel approaches to treatment, may adversely influence the willingness of subjects to participate in our clinical trials, or, if one of our product candidates is approved by applicable regulatory authorities, of physicians to subscribe to the novel treatment mechanics or of patients to provide consent to receive a novel treatment despite its regulatory approval. The FDA or other applicable regulatory authorities may require specific post-market studies or additional information that communicates the benefits or risks of our products. New data may reveal new risks of our product candidates at any time prior to or after regulatory approval.

 

47

 

 

If any of our product candidates cause serious adverse events, undesirable side effects or unexpected characteristics, such events, side effects or characteristics could delay or prevent regulatory approval of the product candidate, limit our commercial potential or result in significant negative consequences following any potential marketing approval.

 

Undesirable side effects or adverse events caused by JSP191 and our other product candidates, and our mRNA stem cell grafts or other cell-based companion therapeutics we may develop, could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trials or result in potential product liability claims.

 

There have been no clinical trials of mRNA stem cell grafts. In the genetic medicine field, there have been several significant adverse events from genetically engineered treatments in the past, including reported cases of leukemia and death. There can be no assurance that our mRNA stem cell grafts will not cause undesirable side effects, as improper modification of a patient’s DNA could lead to lymphoma, leukemia or other cancers, or other aberrantly functioning cells.

 

A significant risk in any genetically engineered product candidate is that “off-target” gene alterations may occur, which could cause serious adverse events, undesirable side effects or unexpected characteristics. Although we and others have demonstrated the ability to improve the specificity of gene alterations in a laboratory setting, we cannot be certain that off-target alterations will not occur in any of our planned or future clinical trials, and the lack of observed side effects in preclinical studies does not guarantee that such side effects will not occur in human clinical trials.

 

If any product candidates we develop are associated with serious adverse events, undesirable side effects or unexpected characteristics, we may need to abandon their development or limit development to certain uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, any of which would have a material adverse effect on our business, financial condition, results of operations, and prospects. Many product candidates that initially showed promise in early stage testing have later been found to cause side effects that prevented further clinical development of the product candidates.

 

Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials, and such results do not guarantee approval of a product candidate by regulatory authorities. In addition, our clinical trials to date have been limited in scope, and results received to date may not be replicated in expanded or additional future clinical trials.

 

The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in the results of completed clinical trials. There can be no assurance that any of our current or future preclinical and clinical trials will ultimately be successful or support further preclinical or clinical development of any of our product candidates. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for their product candidates. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development. Any such adverse events may cause us to delay, limit or terminate planned clinical trials, any of which would have a material adverse effect on our business, financial condition, results of operations and prospects.

 

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial procedures and the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced product candidate, and, correspondingly, our business and financial prospects would be negatively impacted.

 

48

 

 

If we experience delays or difficulties in the enrollment of patients in clinical trials, the cost of developing product candidates could increase and our receipt of necessary regulatory approvals could be delayed or prevented.

 

Patient enrollment is a significant factor in the timing of clinical trials. The timing of our clinical trials depends, in part, on the speed at which we can recruit patients to participate in our trials. We or our collaborators may not be able to continue clinical trials for JSP191 or any other product candidates we identify or develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA, the EMA or other analogous regulatory authorities outside the United States, or as needed to provide appropriate statistical power for a given trial. Patients may be unwilling to participate in our clinical trials because of negative publicity from adverse events related to the biotechnology, gene therapy or genome engineering fields, competitive clinical trials for similar patient populations, clinical trials in competing products or for other reasons. As a result, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of product candidates may be delayed.

 

Patient enrollment is also affected by other factors, including:

 

  severity of the disease under investigation;

 

  size of the patient population and process for identifying patients;

 

  design of the trial protocol;

 

  availability and efficacy of approved medications for the disease under investigation;

 

  availability of genetic testing for potential patients;

 

  ability to obtain and maintain patient informed consent;

 

  risk that enrolled patients will drop out before completion of the trial;

 

  eligibility and exclusion criteria for the trial in question;

 

  perceived risks and benefits of the product candidate under trial;

 

  perceived risks and benefits of genome engineering as a treatment approach;

 

  perceived risks and benefits of the companion therapeutics that may be administered in combination or in sequence with JSP191;

 

  efforts to facilitate timely enrollment in clinical trials;

 

  potential disruptions caused by the COVID-19 pandemic, including difficulties in initiating clinical sites, enrolling and retaining participants, diversion of healthcare resources away from clinical trials, travel or quarantine policies that may be implemented, and other factors;

 

  patient referral practices of physicians;

 

  ability to monitor patients adequately during and after treatment;

 

  proximity and availability of clinical trial sites for prospective patients, especially for those conditions that have small patient pools;

 

  the requirement for HSCT to be performed in centers that specialize in this procedure; and

 

  changes to diagnostic technologies, methodologies or criteria used to identify HSCT patients at high risk for relapse.

 

49

 

 

In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us because some patients who have opted to enroll in our trials may instead opt to enroll in a trial being conducted by a competitor. We may conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites.

 

Enrollment delays in our clinical trials may result in increased development costs for JSP191 or any other product candidates we may develop, which would cause the value of our company to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business, financial condition, results of operations and prospects.

  

We have never obtained regulatory approval for a drug, may never receive regulatory approval for any of our product candidates, and may therefore never generate revenues from product sales.

 

As a company, we have never obtained regulatory approval for, or commercialized, a drug. It is possible that the FDA may refuse to accept any or all future product candidates for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval for any current or future product candidates. If the FDA does not approve any future product candidates, it may require that we conduct additional costly clinical, preclinical or manufacturing validation studies before the FDA will reconsider one or more of our applications. Depending on the extent of these or any other FDA-required studies, approval of any product candidates or other application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than we have available. Any failure or delay in obtaining regulatory approvals would prevent us from commercializing JSP191 or any other product candidate, generating revenues and achieving and obtaining or sustaining profitability. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any new drug application or other application we submit. If any of these outcomes occur, we may be forced to abandon the development of our product candidates, which would materially adversely affect our business and could potentially cause us to cease operations. We face similar risks for our applications in foreign jurisdictions.

 

Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, healthcare payers and operators of major clinics, and we may not be successful in attaining such market acceptance.

 

Even with the requisite approvals from the FDA in the U.S., the EMA in the European Union and other regulatory authorities internationally, the commercial success of our product candidates will depend, in part, upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community. Any product that we commercialize may not gain acceptance by physicians, patients, health care payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, including our management’s time and financial resources, and may not be successful. Ethical, social and legal concerns about genetic medicines generally and genome engineering technologies specifically could result in additional regulations restricting or prohibiting the marketing of our product candidates. Even if any product candidate we develop receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. The degree of market acceptance of any product candidate we develop, if approved for commercial sale, will depend on a number of factors, including:

 

  the efficacy and safety of such product candidate as demonstrated in clinical trials;

 

  the efficacy and safety of other products that are used in combination or in sequence with our product candidates;

 

  the potential and perceived advantages of our product candidates compared to alternative treatments;

 

  the limitation to our targeted patient population and limitations or warnings contained in approved labeling by the FDA or other regulatory authorities;

 

  the ability to offer our products for sale at competitive prices;

 

  convenience and ease of administration compared to alternative treatments;

 

  the clinical indications for which the product candidate is approved by the FDA, the EMA or other regulatory agencies;

 

50

 

 

  public attitudes regarding genetic medicine generally and genome engineering technologies specifically;

 

  the willingness of the target patient population to try novel biologics and of physicians to prescribe these treatments, as well as their willingness to accept an intervention that involves the alteration of the patient’s gene;

 

  product labeling or product insert requirements of the FDA, the EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling;

 

  relative convenience and ease of administration;

 

  the strength of marketing and distribution support;

 

  availability of third-party coverage and sufficiency of reimbursement; and

 

  the prevalence and severity of any side effects.

 

Even if a product candidate is approved, such product may not achieve an adequate level of acceptance, we may not generate significant product revenues, and we may not become profitable.

 

If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if approved, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.

 

We have limited marketing capabilities and limited experience in the sale, marketing or distribution of pharmaceutical products. In addition, we do not have a large sales, promotion and marketing budget. As a result of our limited marketing capabilities, to achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing and commercial support infrastructure to sell, or participate in sales activities with our collaborators for, some of our product candidates if and when they are approved.

 

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

 

  our inability to recruit and retain adequate numbers of effective sales, marketing, reimbursement, customer service, medical affairs and other support personnel;

 

  the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the benefits of prescribing any future products;

 

  the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement and other acceptance by payors;

 

  restricted or closed distribution channels that make it difficult to distribute our product candidates to segments of the patient population;

 

  the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

  unforeseen costs and expenses associated with creating an independent commercialization organization.

 

We may not be successful in entering into arrangements with third parties to commercialize our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

 

51

 

 

We face significant competition in an environment of rapid technological change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer or more advanced or effective than ours, which may harm our financial condition and our ability to successfully market or commercialize our product candidates.

 

The development and commercialization of new drug and biologic products is highly competitive. Moreover, the genome engineering and oncology fields are characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. We will face competition with respect to JSP191 and any other product candidates that we develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

 

There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we have product candidates and research programs. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future that are approved to treat the same diseases for which we may obtain approval for our product candidates. This may include other types of therapies, such as small molecule, antibody and/or protein therapies.

 

Many of our current or potential competitors, either alone or with their collaboration partners, may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize product candidates that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than our product candidates or that would render our product candidates obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval for their product candidates more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, technologies developed by our competitors may render our product candidates uneconomical or obsolete, and we may not be successful in marketing any product candidates against competitors.

 

Competitors of JSP191 for our conditioning program for CD-117, a receptor for stem cell factor (“SCF”) that is expressed on the surface of hematopoietic stem and progenitor cells, include the following:

 

  Magenta Therapeutics, Inc., which is developing an Amanitin Anti-CD117 antibody drug conjugate and is in clinical development;

 

  Gilead Sciences, Inc., which is developing an antibody to CD117 that is not conjugated to any toxin and is used in combination with an antibody to CD47 and has started initial Phase I clinical studies;

 

  Actinium Pharmaceuticals, Inc., which is developing an antibody to CD45 that is linked to radioisotope iodine-131 and is in Phase III clinical studies;

 

  Molecular Templates Inc., which is developing an antibody to CD45 that is conjugated to engineered Shiga-toxin and is in preclinical development; and

 

  Celldex Therapeutics, Inc., which is developing an antibody to inhibit tyrosine kinase KIT found in mast cells and is in Phase I/II clinical studies in indications unrelated to conditioning.

  

Competitors for our mRNA stem cell grafts platform include the following:

 

  Gamida Cell Ltd., which is developing an umbilical cord blood-derived cell product that uses a small molecule to inhibit differentiation and enhance functionality of ex vivo-expanded HSCs;

 

  ExCellThera Inc., which is focused on ex vivo expansion of stem cells using a pyrimido-indole derivative small molecule;

 

  Angiocrine Bioscience, Inc., which is expanding cord blood and gene-modified HSCs using an endothelial cell feeder layer;

 

52

 

 

  Sana Biotechnology, Inc., which is developing hypoimmune cells designed to evade rejection and enable persistence of allogeneic cells;

 

  Vor Biopharma, Inc., which is developing treatment-resistant marrow cells that enable CD33 targeted therapy; and

 

  Ensoma Inc., which is developing viral vectors for delivery of cell modification payload, in vivo.

 

Adverse public perception of genetic medicines, and genome engineering in particular, may negatively impact regulatory approval of, and/or demand for, our potential products.

 

Some of our mRNA stem cell grafts or other cell-based therapeutics we develop may be created by altering the human genome. The clinical and commercial success of our potential products will depend in part on public understanding and acceptance of the use of genome engineering for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that genome engineering is unsafe, unethical or immoral, and, consequently, our current or future product candidates may not gain the acceptance of the public or the medical community. Adverse public attitudes may adversely impact our ability to enroll clinical trials. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of product candidates in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available.

 

In addition, genome engineering technology is subject to public debate and heightened regulatory scrutiny due to ethical concerns relating to the application of genome engineering technology to human embryos or the human germline. For example, in the United States, germline alteration for clinical application has been expressly prohibited since enactment of a December 2015 FDA ban on such activity. Prohibitions are also in place in the United Kingdom, across most of Europe, in China and many other countries around the world. In the United States, the National Institutes of Health has announced that the agency would not fund any use of gene engineering technologies in human embryos, noting that there are multiple existing legislative and regulatory prohibitions against such work, including the Dickey-Wicker Amendment, which prohibits the use of appropriated funds for the creation of human embryos for research purposes or for research in which human embryos are destroyed. Adverse events in our preclinical studies or clinical trials or those of our competitors or of academic researchers utilizing genome engineering technologies, even if not ultimately attributable to product candidates we may identify and develop, and the accompanying publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of potential product candidates we may identify and develop, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.

 

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

 

We face an inherent risk of product liability exposure related to the testing in human clinical trials of our product candidates and will face an even greater risk if we commercially sell any products that we may develop. For example, we may be sued if our product candidates cause, or are perceived to cause, injury or are found to be otherwise unsuitable during clinical trials, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we could incur substantial liabilities or be required to limit commercialization of our product candidates. Even a successful defense would require significant financial and management resources. Regardless of merit or eventual outcome, liability claims may result in:

 

  the inability to commercialize any products that we may develop;

  

  decreased demand for our product candidates or products that we may develop;

 

  injury to our reputation and significant negative media attention;

 

  withdrawal of clinical trial participants;

 

  significant time and costs to defend the related litigation;

 

  substantial monetary awards to trial participants or patients; and

 

  loss of revenue.

 

Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as we continue clinical trials and if we successfully commercializes any product. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

 

53

 

 

*Our product candidates are complex and difficult to manufacture. We could experience delays in satisfying regulatory authorities or production problems that result in delays in our development or commercialization programs, limit the supply of our product candidates, or otherwise harm our business.

 

Our product candidates require processing steps that are more complex than those required for most chemical and other biological pharmaceuticals. Moreover, unlike chemical and other biological pharmaceuticals, the physical and chemical properties of a gene-engineered cell therapies cannot be fully characterized. As a result, assays of the finished product candidate may not be sufficient to ensure that the product candidate will perform in the intended manner. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims, insufficient inventory or potentially delay progression of our clinical trials. If we successfully develop product candidates, we may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet FDA, EMA or other comparable applicable foreign standards or specifications with consistent and acceptable production yields and costs. In addition, our product candidates will require complicated delivery modalities, such as electroporation, which will introduce additional complexities into the manufacturing process.

 

mRNA stem cell grafts consist of engineered human cells, and the process of manufacturing such product candidates is complex, concentrated with a limited number of suppliers, highly regulated and subject to numerous risks. Manufacturing such product candidates involves harvesting cells from a donor or from the patient, altering the cells ex vivo using genome engineering technology, cryopreservation, storage and eventually shipment and infusing the cell product into the patient’s body. Our manufacturing process will be susceptible to product loss or failure, or product variation that may negatively impact patient outcomes, due to logistical issues associated with the collection of starting material from the donor, shipping such material to the manufacturing site, shipping the final product back to the clinical trial recipient, preparing the product for administration, infusing the patient with the product, manufacturing issues or different product characteristics resulting from the differences in donor starting materials, variations between reagent lots, interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth and variability in product characteristics. our manufacturing process, like that of a number of other cell therapy companies, is also characterized by limited numbers of suppliers, and in some cases sole source suppliers, with the manufacturing capabilities and know-how to create or source the materials, such as donor marrow cells and electroporation machines, used in our cell manufacturing. While we pursue multiple sources for the critical components of our manufacturing process, we may not be successful in securing these additional sources at all or on a timely basis. If microbial, viral or other contaminations are discovered in our product candidates or in any of the manufacturing facilities in which our product candidates or other materials are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.

 

In addition, the FDA, the EMA and other regulatory authorities may require us to submit samples of any lot of approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay clinical trials or product launches, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects.

 

Some of the raw materials that we anticipate will be required in our manufacturing process are derived from biologic sources. Such raw materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could materially harm our development timelines and our business, financial condition, results of operations and prospects.

 

Moreover, the clinical development of our product candidates depends on the availability of certain materials and agents used in our clinical trials. Specifically, our clinical trial protocols for JSP191-based conditioning include the administration of fludarabine, and the FDA recently reported a shortage of fludarabine. Any failure or delays by us or by our clinical sites to obtain sufficient quantities of fludarabine or other components and agents necessary for the conduct of our clinical trials, may delay our ability to enroll and treat patients in, or complete, our current or future clinical trials of our product candidates on time, if at all.

 

54

 

 

If we or any contract research organizations, contract manufacturers or suppliers that we engage fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

 

We and any contract research organizations, contract manufacturers and suppliers we engage are subject to numerous federal, state and local environmental, health and safety laws, regulations and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air and water; and employee health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste. We generally contract with third parties for the disposal of these materials and wastes. Although we believe that our and such third parties’ procedures for handling, storing and disposing of these materials and waste comply with legally prescribed standards, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties.

 

Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development and research efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws, regulations and permitting requirements. For example, our products are considered to contain genetically modified organisms or cells, which are regulated in different ways depending upon the country in which preclinical research or clinical trials are conducted. These current or future laws, regulations and permitting requirements may impair our research, development or production efforts. Failure to comply with these laws, regulations and permitting requirements also may result in substantial fines, penalties or other sanctions or business disruption, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Any third-party contract research organizations, contract manufacturers and suppliers we engage will also be subject to these and other environmental, health and safety laws and regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or an interruption in operations, which could have a material adverse effect on our business, financial condition, results of operations and prospects. 

 

55

 

 

Risks Related to Regulatory Review

 

*If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates.

 

Before obtaining marketing approval from regulatory authorities for the sale of JSP191 and any other product candidates we identify and develop, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of such product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates.

 

We and our collaborators, if any, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidates, including:

 

  delays in reaching a consensus with regulators on trial design;

 

  regulators, IRBs, independent ethics committees or scientific review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

  delays in reaching or failing to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective CROs and clinical trial sites;

 

  clinical trials of product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development or research programs;

 

  difficulty in designing well-controlled clinical trials due to ethical considerations that may render it inappropriate to conduct a trial with a control arm that can be effectively compared to a treatment arm;

 

  difficulty in designing clinical trials and selecting endpoints for diseases that have not been well-studied and for which the natural history and course of the disease is poorly understood;

 

  the number of patients required for clinical trials of JSP191 and any other product candidates we may develop may be larger than we anticipate; enrollment of suitable participants in these clinical trials, which may be particularly challenging for some of the rare genetically defined diseases we are targeting in our most advanced programs, may be delayed or slower than we anticipate; or patients may drop out of these clinical trials at a higher rate than we anticipate;

 

56

 

 

  our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

  regulators, IRBs or independent ethics committees may require that we or our investigators suspend or terminate clinical research or clinical trials for various reasons, including noncompliance with regulatory requirements, a finding of undesirable side effects or other unexpected characteristics, or that the participants are being exposed to unacceptable health risks or after an inspection of our clinical trial operations or trial sites;

 

  the cost of clinical trials may be greater than we anticipate;

  

  the supply or quality of product candidates or other materials necessary to conduct clinical trials may be insufficient or inadequate, including as a result of delays in the testing, validation, manufacturing and delivery of product candidates to the clinical sites by us or by third parties with whom we have contracted to perform certain of those functions;

 

  delays in having patients complete participation in a trial or return for post-treatment follow-up;

 

  clinical trial sites dropping out of a trial;

 

  selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data;

 

  occurrence of serious adverse events associated with product candidates that are viewed to outweigh their potential benefits;

 

  occurrence of serious adverse events in trials of the same class of agents conducted by other sponsors; and

 

  changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.

 

If we or our collaborators, if any, are required to conduct additional clinical trials or other testing of product candidates beyond those that we currently contemplate, if we or our collaborators are unable to successfully complete clinical trials or other testing of product candidates, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we or our collaborators may:

 

  be delayed in obtaining marketing approval for any such product candidates or not obtain marketing approval at all;

 

  obtain approval for indications or patient populations that are not as broad as intended or desired;

 

  obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

  be subject to changes in the way the product is administered;

 

  be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;

 

  have regulatory authorities withdraw or suspend their approval of the product or impose restrictions on its distribution in the form of a Risk Evaluation and Mitigation Strategy (“REMS”) or through modification to an existing REMS;

 

  be sued; or

 

  experience damage to our reputation.

 

Product development costs will also increase if we or our collaborators experience delays in clinical trials or other testing or in obtaining marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize product candidates, could allow our competitors to bring products to market before we do and could impair our ability to successfully commercialize product candidates, any of which may harm our business, financial condition, results of operations and prospects.

 

57

 

 

Further, disruptions at the FDA and other agencies may prolong the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, including the FDA, have furloughed critical employees and stopped critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

 

Stem cell transplant is a high-risk procedure with curative potential that may result in complications or adverse events for patients in our clinical trials or for patients that use any of our product candidates, if approved.

 

Stem cell transplant has the potential to cure patients across multiple diseases, but its use carries with it risks of toxicity, serious adverse events and death. Because many of our therapies are used to prepare or treat patients undergoing stem cell transplant, patients in our clinical trials or patients that use any of our product candidates may be subject to many of the risks that are currently inherent to this procedure. In particular, stem cell transplant involves certain known potential post-procedure complications that may manifest several weeks or months after a transplant and that may be more common in certain patient populations. For example, up to 20% of patients with inherited metabolic disorders treated with a transplant experience primary engraftment failure, resulting in severe complications, including death. Another example is autoimmune cytopenia, a known and severe frequent complication of the transplant procedure in patients with non-malignant diseases, such as inherited metabolic diseases, that can result in death. There is also a risk of graft-versus-host disease, a potentially serious complication in which the grafted cells attack and damage the patient’s healthy cells, which can be severe and sometimes life-threatening. If these or other serious adverse events, undesirable side effects, or unexpected characteristics are identified during the development of any of our product candidates, we may need to limit, delay or abandon our further clinical development of those product candidates, even if such events, effects or characteristics were the result of stem cell transplant or related procedures generally, and not directly or specifically caused or exacerbated by our product candidates. All serious adverse events or unexpected side effects are continually monitored per the clinical trial’s approved protocol. If serious adverse events are determined to be directly or specifically caused or exacerbated by our product candidates, we would follow the trial protocol’s requirements, which call for our data safety monitoring committee to review all available clinical data in making a recommendation regarding the trial’s continuation.

 

Failure to obtain marketing approval in foreign jurisdictions would prevent any product candidates we develop from being marketed in such jurisdictions, which, in turn, would materially impair our ability to generate revenue.

 

In order to market and sell any product candidates we develop in the European Union and many other foreign jurisdictions, we or our collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We or our collaborators may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our product candidates in any jurisdiction, which would materially impair our ability to generate revenue.

 

Additionally, we could face heightened risks with respect to seeking marketing approval in the United Kingdom as a result of the recent withdrawal of the United Kingdom from the European Union on December 31, 2020, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed between the United Kingdom and the European Union, the United Kingdom withdrew from the European Union, effective December 31, 2020. On December 24, 2020, the United Kingdom and European Union entered into a Trade and Cooperation Agreement. The agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction.

 

Since the regulatory framework for pharmaceutical products in the United Kingdom covering the quality, safety, and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales, and distribution of pharmaceutical products is derived from European Union directives and regulations, Brexit could materially impact the future regulatory regime that applies to products and the approval of product candidates in the United Kingdom. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing any product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or the European Union for any product candidates, which could significantly and materially harm our business.

 

58

 

 

Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize our product candidates in the United States or any other jurisdiction, and any such approval may be for a more narrow indication than we seek.

 

We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process.

 

Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings or a REMS. These regulatory authorities may require labeling that includes precautions or contra-indications with respect to conditions of use, or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates and materially adversely affect our business, financial condition, results of operations and prospects.

 

Marketing approval by the FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials, which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates we may develop in those countries. The foreign regulatory approval process involves all of the risks associated with FDA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our product candidates will be unrealized.

 

Even if we obtain regulatory approval of any of our product candidates, the approved products may be subject to post-approval studies and will remain subject to ongoing regulatory requirements. If we fail to comply, or if concerns are identified in subsequent studies, our approval could be withdrawn, and our product sales could be suspended.

 

If we are successful at obtaining regulatory approval for JSP191 or any of our other product candidates, regulatory agencies in the U.S. and other countries where a product will be sold may require extensive additional clinical trials or post-approval clinical trials that are expensive and time-consuming to conduct. These studies may be expensive and time-consuming to conduct and may reveal side effects or other harmful effects in patients that use our therapeutic products after they are on the market, which may result in the limitation or withdrawal of our drugs from the market. Alternatively, we may not be able to conduct such additional trials, which might force us to abandon our efforts to develop or commercialize certain product candidates. Even if post-approval studies are not requested or required, after our products are approved and are on the market, there might be safety issues that emerge over time that require a change in product labeling, additional post-market studies or clinical trials, imposition of distribution and use restrictions under a REMS or withdrawal of the product from the market, which would cause our revenue to decline.

 

59

 

 

Additionally, any products that we may successfully develop will be subject to ongoing regulatory requirements after they are approved. These requirements will govern the manufacturing, packaging, marketing, distribution, and use of our products. If we fail to comply with such regulatory requirements, approval for our products may be withdrawn, and product sales may be suspended. We may not be able to regain compliance, or we may only be able to regain compliance after a lengthy delay, significant expense, lost revenues and/or damage to our reputation.

 

The regulatory landscape that will govern our product candidates is uncertain; regulations relating to more established cellular therapy products are still developing, and changes in regulatory requirements could result in delays or discontinuation of development of our product candidates or unexpected costs in obtaining regulatory approval. The FDA and other governing bodies may disagree with our regulatory plan, and we may fail to obtain regulatory approval of our product candidates.

 

Because our product candidates and technology platform involve genetic and cellular engineering, we are subject to many of the challenges and risks that other genetically engineered biologics and cellular therapies face, including:

 

  regulatory requirements or guidance regarding the requirements governing genetic and cellular engineering products have changed and may continue to change in the future;

 

  to date, only a limited number of products that involve genetic or cellular engineering have been approved globally;

 

  improper modulation of a gene sequence, including unintended alterations or insertion of a sequence into certain locations in a patient’s chromosomes, could lead to cancer, other aberrantly functioning cells or other diseases, as well as death;

 

  corrective expression of a missing protein, or deletion of an existing protein, in patients’ cells could result in the protein or cell being recognized as foreign, and lead to a sustained immunological reaction against the expressed protein or expressing cells, which could be severe or life-threatening;

 

  regulatory agencies may require extended follow-up observation periods of patients who receive treatment using genetic or cellular engineering products including, for example, the FDA’s recommended 15-year follow-up observation period for these patients, and we will need to adopt such observation periods for our product candidates if required by the relevant regulatory agency, which could vary by country or region; and

 

  the fields of genetic and cellular engineering are subject to a number of intellectual property disputes.

 

The regulatory requirements that will govern any mRNA stem cell grafts or other novel genetically engineered product candidates we develop may change. Within the broader genetic medicine field, we are aware of a limited number of gene therapy products that have received marketing authorization from the FDA and the EMA. Even with respect to more established products that fit into the categories of gene therapies or cell therapies, the regulatory landscape is still developing. Regulatory requirements governing gene therapy products and cell therapy products have changed frequently and will likely continue to change in the future. Moreover, there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of existing gene therapy products and cell therapy products. For example, in the United States, the FDA has established the Office of Tissues and Advanced Therapies (“OTAT”) within its Center for Biologics Evaluation and Research (“CBER”) to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. In addition to FDA oversight and oversight by IRBs under guidelines promulgated by the National Institutes of Health (“NIH”), gene therapy clinical trials are also subject to review and oversight by an institutional biosafety committee (“IBC”), a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. Before a clinical study can begin at any institution, that institution’s IRB and its IBC assess the safety of the research and identify any potential risk to public health or the environment. While the NIH guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH guidelines voluntarily follow them. Moreover, serious adverse events or developments in clinical trials of gene or cellular therapy product candidates conducted by others may cause the FDA or other regulatory bodies to initiate a clinical hold on our clinical trials or otherwise change the requirements for approval of any of our product candidates. Although the FDA decides whether individual gene or cellular therapy protocols may proceed, the review process and determinations of other reviewing bodies can impede or delay the initiation of a clinical trial even if the FDA has reviewed the trial and approved its initiation.

 

60

 

 

The same applies in the European Union. The EMA’s Committee for Advanced Therapies (“CAT”) is responsible for assessing the quality, safety and efficacy of advanced-therapy medicinal products. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a cell or gene therapy or other novel therapeutic medicinal candidate that is submitted to the Committee for Medicinal Products for Human Use (“CHMP”) before CHMP adopts its final opinion. In the European Union, the development and evaluation of an advanced therapeutic medicinal product must be considered in the context of the relevant European Union guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for these medicinal products and require that we comply with these new guidelines. As a result, the procedures and standards applied to gene and cell therapy products may be applied to our mRNA stem cell