ADAPTIMMUNE THERAPEUTICS PLC You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in
Part
I, Item 1A. "Risk Factors."
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Overview
We are a clinical-stage biopharmaceutical company focused on providing novel
cell therapies to people with cancer. We are a leader in the development of
T-cell therapies for solid tumors and have seen responses in six solid tumors in
clinical trials.
Our proprietary platform enables us to identify cancer targets, find and develop
cell therapy candidates active against those targets and produce therapeutic
candidates for administration to patients. Our cell therapy candidates include
Specific Peptide Enhanced Affinity Receptor ("SPEAR") T-cells, which use
genetically engineered T-cell receptors; next generation T-cell Infiltrating
Lymphocytes ("TiLs") where a patient's own T-cells are co-administered with our
next generation technology, and HLA-independent TCRs ("HiTs") where surface
proteins are targeted independently of the peptide-HLA complex.
Clinical Pipeline Progress
We have multiple clinical trials ongoing:
SPEARHEAD-1 Phase 2 Trial with ADP-A2M4: A registration directed Phase 2 clinical trial is underway in synovial sarcoma and myxoid round cell
liposarcoma ("MRCLS") indications in which the MAGE-A4 antigen is expressed.
? Subject to the successful conclusion of the SPEARHEAD-1 trial during the first
half of 2021 and approval of a Biologics License Application ("BLA") by the FDA
we plan to commercially launch ADP-A2M4 in 2022 for treatment of synovial
sarcoma.
SPEARHEAD-2 Phase 2 Trial with ADP-A2M4: A Phase 2 trial combining ADP-A2M4
? with pembrolizumab in patients with head and neck cancer expressing the MAGE-A4
antigen is underway at clinical sites inthe United States . SURPASS Phase 1 Trial with ADP-A2M4CD8: Enrollment is ongoing in a Phase 1
trial for our next generation SPEAR T-cells, ADP-A2M4CD8, focusing on treatment
of patients with lung, gastroesophageal, head and neck and bladder cancers in
? which the MAGE-A4 antigen is expressed. Based on the responses seen in the
Phase 1 clinical trial using ADP-A2M4 and initial responses seen in the SURPASS
trial, we are planning to initiate a Phase 2 clinical trial with ADP-A2M4CD8 in
esophageal and esophagogastric ("EGJ") cancers in mid-2021.
ADP-A2AFP Phase 1 Trial: We continue treating patients in our Phase 1,
open-label, dose-escalation trial designed to evaluate the safety and
? anti-tumor activity of our alpha fetoprotein ("AFP") therapeutic candidate for
the treatment of hepatocellular carcinoma ("HCC"). A further cohort has also
been initiated for patients with tumors other than HCC that express the AFP
antigen.
ADP-A2M4 Phase 1 Trial - Radiation Sub-study: Our Phase 1 clinical trial of
ADP-A2M4 in urothelial, melanoma, head and neck, ovarian, non-small cell lung,
? esophageal and gastric, synovial sarcoma and MRCLS cancers has now completed
enrollment. A radiation sub-study of this trial continues to enroll patients
and is assessing whether low-dose radiation enhances T-cell tumor trafficking
and responses.
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COVID-19 pandemic and Our Business
During the COVID-19 pandemic we have continued to focus on ensuring the safety or our work force whilst continuing the work we do to make our therapies available to people with cancer. Our facilities in theU.S. andU.K. remain open to support critical manufacturing and scientific activities. Where our employees do not need to come into the facilities to perform critical activities, those employees are working from home. The pandemic has created challenges for conducting clinical trials and we continue to work with our clinical sites to enroll and treat patients at the earliest possible time particularly given that many of our patients have late stage cancer. Certain clinical sites have chosen to postpone treatment of patients or participation in trials whilst the pandemic is impacting resources at those sites. We also anticipate increasing challenges around our supply chain. Many of the materials and consumables we require for manufacture and supply of products and also for research are also required for manufacture of COVID-19 vaccines and as a result will be prioritized to meet vaccine supplies. We will continue to adjust our working practices as the pandemic progresses to ensure we can continue to treat people with cancer as quickly and as effectively as possible.
Financial Operations Overview
Revenue
The Company has two contracts with customers: the GSK Collaboration and License Agreement and the Astellas Collaboration Agreement.
The GSK Collaboration Agreement
The GSK Collaboration and License Agreement consists of multiple performance obligations. GSK nominated its third target under the Collaboration and License Agreement in 2019, and the Company received$3.2 million following the nomination of the target, which is being recognized as revenue as development progresses.
The Astellas Collaboration Agreement
OnJanuary 13, 2020 , the Company entered into a collaboration agreement with Astellas. The Company received a$50.0 million non-refundable upfront payment inJanuary 2020 after entering into the agreement. Under the agreement the parties will agree on up to three targets and will co-develop T-cell therapies directed to those targets pursuant to an agreed research plan. For each target, Astellas will fund co-development up until completion of a Phase 1 trial for products directed to such target. In addition, Astellas was also granted the right to develop, independently ofAdaptimmune , allogeneic T-cell therapy candidates directed to two targets selected by Astellas. Astellas will have sole rights to develop and commercialize products resulting from these two targets. The agreement consists of the following performance obligations: (i) research services and rights granted under the co-exclusive license for each of the three co-development targets and (ii) the rights granted for each of the two independent Astellas targets. The revenue allocated to the co-development targets is recognized as the development of products directed to the targets progresses up until completion of a Phase 1 trial. The revenue allocated to each of the research licenses for the targets being independently developed by Astellas will be recognized when the associated license commences, which is upon designation of a target by Astellas.
Research and Development Expenses
Research and development expenditures are expensed as incurred. Research and development expenses consist principally of the following:
? salaries for research and development staff and related expenses, including
benefits;
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? costs for production of preclinical compounds and drug substances by contract
manufacturers;
? fees and other costs paid to contract research organizations in connection with
additional preclinical testing and the performance of clinical trials;
? costs associated with the development of a process to manufacture and supply
our lentiviral vector and cell therapies for use in clinical trials;
? costs to develop manufacturing capability at our
of cell therapies for use in clinical trials;
? costs relating to facilities, materials and equipment used in research and
development;
? costs of acquired or in-licensed research and development which does not have
alternative future use;
? costs of developing assays and diagnostics;
? an allocation of indirect costs clearly related to research and development;
? amortization and depreciation of property, plant and equipment and intangible
assets used to develop our cells therapies; and
? share-based compensation expenses.
These expenses are partially offset by:
? reimbursable tax and expenditure credits from the
Research and development expenditure is presented net of reimbursements from reimbursable tax and expenditure credits from theU.K. government. As a company that carries out extensive research and development activities, we benefit from theU.K. research and development tax credit regime for small and medium sized companies ("SME R&D Tax Credit Scheme"), whereby our principal research subsidiary company,Adaptimmune Limited , is able to surrender the trading losses that arise from its research and development activities for a payable tax credit of up to approximately 33.4% of eligible research and development expenditures. Qualifying expenditures largely comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive income. Subcontracted research expenditures are eligible for a cash rebate of up to approximately 21.7%. A large proportion of costs in relation to our pipeline research, clinical trials management and manufacturing development activities, all of which are being carried out byAdaptimmune Limited , are eligible for inclusion within these tax credit cash rebate claims. Expenditures incurred in conjunction with our collaboration agreements are not qualifying expenditures under the SME R&D Tax Credit Scheme but certain of these expenditures can be reimbursed through theU.K. research and development expenditure credit scheme (the "RDEC Scheme"). Under the RDEC Scheme tax relief is given at 12% (up toApril 1, 2020 ) and 13% (afterApril 1, 2020 ) of allowable R&D costs, which may result in a payable tax credit at an effective rate of approximately 10.3% of qualifying expenditure for the year endedDecember 31, 2020 . Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, which depends upon the timing of initiation of clinical trials and the rate of enrollment of patients in clinical trials. The duration, costs, and timing of clinical trials and development of our cell therapies will depend on a variety of factors, including:
? the scope, rate of progress, and expense of our ongoing as well as any
additional clinical trials and other research and development activities;
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? uncertainties in clinical trial enrollment rates;
? future clinical trial results;
? significant and changing government regulation;
? the timing and receipt of any regulatory approvals; and
? supply and manufacture of lentiviral vector and cell therapies for clinical
trials.
A change in the outcome of any of these variables may significantly change the costs and timing associated with the development of that SPEAR T-cell. For example, if the FDA, or another regulatory authority, requires us to conduct clinical trials beyond those that we currently anticipate will be required for regulatory approval, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
Our general and administrative expenses consist principally of:
? salaries for employees other than research and development staff, including
benefits;
? business development expenses, including travel expenses;
? professional fees for auditors, lawyers and other consulting expenses;
? costs of facilities, communication, and office expenses;
? cost of establishing commercial operations;
? information technology expenses;
? amortization and depreciation of property, plant and equipment and intangible
assets not related to research and development activities; and
? share-based compensation expenses.
Other Income (Expense), Net
Other income (expense), net primarily comprises foreign exchange gains (losses). We are exposed to foreign exchange rate risk because we currently operate in theUnited Kingdom andUnited States . Our expenses are generally denominated in the currency in which our operations are located, which are theUnited Kingdom andUnited States . However, ourU.K. -based subsidiary incurs significant research and development costs inU.S. dollars and, to a lesser extent, Euros. OurU.K. subsidiary has an intercompany loan balance inU.S. dollars payable to the ultimate parent company,Adaptimmune Therapeutics plc . SinceJuly 1, 2019 , the intercompany loan has been considered of a long-term investment nature as repayment is not planned or anticipated in the foreseeable future. It isAdaptimmune Therapeutics plc's intent not to request payment of the intercompany loan for the foreseeable future. The foreign exchange gains or losses arising on the revaluation of intercompany loans of a long-term investment nature are reported within other comprehensive (loss) income, net of tax. Our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future. We seek to minimize this exposure by maintaining 71
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currency cash balances at levels appropriate to meet forthcoming expenditure inU.S. dollars and pounds sterling. To date, we have not used hedging contracts to manage exchange rate exposure, although we may do so in the future.
Taxation
We are subject to corporate taxation in the
We benefit from reimbursable tax credits in the
Our subsidiary inthe United States has generated taxable profits due to a Service Agreement between ourU.S. andU.K. operating subsidiaries and is subject toU.S. federal corporate income tax of 21%. Due to its activity inthe United States , and the sourcing of its revenue, theU.S. subsidiary is not currently subject to any state or local income taxes. The Company also benefits from theU.S Research Tax Credit and Orphan Drug Credit. In the future, if we generate taxable income in theUnited Kingdom , we may benefit from theUnited Kingdom's "patent box" regime, which would allow certain profits attributable to revenues from patented products to be taxed at a rate of 10%. As we have many different patents covering our products, future upfront fees, milestone fees, product revenues, and royalties may be taxed at this favorably low tax rate.U.K. Value Added Tax ("VAT") is charged on all qualifying goods and services by VAT-registered businesses. An amount of 20% of the value of the goods or services is added to all relevant sales invoices and is payable to theU.K. tax authorities. Similarly, VAT paid on purchase invoices paid byAdaptimmune Limited andAdaptimmune Therapeutics plc is reclaimable from theU.K. tax authorities.
Results of Operations
Comparison of Years Ended
The following table summarizes the results of our operations for the years endedDecember 31, 2020 and 2019, together with the changes to those items (in thousands): Year ended December 31, 2020 2019 Increase/decrease Revenue$ 3,958 $ 1,122 $ 2,836 253 % Research and development (including losses accrued on firm purchase commitments of $- and$5,000 ) (91,568) (97,501) (5,933) (6) % General and administrative expenses (45,795) (43,391) 2,404 6 % Total operating expenses (137,363) (140,892) (3,529) (3) % Operating loss (133,405) (139,770) 6,365 (5) % Interest income 2,313 2,772 (459) (17) % Other income, net 1,162 75 (1,087) (1,449) % Loss before income taxes (129,930) (136,923) (6,993) (5) % Income taxes (162) (242) (80) (33) % Loss for the period$ (130,092) $ (137,165) $ (7,073) (5) % 72 Table of Contents Revenue
Revenue increased by
We expect that revenues will increase in future periods as the Company increases development activities on the first target under the Astellas Collaboration Agreement and as further targets are nominated.
Research and development expenses
Research and development expenses decreased by$5.9 million to$91.6 million for the year endedDecember 31, 2020 from$97.5 million for the year endedDecember 31, 2019 . Our research and development expenses comprise the following (in thousands): Year ended December 31, 2020 2019 Increase/decrease Salaries, materials, equipment, depreciation of property, plant and equipment and other employee-related costs(1)$ 64,308 $ 63,240 $ 1,068 2 % Subcontracted expenditure 33,744 32,788 956 3 % Manufacturing facility expenditure 7,652 6,754 898 13 % Accrued purchase commitments - 5,000 (5,000) (100) % Share-based compensation expense 4,417 3,812 605 16 % In-process research and development costs 889 4,556 (3,667) (80) % Reimbursements receivable for research and development tax and expenditure credits (19,442) (18,649) (793) 4 %$ 91,568 $ 97,501 $ (5,933) (6) %
(1) These costs are not analyzed by project since employees may be engaged in
multiple projects at a time.
The net decrease in our research and development expenses of$5.9 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to the following:
an increase of
property, plant and equipment and other employee-related costs, primarily due
? to an increase in employee compensation in the year ended
which was partially offset by lower consumables costs and a reduction in travel
costs as a result of COVID-19;
an increase of
? trial expenses, contract research organization (CRO) costs and contract
manufacturing expenses, largely driven by an increase in clinical trial patient
costs;
a decrease of
supply of the Dynabeads® CD3/CD28 technology. In the year ended
? 2019, management considered that there was sufficient uncertainty surrounding
the utility of the Dynabeads resulting in the purchase commitment being recognized in research and development expenses; and
a decrease of
as a result of our entering into a collaboration agreement relating to the
? development of next-generation SPEAR T-cell products with Alpine Immune
2019, offset by milestones payable toUniversal Cells under our amended existing agreement in the year endedDecember 31, 2020 73 Table of Contents
Our subcontracted costs for the year ended
Our research and development expenses are highly dependent on the phases and progression of our research projects and will fluctuate depending on the outcome of ongoing clinical trials. We expect that our research and development expenses will increase in future periods as we continue to invest in our research and development capabilities and as we progress towards regulatory approval of our first SPEAR T-cell product.
General and administrative expenses
General and administrative expenses increased by$2.4 million to$45.8 million for the year endedDecember 31, 2020 compared to$43.4 million in the same period in 2019. Our general and administrative expenses comprise the following (in thousands): Year ended December 31, 2020 2019 Increase/decrease Salaries, depreciation of property, plant and equipment and other employee-related costs$ 25,408 $ 25,911 $ (503) (2) % Other corporate costs 15,586 11,145 4,441 40 % Share-based compensation expense 5,997 7,241 (1,244) (17) % Reimbursements (1,196) (906) (290) 32 %$ 45,795 $ 43,391 $ 2,404 6 %
The net increase in our general and administrative expenses of
an increase of
? professional fees, insurance costs, investment in our IT systems, and costs
associated with the buildout of our commercial capabilities; offset by
? a decrease of
forfeitures.
We expect that our general and administrative expenses will increase in the future as we expand our operations and move towards commercial launch.
Interest income
Interest income decreased by$0.5 million to$2.3 million for the year endedDecember 31, 2020 compared to$2.8 million for the year endedDecember 31, 2019 . Interest income primarily relates to interest on cash, cash equivalents and available-for-sale debt securities and is presented net of amortization/accretion of the premium/discount on purchase of the debt securities. Amortization on available-for-sale debt securities for the year endedDecember 31, 2020 was$3.8 million compared to accretion of$0.2 million for the year endedDecember 31, 2019 .
Other income, net
Other income, net was$1.2 million for the year endedDecember 31, 2020 compared to$0.1 million for the year endedDecember 31, 2019 . Other income, net primarily relates to unrealized foreign exchange gains and losses on cash and cash equivalents, and intercompany loans held inU.S. dollars by ourU.K. subsidiary other than those of a long-term investment nature, where repayment is not planned or anticipated in the foreseeable future. Income taxes 74 Table of Contents Income tax expense decreased to$162,000 for the year endedDecember 31, 2020 from$242,000 for the year endedDecember 31, 2019 . Income taxes arise inthe United States due to ourU.S. subsidiary generating taxable profits. We incur losses in theUnited Kingdom .
Comparison of Years Ended
The following table summarizes the results of our operations for the years endedDecember 31, 2019 and 2018, together with the changes to those items (in thousands): Year ended December 31, 2019 2018 Increase/decrease Development revenue$ 1,122 $ 20,391 $ (19,269) (94) % License revenue - 39,114 (39,114) (100) % Total revenue 1,122 59,505 (58,383) (98) % Research and development (including losses accrued on (97,501) (98,269) 768 (1) % firm purchase commitments of$5,000 and $-) General and administrative expenses (43,391) (43,601)
210 (0) %
Total operating expenses (140,892) (141,870) 978 (1) %
Operating loss (139,770) (82,365) (57,405) 70 %
Interest income 2,772 2,849 (77) (3) %
Other income (expense), net 75 (15,501) 15,576 (100) %
Loss before income taxes (136,923) (95,017) (41,906) 44 %
Income taxes (242) (497) 255 (51) %
Loss for the period $ (137,165) $ (95,514) $ (41,651) 44 %
Revenue
Revenue decreased by
The revenue recognized for the year endedDecember 31, 2019 was due to development work of products to the third target nominated by GSK under the Collaboration and License Agreement. The development and license revenue for the year endedDecember 31, 2018 was recognized due to the performance under the NY-ESO transition program and the PRAME development plan, which were completed in 2018. 75 Table of Contents
Research and development expenses
Research and development expenses decreased by$0.8 million to$97.5 million for the year endedDecember 31, 2019 from$98.3 million for the year endedDecember 31, 2018 . Our research and development expenses comprised the following (in thousands): Year ended December 31, 2019 2018 Increase/decrease Salaries, materials, equipment, depreciation of property, plant and equipment and other employee-related costs(1)$ 63,240 $ 60,590 $ 2,650 4 % Subcontracted expenditure 32,788 41,580 (8,792) (21) % Manufacturing facility expenditure 6,754 4,848 1,906 39 % Accrued purchase commitments 5,000 - 5,000 NA Share-based compensation expense 3,812 8,340 (4,528) (54) % Payments for in-process research and development 4,556 210 4,346 2,070 % Reimbursements for research and development tax and expenditure credits and government grants (18,649) (17,299) (1,350) 8 %$ 97,501 $ 98,269 $ (768) (1) %
(1) These costs are not analyzed by project since employees may be engaged in
multiple projects at a time.
The net decrease in our research and development expenses of$0.8 million for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 was primarily due to the following:
an increase of
property, plant and equipment and other employee-related costs, due to a
? combination of factors including wage inflation, increased temporary staff
costs, and an increase in the average number of employees engaged in research
and development from 320 to 322;
a decrease of
trial expenses, contract research organization (CRO) costs and contract
? manufacturing expenses. This was primarily driven by a decrease in
subcontracted expenses and clinical trial costs due to the transfer of NY-ESO
to GSK in 2018;
an increase in expenditure of
? activity at our
dedicated vector manufacturing capability in
Kingdom;
an increase of
the supply of the Dynabeads® CD3/CD28 technology. Management considered that
there was sufficient uncertainty surrounding the future utility of the
? Dynabeads, which was dependent upon current clinical trial plans, the Company's
clinical pipeline, manufacturing methods and undetermined future projects, to
result in the purchase commitment being recognized in research and development
expenses in the year ended
commitment can be found in Note 9 of the Consolidated Financial Statements;
? a decrease of
forfeitures of share options;
an increase of
? after entering into collaboration agreements relating to the development of
next-generation SPEAR T-cell products with Alpine Immune Sciences, Inc. on May
14, 2019 and withNoile-Immune Biotech, Inc. onAugust 26, 2019 ; and 76 Table of Contents
an increase in reimbursements for research and development tax and expenditure
? credits and government grants of
R&D expenditure and more costs falling within the
Our subcontracted costs for the year endedDecember 31, 2019 were$32.8 million , compared to$41.6 million in the same period of 2018, of which$18.5 million related to process development for our SPEAR T-cell platform and the remaining$14.3 million related to our wholly owned pipeline, including ADP-A2M4, ADP-A2M10 and ADP-A2AFP. Our research and development expenses are highly dependent on the phases and progression of our research projects and future clinical trial results and therefore fluctuate from period to period.
General and administrative expenses
General and administrative expenses remained flat at
Interest income
Interest income was$2.8 million for the year endedDecember 31, 2019 compared to$2.8 million for the year endedDecember 31, 2018 . Interest income primarily relates to interest on cash, cash equivalents and available-for-sale debt securities.
Other income (expense), net
Other income (expense), net was income of$0.1 million for the year endedDecember 31, 2019 compared to an expense of$15.5 million for the year endedDecember 31, 2018 . Other income (expense), net relates to unrealized foreign exchange gains and losses on cash and cash equivalents, and intercompany loans held inU.S. dollars by ourU.K. subsidiary other than those of a long-term investment nature, where repayment is not planned or anticipated in the foreseeable future. Beginning onJuly 1, 2019 , the intercompany loan was considered of a long-term investment nature as repayment is not planned or anticipated in the foreseeable future. It isAdaptimmune Therapeutics plc's intent not to request payment of the intercompany loan for the foreseeable future. The foreign exchange gains or losses arising on the revaluation of intercompany loans of a long-term investment nature are reported within other comprehensive (loss) income, net of tax. Income taxes Income tax expense decreased to$242,000 for the year endedDecember 31, 2019 from$497,000 for the year endedDecember 31, 2018 . Income taxes arise inthe United States due to ourU.S. subsidiary generating taxable profits. We incur losses in theUnited Kingdom .
Liquidity and Capital Resources
Sources of Funds
Since our inception, we have incurred significant net losses and negative cash flows from operations. We financed our operations primarily through sales of equity securities, cash receipts under our GSK Collaboration and License Agreement, government grants and research and development tax and expenditure credits. From inception through toDecember 31, 2020 , we have raised:
?
?
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?
receipts from the
We use a non-GAAP measure, Total Liquidity, which is defined as the total of cash and cash equivalents and marketable securities, to evaluate the funds available to us in the near-term. A description of Total Liquidity and reconciliation to cash and cash equivalents, the most directly comparableU.S. GAAP measure, are provided below under "Non-GAAP measures". As ofDecember 31, 2020 , we had cash and cash equivalents of$56.9 million and Total Liquidity of$368.2 million . We believe that our Total Liquidity will be sufficient to fund our operations, based upon our currently anticipated research and development activities and planned capital spending, into early 2023. During the year endedDecember 31, 2020 , the Company incurred a net loss of$130.1 million , used cash of$53.6 million in its operating activities, and generated revenues of$4.0 million . The Company has incurred net losses in most periods since inception, and it expects to incur operating losses in foreseeable future periods. Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern for a period of at least one year from the date the financial statements are issued. Cash Flows
The following table summarizes the results of our cash flows for the years ended
Year ended Year ended Year ended
December 31, December 31, December 31,
2020 2019 2018Net cash used in operating activities$ (53,591) $ (112,507) $ (104,388) Net cash (used in) provided by investing activities (278,924) 94,945 (17,457) Net cash provided by financing activities 340,051 366 102,690 Cash, cash equivalents and restricted cash 61,484
54,908 72,476
Year ended
Net cash used in operating activities decreased by$58.9 million to$53.6 million for the year endedDecember 31, 2020 from$112.5 million for the year endedDecember 31, 2019 . The net cash used in operating activities in the year endDecember 31, 2020 was significantly reduced by the$50.0 million upfront payment from Astellas inJanuary 2020 upon entering into the Astellas Collaboration Agreement and an increase in theU.K. R&D tax credits received in the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 .
Year ended
Net cash used in operating activities increased by$8.1 million to$112.5 million for the year endedDecember 31, 2019 from$104.4 million for the year endedDecember 31, 2018 . Net cash used in operating activities was significantly impacted by the timing of milestone payments received from GSK under the GSK Collaboration and License Agreement. In the year endedDecember 31, 2019 , we received$3.2 million of milestone payments from GSK compared to$30.2 million in the year endedDecember 31, 2018 . Excluding cash inflows from the GSK milestone payments and the associated VAT, the cash used in operations decreased in the year endedDecember 31, 2019 . This was primarily due to higher subcontracted expenditure being incurred in 2018 under the GSK Collaboration Agreement. 78 Table of Contents
Components of cash flows from operating activities
Net cash used in operating activities of$53.6 million for the year endedDecember 31, 2020 comprised a net loss of$130.1 million offset by noncash items of$20.5 million and$56.0 million of favorable changes in operating assets and liabilities. The noncash items consisted primarily of depreciation expense on plant and equipment of$6.6 million , amortization of intangibles of$1.0 million , share-based compensation expense of$10.4 million , amortization of marketable securities of$3.8 million , offset by unrealized foreign exchange gains of$1.3 million . Net cash used in operating activities of$112.5 million for the year endedDecember 31, 2019 comprised a net loss of$137.2 million offset by noncash items of$20.0 million and$4.7 million of favorable changes in operating assets and liabilities. The noncash items consisted primarily of depreciation expense on plant and equipment of$7.2 million ,
amortization of intangibles of
exchange losses of
Net cash used in operating activities of$104.4 million for the year endedDecember 31, 2018 comprised a net loss of$95.5 million and$45.3 million of adverse changes in operating assets and liabilities offset by noncash items of$36.5 million . The noncash items consisted primarily of depreciation expense on plant and equipment of$7.2 million , share-based compensation expense of$16.2 million and a realized loss on marketable securities of$2.5 million and unrealized foreign exchange losses of$9.7 million .
Investing Activities
Net cash used in investing activities was$278.9 million for the year endedDecember 31, 2020 compared to net cash provided by investing activities of$94.9 million for the year endedDecember 31, 2019 , and net cash used in investing activities of$17.5 million for the year endedDecember 31, 2018 . The Company invests surplus cash and cash equivalents in marketable securities. Cash used in investing activities increased in the year endedDecember 31, 2020 , because the Company invested surplus cash, including net proceeds from issuance of shares in marketable securities. Investment in marketable securities of$381.0 million was offset by$105.0 million from maturity or redemption of marketable securities in the year endedDecember 31, 2020 . Net cash provided by investing activities in the year endedDecember 31, 2019 included purchases of property and equipment of$1.6 million , acquisition of intangibles of$1.5 million , investment in marketable securities of$27.3 million , offset by cash inflows from maturity or redemption of marketable securities of$125.3 million . The Company invests surplus cash and cash equivalents in marketable securities. In the year endedDecember 31, 2019 , the investments in marketable securities were reduced to fund the Company's ongoing operations.
Net cash used in investing activities in the year endedDecember 31, 2018 , included purchases of property and equipment of$3.9 million , acquisition of intangibles of$0.8 million , and investment in marketable securities of$150.8 million , offset by cash inflows from maturity or redemption of marketable securities of$138.0 million . In the year endedDecember 31, 2018 , the Company invested surplus cash, including net proceeds from issuance of shares in marketable securities.
Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities for the year endedDecember 31, 2020 consisted of net proceeds from public offerings of$334.4 million and proceeds from exercise of share options of$5.7 million .
Net cash provided by financing activities for the year ended
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Net cash provided by financing activities for the year ended December 31, 2018
consisted of net proceeds of $99.7 million raised through a registered direct
offering and proceeds from exercise of share options of $3.0 million .
Non-GAAP Measures
Total Liquidity (a non-GAAP financial measure)
Total Liquidity (a non-GAAP financial measure) is the total of cash and cash equivalents and marketable securities. Each of these components appears in the Consolidated Balance Sheet. TheU.S. GAAP financial measure most directly comparable to Total Liquidity is cash and cash equivalents as reported in the consolidated financial statements, which reconciles to Total Liquidity as follows (in thousands): December 31, December 31, 2020 2019 Cash and cash equivalents$ 56,882 $ 50,412 Marketable securities - available-for-sale debt securities 311,335 39,130 Total Liquidity$ 368,217 $ 89,542 We believe that the presentation of Total Liquidity provides useful information to investors because management reviews Total Liquidity as part of its management of overall liquidity, financial flexibility, capital structure and leverage. The definition of Total Liquidity includes marketable securities, which are highly liquid and available to use in our current operations.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of
theSEC . Contractual Obligations
The following table summarizes our contractual commitments and obligations as of
Payments due by period
Less than More than 5
Total 1 year 1 - 3 years 3 - 5 years yearsOperating lease obligations(1)$ 30,008 $ 4,326 $ 8,498 $ 8,070 $ 9,114 Purchase obligations(2)(3) 13,927 6,334 7,593 - -
Total contractual cash obligations
16,091$ 8,070 $ 9,114 (1) Operating lease obligations primarily consists of minimum lease payments under non-cancellable leases for laboratory and office property inOxfordshire, United Kingdom , andPhiladelphia ,United States . Further details of our operating leases are provided in Item 2 and in Note 8 of Item 16 of this Annual Report.
(2) Purchase obligations include signed orders for capital equipment, clinical materials and contract manufacturing, which have been committed but not yet received and committed funding under the MD Anderson strategic alliance.
(3) Future clinical trial expenses are not considered purchase commitments because they are contingent on enrollment in clinical trials and the activities required to be performed by the clinical sites.
Purchase obligations
In 2016, we entered into a multi-year strategic alliance with MD Anderson designed to expedite the development of T-cell therapies for multiple types of cancer. We and MD Anderson are collaborating on a number of
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studies including clinical and preclinical development of our SPEAR T-cell therapies targeting NY-ESO and MAGE-A10 and we will collaborate on future clinical stage first and second generation SPEAR T-cell therapies such as ADP-A2M4 across a number of cancers, including bladder, lung, ovarian, head and neck, melanoma, synovial sarcoma, esophageal and gastric cancers. Under the terms of the agreement, we committed at least$19.6 million to fund studies. The Company made an upfront payment of$3.4 million to MD Anderson in the year endedDecember 31, 2017 and milestone payments of$2.3 million in the years endedDecember 31, 2018 and 2020, respectively. Payment of this funding is contingent on mutual agreement to study orders under the alliance agreement and the performance of set milestones by MD Anderson. The timing and amount of future payments is uncertain. Other obligations OnAugust 26, 2019 , we entered into a collaboration and license agreement relating to the development of next-generation SPEAR T-cell products withNoile-Immune Biotech Inc. ("Noile-Immune"). An upfront exclusive license option fee of$2.5 million was paid to Noile-Immune in 2019. This has been recognized within Research and Development in the Consolidated Statement of Operations for the year endedDecember 31, 2019 . Under the agreement, development and commercialization milestone payments up to a maximum of$312 million may be payable if all possible targets are selected and milestones achieved. Noile-Immune would also receive mid-single-digit royalties on net sales of resulting products. OnMay 14, 2019 , we entered into a Collaboration Agreement relating to the development of next-generation SPEAR T-cell products with Alpine Immune Sciences Inc. ("Alpine"). We paid an upfront exclusive license option fee of$2.0 million to Alpine inJune 2019 . Under the agreement,Adaptimmune will pay Alpine for ongoing research and development funding costs and development and commercialization milestone payments up to a maximum of$288 million , which may be payable if all possible targets are selected and milestones achieved. The upfront payment of$2.0 million and the payments for ongoing research are recognized within Research and development. Alpine would also receive low single-digit royalties on worldwide net sales of applicable products. In 2015, we entered into a Research Collaboration and License Agreement relating to gene editing and HLA-engineering technology withUniversal Cells . We paid an upfront license fee of$2.5 million toUniversal Cells . A milestone payment of$3.0 million was made inFebruary 2016 and further milestone payments of$0.2 million and$0.9 million were made in the year endedDecember 31, 2018 and 2017, respectively. The agreement was amended and re-stated as ofJanuary 13, 2020 , primarily to reflect changes to the development plan agreed between the parties. Further milestone payments of up to$37.6 million are payable if certain development and product milestones are achieved.Universal Cells would also receive a profit-share payment for the first product, and royalties on sales of other products utilizing its technology.
Critical Accounting Policies and Significant Judgments and Estimates
We have prepared our consolidated financial statements in accordance withU.S. GAAP. Our preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements. 81 Table of Contents Revenue Recognition
Allocation of transaction price using the relative standalone selling price
Upfront payments are allocated between performance obligations using the Company's best estimate of the relative standalone selling price of the performance obligation. The relative standalone selling price is estimated by determining the market values of development and license obligations. As these inputs are not directly observable, the estimate is determined considering all reasonably available information including internal pricing objectives used in negotiating the contract, together with internal data regarding the cost and margin of providing services for each deliverable, taking into account the different stage of development of each development program and adjusted-market data from comparable arrangements. This assessment involves significant judgment and could have a significant impact on the amount and timing of revenue recognition.
Determination of the cost to complete
Revenue allocated to performance obligations relating to provision of development activities is recognized using an estimate of the percentage of completion of the project based on the costs incurred on the project as a percentage of the total expected costs. The determination of the percentage of completion requires management to estimate the costs-to-complete the project. A detailed estimate of the costs-to-complete is re-assessed every reporting period based on the latest project plan and discussions with project teams. If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate. The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs. Determining the estimate of the cost-to-complete requires significant judgment and may have a significant impact on the amount and timing of revenue recognition. However, a 10% change in the cost-to-complete atDecember 31, 2020 , would not have a significant impact on revenue recognized in the year endedDecember 31, 2020 .
Operating Leases (Incremental Borrowing Rate)
Since the rates implicit in our leases are not readily determinable, we use the Company's incremental borrowing rates (the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment) based on the information available at commencement date in determining the discount rate used to calculate the present value of lease payments. As we have no external borrowings, the incremental borrowing rates are determined using information on indicative borrowing rates that would be available to us based on the value, currency and borrowing term provided by financial institutions, adjusted for company and market specific factors. Although we do not expect our estimates of the incremental borrowing rates to generate material differences within a reasonable range of sensitivities, judgement is involved in selecting an appropriate rate, and the rate selected for each lease will have an impact on the value of the lease liability and corresponding right-of-use (ROU) asset in the Consolidated Balance Sheets.
Deferred Taxes
Deferred tax is accounted for using the asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amount and the tax bases of assets and liabilities at the applicable tax rates. As ofDecember 31, 2020 , we have deferred tax assets of$85.4 million , offset by deferred tax liabilities of$3.0 million and a valuation allowance of$82.4 million .
A valuation allowance is provided when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Future realization of the tax benefit of a deferred tax asset depends on the existence of
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sufficient taxable income of the appropriate character (for example, ordinary
income or capital gain) within the carryback or carryforward period available
under the tax law. The Company considers the following possible sources of
taxable income when assessing whether there is sufficient taxable income to
realize a tax benefit for deductible temporary differences and carryforwards:
? future reversals of existing taxable temporary differences;
? future taxable income exclusive of reversing temporary differences and
carryforwards;
? taxable income in prior carryback year(s) if carryback is permitted under the
tax law; and ? tax-planning strategies. The Company considers both positive and negative evidence regarding realization of the deferred tax assets and the subjectivity of this evidence. This assessment includes estimating future taxable income, scheduling reversals of temporary differences, evaluating expectations of future profitability, determining refund potential in the event of net operating loss carrybacks, and evaluating potential tax-planning strategies. The Company has generated losses in theUnited Kingdom since inception and is forecasted to generate tax losses for the next several years and therefore the deferred tax assets arising in theUnited Kingdom are only considered more-likely-than-not of being realized to the extent that reversing temporary taxable differences are available. TheU.S. subsidiary has generated taxable income since the fiscal year endedJune 30, 2014 due to a Service Agreement between ourU.S. andU.K. operating subsidiaries and is forecast to generate taxable income in future periods. In determining whether the deferred tax asset is more-likely-than-not of being recognized, the Company has taken into account the short history of taxable profits, the forecast of future taxable income, including whether future originating temporary deductible differences are likely to be realized, and the reversal of temporary taxable deductions. Several of the temporary deductible differences reverse over a long time period, such as those relating to share-based compensation expense, which the Company forecasts are likely to reverse over the next five years. The Company considers that forecasting taxable income beyond the next few years is very subjective due to the nature and extent of the development process subcontracted from the Company in theUnited Kingdom to theU.S. subsidiary. Less weight has been given to forecasts of taxable income beyond the next few years. The deferred tax asset arising inthe United States is only considered more-likely-than-not of being realized to the extent that there are available reversing temporary taxable differences. The Company's analysis is subject to estimates and judgments particularly relating to the timing of the reversal of temporary deductible differences for stock compensation expense and the availability of future taxable income beyond the next few years, which depend on the nature and extent of the subcontract development work performed by theU.S. subsidiary.
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