ADAPTIMMUNE THERAPEUTICS PLC The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year endedDecember 31, 2020 , included in our Annual Report on Form 10-K that was filed with theSEC onFebruary 25, 2021 . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our 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 "Risk Factors" section of this Quarterly Report and our Annual Report on Form 10-K for the year endedDecember 31, 2020 , our actual results could differ materially from the results described in, or implied by, these
forward-looking statements.
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.
As the COVID-19 pandemic continues, we remain focused on ensuring the safety of
our workforce and continuing, where possible, to safely treat patients with our
cell therapies. We continue to work with our clinical sites to ensure that
patients are treated as soon as clinical sites are able to do so . Our
facilities in the United States ("U.S.") and the United Kingdom ("U.K.") remain
open to support manufacturing and delivery of our existing cell therapies as
well as research and development of new cell therapies. Further information on
risks related to COVID-19 is provided in the "Risk Factors" section of our
Annual Report on Form 10-K for the year ended December 31, 2020 .
We have multiple clinical trials ongoing:
SPEARHEAD-1 Phase 2 Trial with afamitresgene autoleucel ("afami-cel"): 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 filing of a Biologics License
Application in 2022, we plan to commercially launch afami-cel for treatment of
? synovial sarcoma. Initial data from this trial will be presented at the
designation for afami-cel for the treatment of soft tissue sarcomas has been
granted in the
Advanced Therapy (RMAT) designation in the
sarcoma and access to the Priority Medicines ("PRIME") Regulatory Support
initiative by the
treatment of synovial sarcoma.
SPEARHEAD-2 Phase 2 Trial with afami-cel: A Phase 2 trial combining afami-cel
? 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. This next generation SPEAR T-cell
utilizes the same engineered T-cell receptor as afami-cel, but with the
? addition of a CD8? homodimer. The addition of the CD8? homodimer has been shown
in vitro to increase cytokine release and SPEAR T-cell potency. Based on the
responses seen in the Phase 1 clinical trial using afami-cel 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.
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ADP-A2AFP Phase 1 Trial: We continue treating patients in our Phase 1 trial
designed to evaluate the safety and anti-tumor activity of our alpha
? fetoprotein ("AFP") specific 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.
Afami-cel Phase 1 Trial - Radiation Sub-study: Our Phase 1 clinical trial of
afami-cel 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 remains open and is assessing
whether low-dose radiation enhances T-cell tumor trafficking and responses.
We have an active preclinical pipeline of cell therapy candidates with the aim of delivering five new cell therapies to the clinic in the next five years. The pipeline includes new autologous SPEAR T-cells, SPEAR T-cells addressing alternative HLA-types, next generation SPEAR T-cells, next-generation TILs and HiTs. Data from the Company's HiT mesothelin program will be presented at theAmerican Society of Gene & Cell Therapy (ASGCT) inMay 2021 . We are also developing allogeneic or "off-the-shelf" cell therapies utilizing a proprietary allogeneic platform. We have a strategic collaboration program ongoing with Astellas (through its wholly owned subsidiaryUniversal Cells ) in relation to up to three targets with the aim of co-developing T-cell therapy candidates directed to those targets and utilizing our allogeneic platform for "off-the-shelf" cell therapies. The first target subject to the collaboration is the mesothelin target to which a HiT cell therapy is being developed and a second target has now been nominated by Astellas. We also have a number of development and research collaborations including our collaboration with GSK for the development, manufacture and commercialization of TCR therapeutic candidates for up to five programs, a clinical and pre-clinical alliance agreement withMD Anderson Cancer Center and research collaborations with Alpine, Noile-Immune and CCIT.
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
InJanuary 2020 , the Company entered into a collaboration agreement with Astellas. The Company received$50.0 million as an upfront payment 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. 17 Table of Contents
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;
? 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
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 13% of allowable R&D costs, which may result in a payable tax credit at an effective rate of approximately 10.5% for the year endedDecember 31 ,
2021.
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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;
? 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 (Expense) Income, Net
Other (expense) income, net primarily comprises foreign exchange (losses) gains. 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 , which is 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.
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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 currency cash balances
at levels appropriate to meet forthcoming expenditure in U.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 theUnited Kingdom andthe United States . We incur tax losses and tax credit carryforwards in theUnited Kingdom . No deferred tax assets are recognized on ourU.K. losses and tax credit carryforwards because there is currently no indication that we will make sufficient taxable profits to utilize these tax losses and tax credit carryforwards. On3 March 2021 , theUK government announced that the rate of corporation tax would increase to 25% in 2023, with lower rates and tapered relief to be applied to companies with profits below £250,000.
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.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our unaudited condensed consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities, and
the revenues and expenses incurred during the reported periods. We base our
estimates on historical experience and on various other factors that we believe
are relevant under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. The accounting policies considered to
be critical to the judgments and estimates used in the preparation of our
financial statements are disclosed in the Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report.
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Results of Operations
Comparison of Three Months Ended
The following table summarizes the results of our operations for the three months endedMarch 31, 2021 and 2020, together with the changes to those items (in thousands): Three months ended March 31, 2021 2020 Increase/decrease Revenue$ 434 $ 761 $ (327) (43) % Research and development expenses (24,506) (21,264) (3,242) 15 % General and administrative expenses (13,817) (9,261) (4,556) 49 % Total operating expenses (38,323) (30,525) (7,798) 26 % Operating loss (37,889) (29,764) (8,125) 27 % Interest income 425 730 (305) (42) % Other (expense) income, net (1) 937 (938) (100) % Loss before income taxes (37,465) (28,097) (9,368) 33 % Income taxes (298) (70) (228) 326 % Loss for the period$ (37,763) $ (28,167) $ (9,596) 34 % Revenue
Revenue decreased by 43% to
Research and Development Expenses
Research and development expenses increased by 15% to
Our research and development expenses comprise the following (in thousands):
Three months ended
March 31,
2021 2020 Increase/decrease
Salaries, materials, equipment, depreciation of
property, plant and equipment and other
employee-related costs(1) $ 19,202 $ 15,384 $ 3,818 25 %
Subcontracted expenditure 10,832 7,311 3,521 48 %
Manufacturing facility expenditure 2,445 1,687 758 45 %
Share-based compensation expense 2,375 978 1,397 143 %
In-process research and development costs 151 968 (817) (84) %
Reimbursements receivable for research and
development tax and expenditure credits (10,499) (5,064) (5,435) 107 %
$ 24,506 $ 21,264 $ 3,242 15 %
(1) These costs are not analyzed by project since employees may be engaged in
multiple projects simultaneously.
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The net increase in our research and development expenses of $3.2 million for
the three months ended March 31, 2021 compared to the same period in 2020 was
primarily due to the following:
an increase of
? property, plant and equipment and other employee-related costs, which is mainly
driven by an increase in the average number of employees engaged in research
and development
an increase of
? costs related to the development of a companion diagnostic (CDx) assay and an
increase in clinical trial costs as we prepare for a Phase 2 clinical trial
with ADP-A2M4CD8 in esophageal and esophagogastric ("EGJ") cancers
an increase of
? to higher option grants in 2021 because of an increase in the number of
employees; and
an increase of
? development tax and expenditure credits, which is driven by an increase in
qualifying costs identified.
Our subcontracted costs for the three months endedMarch 31, 2021 were$10.8 million , compared to$7.3 million in the same period of 2020. This includes$7.9 million of costs directly associated with our afami-cel, ADP-A2M4CD8 and ADP-A2AFP SPEAR T-cells and$2.9 million of other development costs. 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 translational sciences and other research and development capabilities.
General and Administrative Expenses
General and administrative expenses increased by 49% to$13.8 million for the three months endedMarch 31, 2021 from$9.3 million in the same period in 2020. Our general and administrative expenses consist of the following (in thousands): Three months ended March 31, 2021 2020 Increase/decrease Salaries, depreciation of property, plant and equipment and other employee-related costs$ 6,965 $ 5,759 $ 1,206 21 % Other corporate costs 3,892 3,031 861 28 % Share-based compensation expense 2,960 471 2,489 528 %$ 13,817 $ 9,261 $ 4,556 49 %
The net increase in our general and administrative expenses of$4.6 million for the three months endedMarch 31, 2021 compared to the same period in 2020 was largely due to:
an increase of
? equipment and other employee-related costs, as a result of an increase in the
average number of employees in the three months ended
to the same period in 2020; and
an increase of
? in the three months ended
because of an increase in the number of employees.
We expect that our general and administrative expenses will increase in the future as we expand our operations and move towards commercial launch.
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Income Taxes
Income taxes increased to a charge of
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 collaboration arrangements and research and development tax and expenditure credits. From inception through toMarch 31, 2021 , we have raised: ?$854.4 million , net of issuance costs, through the issuance of shares;
?
?
credits and 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 ofMarch 31, 2021 , we had cash and cash equivalents of$32.4 million and Total Liquidity of$317.9 million . We regularly assess Total Liquidity against our activities and make decisions regarding prioritization of those activities and deployment of Total Liquidity. We believe that our Total Liquidity will be sufficient to fund our operations, based upon our currently anticipated research and development activities, planned capital spending, and planned commercialization costs into early 2023. This belief is based on estimates that are subject to risks and uncertainties and may change if actual results differ from management's estimates. Cash Flows
The following table summarizes the results of our cash flows for the
three months ended
Three months ended
March 31,
2021 2020
Net cash (used in) provided by operating activities $ (46,540) $ 16,857
Net cash provided by (used in) investing activities 21,762 (71,947)
Net cash provided by financing activities 534 91,444
Cash, cash equivalents and restricted cash 37,036 90,760 Operating Activities Net cash used in operating activities was$46.5 million for the three months endedMarch 31, 2021 compared to net cash provided by operating activities of$16.9 million for the three months endedMarch 31, 2020 . Our activities typically result in net use of cash in operating activities. The receipt of the$50.0 million upfront payment from Astellas inJanuary 2020 resulted in net cash provided by operating activities for the three months endedMarch 31, 2020 . Excluding the impact of this, the net cash used in operating activities for the three months endedMarch 31, 2021 increased due to an increase in operating
expenditure.
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Net cash used in operating activities of$46.5 million for the three months endedMarch 31, 2021 comprised a net loss of$37.8 million and a net cash outflow of$19.5 million from changes in operating assets and liabilities, offset by non-cash items of$10.8 million . The changes in operating assets and liabilities include the impact of a$10.5 million increase in reimbursements receivable for research and development tax credits. The non-cash items consisted primarily of depreciation expense on plant and equipment of$1.4 million , share-based compensation expense of$5.3 million , unrealized foreign exchange losses of$1.2 million , amortization on available-for-sale debt securities of$1.5 million and other items of$1.3 million .
Investing Activities
Net cash provided by investing activities was$21.8 million for the three months endedMarch 31, 2021 compared to net cash used in investing activities of$71.9 million for the three months endedMarch 31, 2020 . The net cash provided by (used in) investing activities for the respective periods consisted primarily of:
? purchases of property and equipment of
three months ended
cash outflows from investment in marketable securities of
? and cash inflows from maturity or redemption of marketable securities of
million and
respectively.
The Company invests surplus cash and cash equivalents in marketable securities. In the three months endedMarch 31, 2021 , the investments in marketable securities were reduced to fund the Company's ongoing operations. In the three months endedMarch 31, 2020 , the Company increased its investments in marketable securities with proceeds from its public offering.
Financing Activities
Net cash provided by financing activities was$0.5 million and$91.4 million for the three months endedMarch 31, 2021 and 2020, respectively. The net cash provided by financing activities in the three months endedMarch 31, 2021 consisted of proceeds from share option exercises. For the three months endedMarch 31, 2020 , the net cash provided by financing activities consisted of net proceeds from public offerings of$90.5 million and proceeds from share option exercises of$0.9 million . Non-GAAP Measures
Total Liquidity (a non-GAAP financial measure)
Total Liquidity (a non-GAAP financial measure) is the total of cash and cash equivalents and marketable securities. Each of these components appears in the condensed consolidated balance sheet. TheU.S. GAAP financial measure most directly comparable to Total Liquidity is cash and cash equivalents as reported in the condensed consolidated financial statements, which reconciles to Total Liquidity as follows (in thousands): March 31, December 31, 2021 2020 Cash and cash equivalents$ 32,432 $ 56,882
Marketable securities - available-for-sale debt securities 285,512
311,335
Total Liquidity $ 317,944 $ 368,217
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 investments, which are
highly-liquid and available to use in our current operations, such as marketable
securities.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of
theSEC . 24 Table of Contents Contractual Obligations
Further details of potential contingencies and commitments are provided in Note 10 of the condensed consolidated financial statements.
For a discussion of our contractual obligations, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Annual Report on Form 10-K.
Safe Harbor
See the section titled "Information Regarding Forward-Looking Statements" at the beginning of this Quarterly Report.
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