ADAPTIMMUNE THERAPEUTICS PLC The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited 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, 2021 , included in our Annual Report on Form 10-K that was filed with theSEC onMarch 14, 2022 . 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, 2021 , 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 reported clinical responses (per RECIST 1.1) in seven solid tumor indications.
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 Tumor 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.
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. Enrollment in Cohort 1 is complete, and Cohort 2 is
currently recruiting. Initial data from Cohort 1 of this trial was presented at
? the
cohort 1 of this trial is intended to support the filing of a Biologics License
Application (BLA) in 2022 and, upon approval from the
Administration ("FDA"), the Company plans to commercially launch afami-cel.
Pooled data from the prior Phase 1 clinical trial and cohort 1 of this Phase 2
trial will be presented at ASCO inJune 2022 . 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, ovarian 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 helper cell response and SPEAR T-cell potency. Data from
the SURPASS trial was presented at the
(ESMO) meeting in
SURPASS-2 Phase 2 Trial with ADP-A2M4CD8: A Phase 2 clinical trial with
? ADP-A2M4CD8 in esophageal and esophagogastric junction ("EGJ") cancers is
currently recruiting.
SURPASS-3 Phase 2 Trial with ADP-A2M4CD8: Based on the initial responses seen
in the SURPASS Phase 1 trial in patients with ovarian cancer, including a
? complete response which remained ongoing at the time of the data cut-off on
ADP-A2M4CD8 in ovarian cancer in 2022.
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"). Screening has now ceased in this trial.
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SPEARHEAD-2 Phase 2 Trial with afami-cel:
evaluating its strategy for the use of checkpoint inhibitors in combination
? with its cell therapies, including the evaluation of ADP-A2M4CD8 with a
checkpoint inhibitor, and as a result we have decided to cease enrolment in the
Spearhead-2 trial.
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.
We are also developing allogeneic or "off-the-shelf" cell therapies utilizing a proprietary allogeneic platform.
During Q3 2021 we announced a strategic collaboration with
("Genentech") and F. Hoffman-La Roche Ltd.to research, develop, and
? commercialize allogeneic T-cell therapies (the "Genentech Collaboration"). The
collaboration covers the research and development of "off-the-shelf" cell
therapies for up to five shared cancer targets ("off the shelf" products) and
the development of a novel allogeneic personalized cell therapy platform.
We also have a strategic collaboration program ongoing with Astellas (through
its wholly owned subsidiary
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
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 preclinical alliance agreement withMD Anderson Cancer Center and research collaborations with Alpine, Noile-Immune, and theCenter for Cancer Immune Therapy (CCIT).
Financial Operations Overview
Revenue
The Company has three contracts with customers: the GSK Collaboration and License Agreement, the Astellas Collaboration Agreement and the Genentech Collaboration Agreement.
The GSK Collaboration Agreement
We entered into the GSK Collaboration and License Agreement regarding the development, manufacture and commercialization of TCR therapeutic candidates inMay 2014 . The collaboration is for up to five programs. The first program was the NY-ESO SPEAR T-cell program, in relation to which GSK has now exercised its option to take an exclusive license. The second program related to development of a SPEAR T-cell to a peptide derived from the PRAME antigen. This program has now completed. The third target program with GSK remains ongoing and is also directed to the PRAME target. We are responsible for taking the third target program through preclinical testing and up to IND application filing. GSK is responsible for the IND filing itself should the preclinical testing and development be favorable. 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. The Company received a milestone payment of$4.2 million in 2021 following achievement of a development milestone. These amounts are 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 20 Table of Contents
of
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.
The Genentech Collaboration Agreement
OnSeptember 3, 2021 ,Adaptimmune Limited , a wholly owned subsidiary ofAdaptimmune Therapeutics Plc , entered into a Strategic Collaboration and License Agreement withGenentech, Inc. ("Genentech") andF. Hoffman-La Roche Ltd. The collaboration has two components:
1) development of allogeneic T-cell therapies for up to five shared cancer
targets
development of personalized allogeneic T-cell therapies utilizing ?? T-cell
2) receptors (TCRs) isolated from a patient, with such therapies being
administered to the same patient.
The parties will collaborate to perform a research program, initially during an eight-year period (which may be extended for up to two additional two-year terms atGenentech's election upon payment of an extension fee for each two-year term), to develop the cell therapies, following whichGenentech will determine whether to further develop and commercialize such therapies. The Company received an upfront payment of$150 million inOctober 2021 . The Company began recognizing revenue for the performance obligations relating to the initial "off-the-shelf" collaboration targets and the personalized therapies in 2021; however, this did not have a material impact on the consolidated financial statements. The Company identified the following performance obligations under the agreement: (i) research services and rights granted under the licenses for each of the initial "off-the-shelf" collaboration targets, (ii) research services and rights granted under the licenses for the personalized therapies, (iii) material rights relating to the option to designate additional "off-the-shelf" collaboration targets and (iv) material rights relating to the two options to extend the research term. The revenue allocated to the initial "off-the-shelf" collaboration targets and the personalized therapies is recognized as development progresses. The revenue allocated to the material rights to designate additional 'off-the-shelf' collaboration targets is recognized from the point that the options are exercised and then as development progresses, in line with the initial "off-the-shelf" collaboration targets, or at the point in time that the rights expire. The revenue from the material rights to extend the research term is recognized from the point that the options are exercised and then over period of the extension, or at the point in time that the options expire.
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;
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? 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 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% of qualifying expenditure for the three months endedMarch 31, 2022 . 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 cell therapy. 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.
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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. 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 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 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. OnJune 10, 2021 , theU.K. 2021 Finance Bill received Royal Assent. Under this bill, the rate ofU.K. corporation tax will 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. 23
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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 on Form 10-K for the year endedDecember 31, 2021 .
Results of Operations
Comparison of Three Months Ended
The following table summarizes the results of our operations for the three months endedMarch 31, 2022 and 2021, together with the changes to those items (in thousands): Three months ended March 31, 2022 2021 Increase/decrease Revenue$ 3,575 $ 434 $ 3,141 724 % Research and development expenses (36,752) (24,506) (12,246) 50 % General and administrative expenses (16,804) (13,817) (2,987) 22 % Total operating expenses (53,556) (38,323) (15,233) 40 % Operating loss (49,981) (37,889) (12,092) 32 % Interest income 338 425 (87) (20) % Other income (expense), net 12 (1) 13 (1,300) % Loss before income taxes (49,631) (37,465) (12,166) 32 % Income taxes (634) (298) (336) 113 % Loss for the period$ (50,265) $ (37,763) $ (12,502) 33 % Revenue
Revenue increased by
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Research and Development Expenses
Research and development expenses increased by 50% to
Our research and development expenses comprise the following (in thousands):
Three months ended
March 31,
2022 2021 Increase/decrease
Salaries, materials, equipment, depreciation of
property, plant and equipment and other
employee-related costs(1) $ 23,038 $ 19,202 $ 3,836 20 %
Subcontracted expenditure 14,550 10,832 3,718 34 %
Manufacturing facility expenditure 2,953 2,445 508 21 %
Share-based compensation expense 2,523 2,375 148 6 %
In-process research and development costs 1,845 151 1,694 1,122 %
Reimbursements receivable for research and
development tax and expenditure credits (8,157) (10,499) 2,342 (22) %
$ 36,752 $ 24,506 $ 12,246 50 %
(1) These costs are not analyzed by project since employees may be engaged in
multiple projects simultaneously.
The net increase in our research and development expenses of$12.2 million for the three months endedMarch 31, 2022 compared to the same period in 2021 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
additional accruals for milestone payments to
? an increase of
Alpine payment and an increase in manufacturing expenses; and
a decrease of
? development tax and expenditure credits due an increase in qualifying costs
identified in the same period in 2021 that was not repeated in 2022.
Our subcontracted costs for the three months endedMarch 31, 2022 were$14.6 million , compared to$10.8 million in the same period of 2021. This includes$9.8 million of costs directly associated with our afami-cel, ADP-A2M4CD8 and ADP-A2AFP SPEAR T-cells and$4.8 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. 25
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General and Administrative Expenses
General and administrative expenses increased by 22% to$16.8 million for the three months endedMarch 31, 2022 from$13.8 million in the same period in 2021. Our general and administrative expenses consist of the following (in thousands): Three months ended March 31, 2022 2021 Increase/decrease Salaries, depreciation of property, plant and equipment and other employee-related costs$ 8,767 $ 6,965 $ 1,802 26 % Other corporate costs 4,974 3,892 1,082 28 % Share-based compensation expense 3,063 2,960
103 3 %
$ 16,804 $ 13,817 $ 2,987 22 %
The net increase in our general and administrative expenses of$3.0 million for the three months endedMarch 31, 2022 compared to the same period in 2021 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 2021; and
? an increase of
accounting, legal and professional fees.
We expect that our general and administrative expenses will increase in the future as we expand our operations and move towards commercial launch.
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, 2022 , we have raised: ?$857.2 million , net of issuance costs, through the issuance of shares;
?
Astellas; and
?
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". 26
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As ofMarch 31, 2022 , we had cash and cash equivalents of$89.5 million and Total Liquidity of$304.2 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 the Company's current operations, based upon our currently anticipated research and development activities and planned capital spending, into early 2024. 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,
2022 2021
Net cash used in operating activities $ (54,401) $ (46,540)
Net cash (used in)/ provided by investing activities (4,775) 21,762 Net cash provided by financing activities
35 534
Cash, cash equivalents and restricted cash 91,255 37,036 Operating Activities Net cash used in operating activities was$54.4 million for the three months endedMarch 31, 2022 compared to$46.5 million for the three months endedMarch 31, 2021 . Our activities typically result in net use of cash in operating activities. The net cash used in operating activities for the three months endedMarch 31, 2022 increased due to an increase in operating expenditure. Net cash used in operating activities of$54.4 million for the three months endedMarch 31, 2022 comprised a net loss of$50.3 million and a net cash outflow of$12.3 million from changes in operating assets and liabilities, offset by non-cash items of$8.2 million . The changes in operating assets and liabilities include the impact of a$8.2 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$5.6 million , unrealized foreign exchange gains of$0.2 million , amortization on available-for-sale debt securities of$1.0 million and other items of$0.4 million .
Investing Activities
Net cash used in investing activities was$4.8 million for the three months endedMarch 31, 2022 compared to net cash provided by investing activities of$21.8 million for the three months endedMarch 31, 2021 . The net cash (used in) provided by 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$84.6 million for the three months endedMarch 31, 2022 and 2021, respectively. 27 Table of Contents The Company invests surplus cash and cash equivalents in marketable securities. In the three months endedMarch 31, 2022 , the investments in marketable securities were reduced to fund the Company's ongoing operations. In the three months endedMarch 31, 2021 , the investments in marketable securities were reduced to fund the Company's ongoing operations.
Financing Activities
Net cash provided by financing activities was$0.0 million and$0.5 million for the three months endedMarch 31, 2022 and 2021, respectively. The net cash provided by financing activities in the three months endedMarch 31, 2022 andMarch 31, 2021 consisted of proceeds from share option exercises.
Non-GAAP Measures
Total Liquidity (a non-GAAP financial measure)
Total Liquidity (a non-GAAP financial measure) is the total of cash and cash equivalents and marketable securities. Each of these components appears in the condensed consolidated balance sheet. TheU.S. GAAP financial measure most directly comparable to Total Liquidity is cash and cash equivalents as reported in the condensed consolidated financial statements, which reconciles to Total Liquidity as follows (in thousands): March 31, December 31, 2022 2021 Cash and cash equivalents$ 89,539 $ 149,948
Marketable securities - available-for-sale debt securities 214,679
219,632
Total Liquidity $ 304,218 $ 369,580
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 solvency and liquidity, financial flexibility, capital
position and leverage. The definition of Total Liquidity includes marketable
securities, which are highly-liquid and available to use in our current
operations.
Safe Harbor
See the section titled "Information Regarding Forward-Looking Statements" at the beginning of this Quarterly Report.
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