ALLOGENE THERAPEUTICS, INC. The following discussion contains management's discussion and analysis of our financial condition and results of operations and should be read together with "Selected Financial Data" and the historical consolidated financial statements and the notes thereto included in "Financial Statements and Supplementary Data". This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the "Risk Factors" section of this Annual Report. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read "Special Note Regarding Forward-Looking Statements" and "Risk Factors."
Overview
We are a clinical-stage immuno-oncology company pioneering the development of genetically engineered allogeneic T cell therapies for the treatment of cancer. We are developing a pipeline of off-the-shelf T cell product candidates that are designed to target and kill cancer cells. Our engineered T cells are allogeneic, meaning they are derived from healthy donors for intended use in any patient, rather than from an individual patient for that patient's use, as in the case of autologous T cells. We believe this key difference will enable us to deliver readily available treatments faster, more reliably, at greater scale, and to more patients. We have a deep pipeline of allogeneic chimeric antigen receptor (CAR) T cell product candidates targeting multiple promising antigens in a host of hematological malignancies and solid tumors. Pursuant to the Exclusive Collaboration and License Agreement withServier (Servier Agreement), we have exclusive rights to ALLO-501 and ALLO-501A, CAR T cell product candidates targeting CD19, inthe United States , whileServier retains exclusive rights for these product candidates for all other countries. ALLO-501 and ALLO-501A useCellectis S.A. (Cellectis) technologies under whichServier holds an exclusive worldwide license from Cellectis. We are conducting long-term follow-up in our Phase 1 clinical trial (the ALPHA trial) of ALLO-501 in patients with relapsed or refractory (R/R) non-Hodgkin lymphoma (NHL). We are also progressing the development of the second-generation version of ALLO-501, known as ALLO-501A. We have removed rituximab recognition domains in ALLO-501A, which we believe will potentially facilitate treatment of more patients, as rituximab is a typical part of a treatment regimen for a patient with NHL. We initiated a Phase 1/2 clinical trial for ALLO-501A (the ALPHA2 trial) in the second quarter of 2020. Subject to further patient follow-up and FDA discussion, we plan to proceed to the Phase 2 portion of the trial in adult patients with R/R large B-cell lymphoma in mid-2022. We are sponsoring two clinical trials in adult patients with R/R multiple myeloma, a Phase 1 clinical trial (the UNIVERSAL trial) of ALLO-715 and a Phase 1 clinical trial (the IGNITE trial) of ALLO-605, our first product candidate to incorporate our TurboCAR technology. TurboCAR technology allows cytokine signaling to be engineered selectively into CAR T cells and has shown the ability to improve the potency and persistence of the cells and to delay exhaustion of the cells in preclinical models. We also continue to advance the Phase 1 clinical trial (the TRAVERSE trial) of ALLO-316, an allogeneic CAR T cell product candidate targeting CD70, in adult patients with advanced or metastatic clear cell renal cell carcinoma (ccRCC). Enrollment of patients and the ability to conduct patient follow-up has been adversely impacted by the COVID-19 pandemic. The exact timing of delays and overall impact of the COVID-19 pandemic to our business, preclinical studies and clinical trials is currently unknown, and we are monitoring the pandemic as it continues to rapidly evolve. Since inception, we have had significant operating losses. Our net loss was$257.0 million for the year endedDecember 31, 2021 . As ofDecember 31, 2021 , we had an accumulated deficit of$903.3 million . As ofDecember 31, 2021 , we had$809.5 million in cash and cash equivalents and investments. We expect to continue to incur net losses for the foreseeable 78 --------------------------------------------------------------------------------
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future, and we expect our research and development expenses and general and administrative expenses will continue to increase.
Our Research and Development and License Agreements
Asset Contribution Agreement with Pfizer
InApril 2018 , we entered into an Asset Contribution Agreement (Pfizer Agreement) with Pfizer pursuant to which we acquired certain assets and assumed certain liabilities from Pfizer, including agreements with Cellectis andServier as described below, and other intellectual property for the development and administration of CAR T cells for the treatment of cancer. See Notes 6 to our consolidated financial statements included elsewhere in this report for further description of the Pfizer Agreement.
Research Collaboration and License Agreement with Cellectis
InJune 2014 , Pfizer entered into a Research Collaboration and License Agreement with Cellectis. InApril 2018 , Pfizer assigned the agreement to us pursuant to the Pfizer Agreement. InMarch 2019 , we terminated the agreement with Cellectis and entered into a new license agreement with Cellectis. See Note 6 to our consolidated financial statements included elsewhere in this report for further descriptions of the prior agreement with Cellectis and the new license agreement with Cellectis.
Exclusive License and Collaboration Agreement with
InOctober 2015 , Pfizer entered into an Exclusive License and Collaboration Agreement (Servier Agreement) withServier to develop, manufacture and commercialize certain allogeneic anti-CD19 CAR products, including UCART19, inthe United States with the option to obtain the rights over certain additional allogeneic anti-CD19 CAR product candidates and for allogeneic CAR T cell product candidates directed against one additional target. InApril 2018 , Pfizer assigned the agreement to us pursuant to the Pfizer Agreement. InOctober 2019 , we agreed to waive our rights to the one additional target. See Note 6 to our consolidated financial statements included elsewhere in this report for further description of the Servier Agreement.
Collaboration and License Agreement with Notch
OnNovember 1, 2019 , we entered into a Collaboration and License Agreement (the Notch Agreement) withNotch Therapeutics Inc. (Notch), pursuant to which Notch granted us an exclusive, worldwide, royalty-bearing, sublicensable license under certain of Notch's intellectual property to develop, make, use, sell, import, and otherwise commercialize therapeutic gene-edited T cell and/or natural killer cell products from induced pluripotent stem cells directed at certain CAR targets for initial application in NHL, ALL and multiple myeloma. In addition, Notch has granted us an option to add certain specified targets to our exclusive license in exchange for an agreed upon per-target option fee. The Notch Agreement includes a research collaboration to conduct research and pre-clinical development activities to generate engineered cells directed to our exclusive targets, which will be conducted in accordance with an agreed research plan and budget under the oversight of a joint development committee. In connection with the execution of the Notch Agreement, we made an upfront payment to Notch of$10.0 million . In addition, we made a$5.0 million investment in Notch's series seed convertible preferred stock, resulting in us having a 25% ownership interest in Notch's outstanding capital stock on a fully diluted basis immediately following the investment. InFebruary 2021 , we made an additional$15.9 million investment in Notch's Series A preferred stock. InOctober 2021 , we made an additional$1.8 million investment in Notch's common stock. Immediately following this transaction, our share in Notch was 23.0% on a voting interest basis. See Note 6 to our consolidated financial statements included elsewhere in this report for further description of the Notch Agreement.
OnOctober 6, 2020 , we entered into a strategic five-year collaboration agreement withThe University of Texas MD Anderson Cancer Center (MD Anderson) for the preclinical and clinical investigation of allogeneic CAR T cell product candidates. See Note 6 to our consolidated financial statements included elsewhere in this report for further description of the agreement with MD Anderson.
License Agreement with
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OnDecember 14, 2020 , we entered into a License Agreement withAllogene Overland Biopharm (CY) Limited (Allogene Overland), a joint venture established by us andOverland Pharmaceuticals (CY) Inc. (Overland), pursuant to a Share Purchase Agreement, datedDecember 14, 2020 , for the purpose of developing, manufacturing and commercializing certain allogeneic CAR T cell therapies for patients in greaterChina ,Taiwan ,South Korea andSingapore (the JV Territory). Allogene Overland subsequently assigned the License Agreement to a wholly-owned subsidiary,Allogene Overland BioPharm (HK) Limited (Allogene Overland HK). See Note 6 to our consolidated financial statements included elsewhere in this report for further description of the License Agreement and Share Purchase Agreement with Allogene Overland.
Transition Services Agreement
In connection with the closing of the Pfizer Agreement, we entered into a Transition Services Agreement (TSA) with Pfizer inApril 2018 , pursuant to which we obtained from Pfizer certain (i) research and development services, including services relating to testing, studies, and clinical trials, project management services, laboratory equipment and operations services, animal care services, data storage services and regulatory strategy services, and (ii) general and administrative services, including business technology services, compliance services, finance/accounting services, and procurement, manufacturing and supply chain services, with respect to the assets that we purchased from Pfizer. Under theTSA , Pfizer also provided us with certain facilities and facility management services. The services were provided by certain employees of Pfizer as independent contractors of Allogene. We believe that it was helpful for Pfizer to provide such services to us under theTSA to help facilitate the efficient operation of our business after the asset purchase. Pfizer began providing the services inMay 2018 and theTSA was terminated inSeptember 2019 .
Components of Results of Operations
Revenues
As ofDecember 31, 2021 , our revenue has been exclusively generated from our collaboration and license agreement with Allogene Overland HK. See Notes 1 and 6 to our consolidated financial statements appearing elsewhere in this Annual Report for more information related to our recognition of revenue and the Allogene Overland HK agreement. In the future, we may generate revenue from a combination of product sales, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, milestones and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, will be materially adversely affected.
Operating Expenses
Research and Development
To date, our research and development expenses have related primarily to discovery efforts, preclinical and clinical development, and manufacturing of our product candidates. Research and development expenses for the year endedDecember 31, 2021 included costs associated with our clinical and preclinical stage pipeline candidates and research into newer technologies. The most significant research and development expenses for the year relate to costs incurred for the development of our most advanced product candidates and include:
•expenses incurred under agreements with our collaboration partners and third-party contract organizations, investigative clinical trial sites that conduct research and development activities on our behalf, and consultants;
•costs related to the production of clinical materials, including fees paid for raw materials and to contract manufacturers;
•laboratory and vendor expenses related to the execution of preclinical and clinical trials;
•employee-related expenses, which include salaries, benefits and stock-based compensation;
•facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies; and
•other significant research and development costs including overhead costs.
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We expense all research and development costs in the periods in which they are incurred. We accrue for costs incurred as the services are being provided by monitoring the status of the project and the invoices received from our external service providers. We adjust our accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, milestone payment obligations are expensed when the milestone results are achieved. We are required to reimburseServier for 60% of the costs associated with the prior development of UCART19, including for long-term follow-up of patients in the CALM and PALL clinical trials of UCART19. We accrue for costs incurred by monitoring the status of clinical trials and the invoices received fromServier . We adjust our accrual as actual costs become known.Servier is required to reimburse us for 40% of the costs associated with the development of ALLO-501 and ALLO-501A. Collaboration expenses and cost reimbursement are recorded on a net basis as a research and development expense in our consolidated statements of operations and comprehensive loss. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase in the future as our clinical programs progress and as we seek to initiate clinical trials of additional product candidates. The cost of advancing our manufacturing process as well as the cost of manufacturing product candidates for clinical trials are included in our research and development expense. We also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates. However, it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following: •per patient trial costs; •biomarker analysis costs;
•the cost and timing of manufacturing for the trials;
•the number of patients that participate in the trials;
•the number of sites included in the trials;
•the countries in which the trials are conducted;
•the length of time required to enroll eligible patients;
•the total number of cells that patients receive;
•the drop-out or discontinuation rates of patients;
•potential additional safety monitoring or other studies requested by regulatory agencies, including to resolve any future clinical hold;
•the duration of patient follow-up; and
•the efficacy and safety profile of the product candidates.
In addition, the probability of success for each product candidate will depend on numerous factors, including safety, efficacy, competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate's commercial potential. Because our product candidates are still in clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability.
General and Administrative
General and administrative expenses consist primarily of salaries and other
staff-related costs, including stock-based compensation for options and
restricted stock units granted. General and administrative expenses also include
stock-based compensation expense related to the modification of shares of common
stock issued to our founders to include vesting conditions. Other significant
costs include costs relating to facilities and overhead costs, legal fees
relating to corporate and
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patent matters, insurance, investor relations costs, fees for accounting and consulting services, information technology, costs and support for our board of directors and board committees, and other general and administrative costs. General and administrative costs are expensed as incurred, and we accrue for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from our service providers, and adjusting our accruals as actual costs become known. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, potential commercialization of our product candidates and the increased costs of operating as a public company, including additional compliance-related expenses as a result of no longer being an emerging growth company. These increases are anticipated to include increased costs related to the hiring of additional personnel, developing infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules, corporate governance,SEC requirements, insurance and investor relations costs.
Other (Expense) Income, Net:
Interest and Other Income, Net
Interest and other income, net consists of interest earned on our cash, cash equivalents and investments and gains and losses recognized during the period.
Other Expense
Other expense consists of non-operating expenses, including our share of equity investments' net losses for the period.
Results of Operations
Comparison of the Years Ended
The following sets forth our results of operations for the years ended
Year Ended December 31, Change
2021 2020 2019 2021 vs 2020 2020 vs 2019
Collaboration revenue - related party
$ - $ 38,489 $ -
Operating expenses:
Research and development 220,176 192,987 144,535 27,189 48,452
General and administrative 74,105 65,256 57,473 8,849 7,783
Total operating expenses 294,281 258,243 202,008 36,038 56,235
Loss from operations (255,792) (258,243) (202,008) 2,451 (56,235)
Other (expense) income, net:
Interest and other income, net 1,714 9,164 17,351 (7,450) (8,187)
Other expense (2,927) (1,142) (268) (1,785) (874)
Total other income (expense), net (1,213) 8,022 17,083 (9,235) (9,061)
Loss before income taxes (257,005) (250,221) (184,925) (6,784) (65,296)
Benefit from income taxes - - 331 - (331)
Net loss $ (257,005) $ (250,221) $ (184,594) $ (6,784) $ (65,627) Collaboration revenue - related party
Collaboration revenue was$38.5 million for the year endedDecember 31, 2021 and zero for each of the years endedDecember 31, 2020 and 2019. Revenue recognized in the year endedDecember 31, 2021 was related to grant of license and delivery of the know-how performance obligation under the License Agreement entered into with Allogene Overland inDecember 2020 . 82 --------------------------------------------------------------------------------
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Research and Development Expenses
Research and development expenses were$220.2 million and$193.0 million for the years endedDecember 31, 2021 and 2020, respectively. The net increase of$27.2 million was primarily due to an increase in personnel related costs of$23.1 million , of which$8.3 million was increased stock-based compensation expense, an increase in allocated building rent and facilities costs of$10.8 million , offset by a decrease in external costs relating to the advancement of our product candidates of$9.4 million due to timing of process development activities and manufacturing runs. Research and development expenses were$193.0 million and$144.5 million for the years endedDecember 31, 2020 and 2019, respectively. The net increase of$48.5 million was primarily due to an increase in personnel related costs of$28.9 million , of which$11.9 million was increased stock-based compensation expense, an increase in external costs relating to the advancement of our product candidates of$16.1 million , and an increase in allocated building rent and facilities costs of$5.3 million , offset by a decrease inTSA expenses of$1.2 million and a decrease in travel related costs of$1.0 million due to the impact of the COVID-19 pandemic.
General and Administrative Expenses
General and administrative expenses were$74.1 million and$65.3 million for the years endedDecember 31, 2021 and 2020, respectively. The net increase of$8.8 million was primarily due to an increase in personnel related costs of$10.0 million , of which$7.3 million was increased stock-based compensation expense, offset by a decrease in allocated building rent and facilities costs of$1.9 million . General and administrative expenses were$65.3 million and$57.5 million for the years endedDecember 31, 2020 and 2019, respectively. The net increase of$7.8 million was primarily due to an increase in personnel related costs of$8.4 million , of which$7.3 million was increased stock-based compensation expense, an increase in allocated building rent and facilities costs of$2.4 million , an increase in legal and professional services of$1.2 million , offset by a decrease inTSA expenses of$3.5 million and a decrease in travel related costs of$0.8 million due to the impact of the COVID-19 pandemic.
Interest and Other Income, Net
Interest and other income, net was$1.7 million and$9.2 million for the years endedDecember 31, 2021 and 2020, respectively. The$7.5 million decrease was due to lower overall investment balance, lower yields and a corresponding reduction in the interest earned on our cash, cash equivalents and investments. Interest and other income, net was$9.2 million and$17.4 million for the years endedDecember 31, 2020 and 2019, respectively. The$8.2 million decrease was due to lower yields and a corresponding reduction in the interest earned on our cash, cash equivalents and investments.
Liquidity, Capital Resources and Plan of Operations
To date, we have incurred significant net losses and negative cash flows from operations. As ofDecember 31, 2021 , we had$809.5 million in cash, cash equivalents and investments. We believe that the aggregate of our current cash and cash equivalents and investments available for operations will be sufficient to fund our operations for at least the next 12 months from the date this Annual Report on Form 10-K is filed with theSEC . Our operations have been financed primarily by net proceeds from the sale and issuance of our convertible preferred stock, the issuance of convertible promissory notes, net proceeds from our IPO, our at-the-market (ATM) offerings, ourJune 2020 underwritten public offering, and upfront cash payment of$40.0 million received inDecember 2020 pursuant to our License Agreement with Allogene Overland. In connection with our IPO in 2018, we sold an aggregate of 20,700,000 shares of our common stock (inclusive of 2,700,000 shares of common stock pursuant to the over-allotment option granted to the underwriters) at a price of$18.00 per share and received approximately$343.3 million in net proceeds. InNovember 2019 , we entered into a sales agreement withCowen and Company, LLC (Cowen) under which we may from time to time issue and sell shares of our common stock through Cowen in ATM offerings for an aggregate offering price of up to$250.0 million . During the year endedDecember 31, 2020 , we sold an aggregate of 848,663 shares of common stock in ATM offerings resulting in net proceeds of$26.2 million . As ofDecember 31, 2021 ,$167.3 million remains available for sale under the sales agreement with Cowen. InJune 2020 , we sold 13,457,447 shares of our common stock, which included 1,755,319 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of$47.00 per 83 --------------------------------------------------------------------------------
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share, which resulted in net proceeds of approximately
Capital Resources
Our primary use of cash is for operating expenses, which consist primarily of clinical manufacturing and research and development expenditures related to our lead product candidates, other research efforts, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses and other current liabilities. Our product candidates are still in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain. Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration and license arrangements. If, and when, we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise capital when needed, we will need to delay, reduce or terminate planned activities to reduce costs. Doing so will likely harm our ability to execute our business plans.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
2021 2020 2019
(in thousands)
Net cash (used in) provided by:
Operating activities $ (184,812) $ (115,093) $ (137,350)
Investing activities 163,655 (505,123) 164,084
Financing activities 11,963 633,591 58,960
Net increase (decrease) in cash, cash equivalents
and restricted cash $ (9,194) $ 13,375 $ 85,694
Operating Activities
During the year ended December 31, 2021 , cash used in operating activities of
$184.8 million was attributable to a net loss of $257.0 million , substantially
offset by non-cash charges of $104.3 million and a net change of $32.1 million
in our net operating assets and liabilities. The non-cash charges consisted
primarily of stock-based compensation of $80.8 million , depreciation and
amortization of $10.5 million , net amortization and accretion on investment
securities of $7.0 million , share of losses from equity method investments of
$3.4 million , and non-cash rent expense of $2.6 million . The net change in
operating assets and liabilities was primarily due to a $38.6 million decrease
in deferred revenue within current liabilities, a $0.8 million decrease in
accounts payable, and a $0.6 million increase in other long term assets, offset
by a decrease in prepaid expenses and other current assets of $3.2 million and a
decrease in accrued and other current liabilities of $3.7 million , and an
increase in other-long term liabilities $1.0 million .
During the year ended December 31, 2020 , cash used in operating activities of
$115.1 million was attributable to a net loss of $250.2 million , substantially
offset by non-cash charges of $81.2 million and a net change of $53.9 million in
our net operating assets and liabilities. The non-cash charges consisted
primarily of stock-based compensation of $65.3 million , depreciation and
amortization of $7.4 million , non-cash rent expense of $4.0 million and net
amortization and accretion on investment securities of $3.3 million . The net
change in operating assets and liabilities was primarily due to a $39.0 million
increase in deferred revenue within current liabilities, a $18.7 million
increase in accrued and other current liabilities and $0.6 million increase in
accounts payable, offset by an increase in prepaid expenses and other current
assets of $3.2 million and a decrease in other-long term liabilities of $1.3
million .
During the year ended December 31, 2019 , cash used in operating activities of
$137.4 million was attributable to a net loss of $184.6 million , substantially
offset by non-cash charges of $54.1 million and a net change of $6.9 million in
our net
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operating assets and liabilities. The non-cash charges consisted primarily of stock-based compensation of$46.1 million , non-cash rent expense of$6.8 million and depreciation and amortization of$4.4 million , offset by net amortization and accretion on investment securities of$3.6 million . The net change in operating assets and liabilities was primarily due to a$6.4 million increase in accrued and other current liabilities, offset by an increase in prepaid expenses and other current assets of$5.4 million , an increase in other long-term assets of$4.4 million and a decrease in other-long term liabilities of$2.4 million .
Investing Activities
During the year ended
During the year endedDecember 31, 2020 , net cash used by investing activities of$505.1 million was related to the purchase of investments of$1.0 billion and purchases of property and equipment of$66.0 million , offset by cash inflows from maturities of investments of$593.6 million and cash inflows from sales of investments of$4.8 million . During the year endedDecember 31, 2019 , net cash provided by investing activities of$164.1 million was related to proceeds from investment maturities of$472.6 million , offset by cash used for investment purchases of$252.6 million , cash used in purchases of property and equipment of$50.8 million and cash used in connection with our investment in Notch's series seed convertible preferred stock of$5.1 million , inclusive of transaction costs.
Financing Activities
During the year endedDecember 31, 2021 , net cash provided by financing activities of$12.0 million was related to proceeds from the issuance of common stock upon the exercise of stock options of$8.3 million and proceeds from the employee stock purchase plan of$3.6 million . During the year endedDecember 31, 2020 , net cash provided by financing activities of$633.6 million was related to net proceeds from the issuance of common stock in ATM offerings and an underwritten public offering of$621.9 million , proceeds from the issuance of common stock upon the exercise of stock options of$8.8 million and proceeds from the employee stock purchase plan of$2.8 million . During the year endedDecember 31, 2019 , net cash provided by financing activities of$59.0 million was related to net proceeds from the issuance of common stock in ATM offerings of$54.2 million , proceeds from the issuance of common stock upon the exercise of stock options of$3.0 million and proceeds from the employee stock purchase plan of$1.8 million .
Contractual Obligations and Commitments
Material Cash Commitments and Requirements
Our commitments primarily consist of obligations under our agreements with Pfizer, Cellectis,Servier and Notch. Under these agreements we are required to make milestone payments upon successful completion of certain regulatory and sales milestones on a target-by-target and country-by-country basis. The payment obligations under the license agreements are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and we will be required to make development milestone payments and royalty payments in connection with the sale of products developed under these agreements. As ofDecember 31, 2021 , we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales. Additionally, we have entered into agreements with third-party contract manufacturers for the manufacture and processing of certain of our product candidates for clinical testing purposes, and we have entered and will enter into other contracts in the normal course of business with contract research organizations for clinical trials and other vendors for other services and products for operating purposes. These agreements generally provide for termination or cancellation, other than for costs already incurred. As ofDecember 31, 2021 , the Company had non-cancellable purchase commitments of$3.7 million . OnOctober 6, 2020 , we announced we entered into a strategic five-year collaboration agreement with MD Anderson for the preclinical and clinical investigation of allogeneic CAR T cell product candidates. We and MD Anderson are collaborating on the design and conduct of preclinical and clinical studies with oversight from a joint steering committee. Under the terms of the agreement, we have committed up to$15.0 million of funding for the duration of the agreement. Payment of 85 --------------------------------------------------------------------------------
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this funding is contingent on mutual agreement to study orders in order for any study to be included under the alliance. We made an upfront payment of$3.0 million to MD Anderson in the year endedDecember 31, 2020 . We are obligated to make further payments to MD Anderson each year upon the anniversary of the agreement effective date through the duration of the agreement term. The agreement may be terminated by either party for material breach by the other party. Individual studies may be terminated for, among other things, material breach, health and safety concerns or where the institutional review board, the review board at the clinical site with oversight of the clinical study, requests termination of any study. Where any legal or regulatory authorization is finally withdrawn or terminated, the relevant study will also terminate automatically. InJuly 2020 , we entered into a Solar Power Purchase and Energy Services Agreement for the installation and operation of a solar photovoltaic generating system and battery energy storage system at our manufacturing facility inNewark, California . The agreement has a term of 20 years and is expected to commence in the first half of 2022. We are obligated to pay for electricity generated from the system at an agreed rate for the duration of the agreement term. Termination of the agreement by us will result in a termination payment due of approximately$4.3 million . In connection with the agreement, we maintain a letter of credit for the benefit of the service provider in the amount of$4.3 million which is disclosed as restricted cash in the consolidated balance sheet as ofDecember 31, 2021 . We also have a Change in Control and Severance Plan that require the funding of specific payments, if certain events occur, such as a change of control and the termination of employment without cause.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our 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 may differ from these estimates under different assumptions or conditions. We believe that the assumptions and estimates associated with accrued research and development expenditures, revenue recognition, research and development expenses, stock-based compensation and leases have the most significant impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
We accrue liabilities for estimated costs of research and development activities conducted by our collaboration partners and third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. We recorded the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in the accrued and other current liabilities on the consolidated balance sheets and within research and development expense on the consolidated statements of operations and comprehensive loss. We accrue for these costs based on factors such as estimates of the work completed in accordance with agreements established with our collaboration partners and third-party service providers. We make estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, we adjust its accrued liabilities. We have not experienced any material differences between accrued costs and actual costs incurred since our inception.
Revenue Recognition
Our revenue is generated through collaboration research and license agreements.
The terms of these agreements may contain multiple deliverables which may
include (i) grant of licenses, (ii) transfer of know-how, (iii) research and
development activities, (iii) clinical manufacturing and, (iv) product supply.
The payment terms of these agreements may include nonrefundable upfront fees,
payments for research and development activities, payments based upon the
achievement of certain milestones, royalty payments based on product sales
derived from the collaboration, and payments for supplying product.
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We analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (ASC 808) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of Topic 606, Revenue from Contracts with Customers (ASC 606). For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to Topic 606. For elements of those arrangements that we determine should be accounted for under ASC 606, we assess which activities in our collaboration agreements are performance obligations that should be accounted for separately and determine the transaction price of the arrangement, which includes the assessment of the probability of achievement of future milestones and other potential consideration. A performance obligation represents a promise in a contract to transfer a distinct good or service to a customer, which represents a unit of accounting in accordance with ASC 606. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. A portion of the consideration should be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The total consideration which we expect to collect in exchange for our products is an estimate and may be fixed or variable. We constrain the estimated variable consideration when we assess it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. The transaction price is re-evaluated, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The allocation of the transaction price is performed based on standalone selling prices, which are based on estimated amounts that we would charge for a performance obligation if it were sold separately. Revenue is recognized when, or as, performance obligations in the contracts are satisfied, in the amount reflecting the expected consideration to be received from the goods or services transferred to the customers. Funds received in advance are recorded as deferred revenue and are recognized as the related performance obligation is satisfied.
Research and Development Expenses
We expense research and development costs as incurred. Acquired intangible assets are expensed as research and development costs if, at the time of payment, the technology is under development; is not approved by the FDA or other regulatory agencies for marketing; has not reached technical feasibility; or otherwise has no foreseeable alternative future use.
Research and development expenses also include costs incurred for internal and sponsored and collaborative research and development activities. Research and development costs consist of salaries and benefits, including associated stock-based compensation, and laboratory supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities on our behalf. Costs associated with co-development activities performed under the various license and collaboration agreements, including milestones achieved, are included in research and development expenses.
Stock-Based Compensation
We recognize compensation costs related to stock-based awards granted to employees and directors, including stock options, based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting stock-based compensation, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.
The Black-Scholes option-pricing model requires the use of subjective assumptions to determine the fair value of stock-based awards. These assumptions include:
Fair value of common stock-For grants beforeOctober 2018 when we were private and there was no public market for our common stock, the fair value of our common stock underlying share-based awards was estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by theAmerican Institute of Certified Public Accountants Practice Guide , Valuation of Privately-Held-Company Equity Securities Issued as Compensation. For all grants subsequent to our IPO inOctober 2018 , 87 --------------------------------------------------------------------------------
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the fair value of common stock was determined by taking the closing price per share of common stock per Nasdaq.
Expected term- The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards. Expected volatility- We use an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends, in addition to some consideration to our own stock price volatility. We continue to utilize comparable public companies as part of this process as we do not have sufficient trading history for our common stock. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.
Risk-free interest rate-The risk-free interest rate is based on the
Expected dividend-We have never paid dividends on its common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.
For the years ended
Leases
We early adopted Accounting Standards Update (ASU) No. 2016-02, Leases as ofJanuary 1, 2018 . For our long-term operating leases, we recognized right-of-use assets and lease liabilities on our consolidated balance sheet. The lease liabilities are determined as the present value of future lease payments using an estimated rate of interest that we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The right-of-use assets are based on the liability adjusted for any prepaid or deferred rent. For each lease, the lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise. Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses on the consolidated statements of operations and comprehensive loss. Variable lease payments include lease operating expenses. We elected to exclude from our consolidated balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for our long-term real estate leases.
Recent Accounting Pronouncements
Please refer to Note 2 to our consolidated financial statements for a discussion of new accounting standards and updates that may impact us.
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