LYELL IMMUNOPHARMA, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed consolidated
financial statements and the related notes included elsewhere in this Quarterly
Report on Form 10-Q. This discussion and analysis and other parts of this
Quarterly Report on Form 10-Q contain forward-looking statements based upon
current beliefs, plans and expectations related to future events and our future
financial performance that involve risks, uncertainties and assumptions, such as
statements regarding our intentions, plans, objectives and expectations for our
business. Our actual results and the timing of selected events could differ
materially from those described in or implied by these forward-looking
statements as a result of several factors, including those set forth under "Risk
Factors" in Part II, Item 1A of this Quarterly Report on Form 10-
Overview
We are a T cell reprogramming company dedicated to the mastery of T cells to
cure patients with solid tumors. We have assembled a world-class team,
comprising some of the foremost scientific leaders in the fields of oncology and
ACT, including Drs.
We are utilizing our Gen-R and Epi-R technology platforms to develop a multi-modality product pipeline across several solid tumor indications with high unmet needs and anticipate having four IND submissions by the end of 2022. Each of our programs provide opportunities to expand into additional indications beyond the patient populations we are initially targeting. Our product candidates are summarized in the table below:
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We were incorporated in
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support for these activities. All of our programs are currently in preclinical
development, and we have not yet tested any product candidates in humans and do
not have any products approved for sale. Since our inception, we have incurred
net losses each year. Our net losses were
To date, we have funded our operations primarily from the issuance and sale of
our convertible preferred stock in connection with private financings, the
issuance and sale of our common stock in connection with our initial public
offering (IPO) and to a lesser extent from a collaboration agreement, and we
have not generated any revenue from product sales. From
We anticipate that our expenses and operating losses will increase substantially over the foreseeable future. The expected increase in expenses will be driven in large part by our ongoing activities, if and as we:
•
continue preclinical development of our current and future product candidates and initiate additional preclinical studies; • commence clinical trials of our current and future product candidates; • advance our Gen-R, Epi-R and cell rejuvenation technology platforms as well as other research and development efforts; • attract, hire and retain qualified personnel; • seek regulatory approval of our current and future product candidates; • expand our manufacturing and process development capabilities; • expand our operational, financial and management systems; • acquire and license technology platforms; • continue to develop, protect and defend our intellectual property portfolio; and • incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company.
We believe it is critically important to own, control and continuously monitor all aspects of the cell therapy manufacturing process in order to mitigate risks the field has seen, including challenges in managing production, supply chain, patient specimen chain of custody and quality control. We made a strategic decision to invest substantial capital in building our own manufacturing facility to control our supply chain, maximize efficiencies in cell product production time, cost and quality and have the ability to rapidly incorporate disruptive advancements and new innovations. Controlling manufacturing also enables us to protect proprietary aspects of our Gen-R and Epi-R technology platforms. We view our manufacturing team and capabilities as a significant competitive advantage.
In 2019, we entered into two operating lease agreements for a combined
approximately 73,000 square feet of space to develop a cell therapy
manufacturing facility located in
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and modular design allowing us to produce plasmid, viral vector and T cell product to control and de-risk the sequence and timing of production of the major components of our supply chain related to our product candidates. At full staffing and capacity, we expect to be able to manufacture approximately 500 infusions per year depending on product candidate mix. We believe this capacity is sufficient to support our pipeline programs through pivotal trials and, if approved, early commercialization. We have achieved operational readiness of our LyFE manufacturing center and we have successfully completed engineering runs at scale to supply product for our upcoming clinical trials. We anticipate the facility to be cGMP qualified by the end of 2021. We anticipate continued investment in our manufacturing facility and capabilities to support our operating strategy.
The global COVID-19 pandemic continues to evolve rapidly, and we will continue
to monitor it closely. The extent of the impact of the COVID-19 pandemic on our
business, operations and development timelines and plans remains uncertain and
will depend on future developments that cannot be predicted at this time. Such
developments include the continued spread of the Delta variant in the
Our registration statement on Form S-1 related to our IPO was declared effective
on
We anticipate that we will need to raise additional capital in the future to fund our operations, including the further development of our product candidates and commercialization of any approved product candidates. Until such time, if ever, as we can generate significant product revenue, we expect to finance our operations with our existing cash, cash equivalents and marketable securities, any future equity or debt financings and upfront and milestone and royalties payments, if any, received under future licenses or collaborations. We may not be able to raise additional capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.
Collaboration, License and Success Payment Agreements
Below is a summary of the key terms for certain of our collaboration and license
agreements. For a more detailed description of these and our other
collaboration, license and success payment agreements, see the section titled
"Business-Collaboration, License and Success Payment Agreements" in the report
filed with the
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In
In
We also entered into a letter agreement with
Multiple of initial equity value at issuance 10x 20x 30x 40x 50x Per share common stock price required for payment$ 18.29 $ 36.58 $ 54.86 $ 73.15 $ 91.44
Aggregate success payment(s) (in millions)
The valuation measurement dates are triggered by the following events: the one-year anniversary of our IPO and each two-year anniversary of our IPO thereafter, the closing of a change in control transaction, and the last day of the term of the success payment agreement, unless the term has ended due to the closing of a change of control transaction.
The estimated fair value of the Fred Hutch Success Payments as of
In
In
We also entered into a letter agreement with
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exchanged. All shares of Series A convertible preferred stock converted into
shares of common stock upon the closing of our IPO. The potential Stanford
Success Payments are based on multiples of increased value ranging from 10x to
50x based on a comparison of the fair value of the Company's common stock
relative to the original issuance price of
Multiple of initial equity value at issuance 10x 20x 30x 40x 50x Per share common stock price required for payment$ 18.29 $ 36.58 $ 54.86 $ 73.15 $ 91.44
Aggregate success payment(s) (in millions)
The valuation measurement dates are triggered by the following events: the one-year anniversary of our IPO and each two-year anniversary of our IPO thereafter, the closing of a change in control transaction, and the last day of the term of the success payment agreement, unless the term has ended due to the closing of a change of control transaction.
The estimated fair value of the Stanford Success Payments as of
GSK Collaboration Agreement
In
NCI License Agreement
In
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Components of Operating Results
Revenue
We have no products approved for sale and have never generated any revenue from product sales.
To date, we have generated revenue primarily from the recognition of a portion
of the upfront payment under the GSK Agreement that we entered into in
Operating Expenses Research and Development
To date, research and development expenses consist of costs incurred by us for the discovery and development of our technology platforms and product candidates and includes costs incurred in connection with strategic collaborations, costs to license technology, personnel-related costs, including stock-based compensation expense, facility and technology related costs, research and laboratory expenses, as well as other expenses, which include consulting fees and other costs. Upfront payments and milestones paid to third parties in connection with technology platforms which have not reached technological feasibility and do not have an alternative future use are expensed as incurred.
Research and development expenses also include non-cash expense related to the
change in the estimated fair value of the liabilities associated with our
success payments granted to
We deploy our employee and infrastructure resources across multiple research and development programs for identifying and developing product candidates and establishing manufacturing capabilities. Due to the stage of development and number of ongoing programs and our ability to use resources across several programs, most of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory and other indirect facility and operating costs.
Research and development activities account for a significant portion of our operating expenses. We anticipate that our research and development expenses will increase over the foreseeable future as we expand our research and development efforts including completing preclinical studies, commencing clinical trials, completing clinical trials, seeking regulatory approval of our product candidates, identifying new product candidates, and incurring costs to acquire and license technology platforms. A change in the outcome of any of these variables could mean a significant change in the costs and timing associated with the development of our product candidates. Because all of our product candidates are still in preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the preclinical development, clinical development and commercialization of product candidates or whether, or when, we may achieve profitability.
Our research and development expenses may vary significantly based on factors such as:
•
the number and scope of preclinical and IND-enabling studies;
•
per patient trial costs;
•
the number of trials required for approval;
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•
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 number of patients that participate in the trials; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring requested by regulatory agencies; • the duration of patient participation in the trials and follow-up; • the cost and timing of manufacturing our product candidates; • the phase of development of our product candidates; • the efficacy and safety profile of our product candidates; • the extent to which we establish additional collaboration or license agreements; and • whether we choose to partner any of our product candidates and the terms of such partnership.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and future clinical trials.
General and Administrative
General and administrative costs include personnel-related expenses, including stock-based compensation expense, for personnel in executive, legal, finance and other administrative functions, legal costs, transaction costs related to collaboration and licensing agreements, as well as fees paid for accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include those related to corporate and patent matters.
We anticipate that our general and administrative expenses will increase over
the foreseeable future to support our continued research and development
activities, operations generally, future business development opportunities,
consulting fees, as well as due to the increased costs of operating as a public
company such as costs related to accounting, audit, legal, regulatory and
tax-related services associated with maintaining compliance with exchange
listing and
Other Operating Income, Net
Other operating income, net, consists primarily of service and occupancy fees received associated with subleases as well as losses on the sales of property and equipment.
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Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities balance.
Other (Expense) Income, Net
Other (expense) income, net, consists primarily of changes in the fair value of an equity warrant investment held.
Deemed Dividends Upon Repurchase of Convertible Preferred Stock
For the six months ended
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Three Months Ended June 30,
2021 2020 Change
Revenue $ 2,628 $ 3,118 $ (490 )
Operating expenses (income):
Research and development 46,446 97,152 (50,706 )
General and administrative 19,112 9,562 9,550
Other operating income, net (223 ) (1,030 ) 807
Total operating expenses 65,335 105,684 (40,349 )
Loss from operations (62,707 ) (102,566 ) 39,859
Interest income 218 1,881 (1,663 )
Other (expense) income, net (106 ) 29 (135 )
Net loss and net loss attributed
to common
stockholders $ (62,595 ) $ (100,656 ) $ 38,061
Revenue
Revenue was
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Research and Development Expenses
The following table summarizes the components of our research and development expenses for the periods presented (in thousands):
Three Months Ended June 30,
2021 2020 Change
Personnel $ 17,841 $ 14,253 $ 3,588
Facilities and technology 9,460 5,328 4,132
Success payments 9,266 487 8,779
Research and laboratory 5,622 4,014 1,608
Collaborations and licenses 2,841 72,756 (69,915 )
Other 1,416 314 1,102
Total research and development expenses
Research and development expenses were
•
a decrease in collaborations and licenses costs of$69.9 million , primarily due to the commitment agreement upfront payment to PACT of$63.6 million , consisting of the$50.0 million upfront payment and$13.6 million deemed to be the difference between the purchase price of the preferred stock shares we purchased from PACT and the associated value of the preferred shares, and$7.5 million in acquired in-process research and development expense related to the asset acquisition ofImmulus, Inc. (Immulus), recorded for the three months endedJune 30, 2020 ; • an increase of$8.8 million associated with ourFred Hutch andStanford success payments liabilities primarily due to the increase in the per share fair value of our common stock; • an increase in facilities and technology costs of$4.1 million primarily related to increased infrastructure to support the expansion of our research and development and manufacturing capabilities and associated headcount growth; • an increase in personnel-related expenses of$3.6 million , which was primarily related to an increase in headcount to expand our research and development and manufacturing capabilities; • an increase in research and laboratory expenses of$1.6 million , including laboratory supplies, preclinical studies, and other external research expenses; and • an increase in other research and development expenses of$1.1 million , which was primarily related to an increase in consulting expenses.
General and Administrative Expenses
General and administrative expenses were
Interest Income
Interest income was
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Comparison of the Six Months Ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Six Months Ended June 30,
2021 2020 Change
Revenue $ 5,073 $ 4,374 $ 699
Operating expenses (income):
Research and development 87,975 122,652 (34,677 )
General and administrative 35,943 18,442 17,501
Other operating income, net (768 ) (1,150 ) 382
Total operating expenses 123,150 139,944 (16,794 )
Loss from operations (118,077 ) (135,570 ) 17,493
Interest income 572 4,222 (3,650 )
Other (expense) income, net (133 ) 1,452 (1,585 )
Net loss $ (117,638 ) $ (129,896 ) $ 12,258
Net loss attributed to common
stockholders:
Net loss $ (117,638 ) $ (129,896 ) $ 12,258
Deemed dividends upon repurchase
of
convertible preferred stock - (3,582 ) 3,582
Net loss attributed to common
stockholders $ (117,638 ) $ (133,478 ) $ 15,840
Revenue
Revenue was
Research and Development Expenses
The following table summarizes the components of our research and development expenses for the periods presented (in thousands):
Six Months Ended June 30,
2021 2020 Change
Personnel $ 32,673 $ 25,008 $ 7,665
Success payments 19,233 2,558 16,675
Facilities and technology 16,997 10,955 6,042
Research and laboratory 10,098 8,958 1,140
Collaborations and licenses 6,855 74,598 (67,743 )
Other 2,119 575 1,544
Total research and development expenses
Research and development expenses were
•
a decrease in collaborations and licenses costs of
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•
development expense related to the asset acquisition ofImmulus, Inc. (Immulus), recorded for the six months endedJune 30, 2020 ; • an increase of$16.7 million associated with ourFred Hutch andStanford success payments liabilities primarily due to the increase in the per share fair value of our common stock; • an increase in personnel-related expenses of$7.7 million , including$2.9 million of stock- based compensation expense, which was primarily related to an increase in headcount to expand our research and development and manufacturing capabilities; • an increase in facilities and technology costs of$6.0 million primarily related to increased infrastructure to support the expansion of our research and development and manufacturing capabilities and associated headcount growth; • an increase in other research and development expenses of$1.5 million , which was primarily related to an increase in consulting expenses; and • an increase in research and laboratory expenses of$1.1 million , including laboratory supplies, preclinical studies, and other external research expenses.
General and Administrative Expenses
General and administrative expenses were
Interest Income
Interest income was
Other Income (Expense), Net
For the three and six months ended
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our operations primarily through the sale of
convertible preferred stock and the sale of common stock in connection with our
IPO. From
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Future Funding Requirements
We expect to incur additional losses in the foreseeable future as we conduct and expand our research and development efforts, including conducting preclinical studies and clinical trials, developing new product candidates, establishing internal manufacturing capabilities and funding our operations generally. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure needs into 2025. However, we anticipate that we will need to raise additional capital in the future to fund our operations, including the further development of our product candidates and commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.
Our future capital requirements will depend on many factors, including:
•
the scope, timing, progress, costs and results of discovery, preclinical development and clinical trials for our current and future product candidates; • the number of clinical trials required for regulatory approval of our current and future product candidates; • the costs, timing and outcome of regulatory review of any of our current and future product candidates; • the cost of manufacturing clinical and commercial supplies of our current and future product candidates; • the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; • further investment to build additional manufacturing facilities or expand the capacity of our existing ones; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; • our ability to maintain existing, and establish new, collaborations, licenses, product acquisitions or other strategic transactions and the fulfillment of our financial obligations under any such agreements, including the timing and amount of any success payment, future contingent, milestone, royalty, or other payments due under any such agreement; • the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; • expenses to attract, hire and retain, skilled personnel; • the costs of operating as a public company; • addressing any potential interruptions or delays resulting from factors related to the COVID-19 pandemic; • addressing or responding to any potential disputes or litigation; and • the extent to which we acquire or invest in businesses, products and technology platforms.
Until such time as we complete preclinical and clinical development and receive regulatory approval of our product candidates and can generate significant revenue from product sales, if ever, we expect to finance our operations from the
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sale of additional equity or debt financings, or other capital which come in the
form of strategic collaborations, licensing, or other arrangements. In the event
that additional capital is required, we may not be able to raise it on terms
acceptable to us, or at all. If we raise additional funds through the issuance
of equity or convertible debt securities, it may result in dilution to our
existing stockholders. Debt financing or preferred equity financing, if
available, may result in increased fixed payment obligations, and the existence
of securities with rights that may be senior to those of our common stock. If we
incur indebtedness, we could become subject to covenants that would restrict our
operations. If we raise funds through strategic collaboration, licensing, or
other arrangements, we may relinquish significant rights or grant licenses on
terms that are not favorable to us. Our ability to raise additional funds may be
adversely impacted by potential worsening global economic conditions and the
recent disruptions to, and volatility in, the credit and financial markets in
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Six Months Ended June 30,
2021 2020
Net cash (used in) provided by:
Operating activities $ (67,544 ) $ (112,514 )
Investing activities 97,203 (215,958 )
Financing activities 394,376 476,417
Net increase in cash, cash equivalents and
restricted cash $ 424,035 $ 147,945
Operating Activities
During the six months ended
During the six months ended
Investing Activities
During the six months ended
During the six months ended
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Financing Activities
During the six months ended
During the six months ended
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as compared to those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Prospectus.
Off-Balance Sheet Arrangements
Since our inception, we did not have, and we do not currently have, any
off-balance sheet arrangements as defined under the rules and regulations of the
JOBS Act Accounting Election
We are an "emerging growth company," as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statement, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. 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 unaudited condensed consolidated financial statements, as well as the reported revenue and 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.
There have been no material changes to our critical accounting policies and
estimates as compared to those described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" set forth in the
Prospectus, with the exception of revenue recognition related to licenses of
intellectual property in the three months ended
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Revenue
We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods and services. To determine revenue recognition for arrangements within the scope of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, (ASC 606), we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied.
In applying the ASC 606 framework, we must apply judgment to determine the nature of the promises within a revenue contract and whether those promises represent distinct performance obligations. In determining the transaction price, we do not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of cumulative revenue when the uncertainty is resolved. Milestone and other forms of variable consideration that we may earn are subject to significant uncertainties of research and development related achievements, which generally are deemed to be not probable until such milestones are actually achieved. For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Additionally, we develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract. We then allocate the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation, for which we recognize revenue as or when the performance obligations are satisfied. At the end of each subsequent reporting period, we re-evaluate the variable consideration and any related constraint and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis. Under our license agreements, we grant the license to a customer as it exists at the point of transfer and the nature of the license is a right to use our intellectual property as transferred. If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time.
For research and development services, revenue allocated to performance obligations is recognized using an estimate of the percentage of completion of the project based on the costs incurred on the project as a percentage of the total expected costs. The determination of the percentage of completion requires management to estimate the costs to complete the project. A detailed estimate of the costs to complete is reassessed every reporting period based on the latest project plan and discussions with project teams. If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate. The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs. Determining the estimate of the cost-to-complete requires significant judgment and may have a significant impact on the amount and timing of revenue recognition.
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