PRECISION BIOSCIENCES, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, 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 important factors, including those set forth in Part II. Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied by, these forward-looking statements. As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to "we," "us," "our," "the Company" and "Precision" refer toPrecision BioSciences, Inc. and its subsidiaries on a consolidated basis.
Overview
We are a life sciences company dedicated to improving life through the
application of our pioneering, proprietary ARCUS genome editing platform. We
leverage ARCUS in the development of our product candidates, which are designed
to treat human diseases and create healthy and sustainable food and agricultural
solutions. We are actively developing product candidates in three innovative
areas: allogeneic CAR T cell immunotherapy, in vivo gene correction, and food.
All of our CAR T programs are wholly owned. We are currently conducting a Phase
1/2a clinical trial of PBCAR0191 in adult patients with relapsed or refractory
("R/R") non-Hodgkin lymphoma ("NHL"), or R/R B-cell precursor acute
lymphoblastic leukemia ("B-ALL"). PBCAR0191 is our first gene-edited allogeneic
chimeric antigen receptor ("CAR") T cell therapy candidate targeting CD19. We
have received orphan drug designation for PBCAR0191 from the U.S. Food and Drug
Administration , ("FDA") for the treatment of acute lymphoblastic leukemia
("ALL"). In August 2020 , the FDA granted Fast Track Designation for PBCAR0191
for the treatment of B-ALL. The NHL cohort will include patients with mantle
cell lymphoma ("MCL"), an aggressive subtype of NHL, for which we have received
orphan drug designation from the FDA. Made from donor-derived T cells modified
using our ARCUS genome editing technology, PBCAR0191 recognizes the well
characterized tumor cell surface protein CD19, an important and validated target
in several B-cell cancers, and is designed to avoid graft-versus-host disease
("GvHD"), a significant complication associated with donor-derived, cell-based
therapies. We believe that this trial, which is designed to assess the safety
and tolerability of PBCAR0191 at increasing dose levels, as well as to evaluate
anti-tumor activity, is the first U.S. -based clinical trial to evaluate an
allogeneic CAR T therapy for R/R NHL. Furthermore, we believe that our
proprietary, one-step engineering process for producing allogeneic CAR T cells
with a potentially optimized cell phenotype, at large scale in a cost-effective
manner, will enable us to overcome the fundamental clinical and manufacturing
challenges that have limited the CAR T field to date.
In June 2020 , we commenced patient dosing in a Phase 1/2a clinical trial with
our third allogenic CAR T cell therapy product candidate, PBCAR269A. PBCAR269A
is designed to target B-cell maturation antigen ("BCMA") for the treatment of
R/R multiple myeloma and we have received orphan drug designation and Fast Track
Designation from the FDA for this indication. The starting dose of PBCAR269A was
6 x 105 cells/kg. In February 2021 , the study began enrolling patients into Dose
Level 3, 6.0 x 106 cells/kg. This study includes a combination arm evaluating
PBCAR269A and nirogacestat, a gamma secretase inhibitor ("GSI") developed by
SpringWorks Therapeutics. Emerging preclinical and clinical data suggest that a
GSI may increase antitumor efficacy of BCMA-targeted autologous CAR T therapy in
patients with R/R multiple myeloma. We are continuing to enroll patients in the
combination arm of our Phase 1/2a study of PBCAR269A with nirogacestat and
expect to provide an interim update on the monotherapy arm of the study in
December 2021 .
In November 2020 , we announced a research collaboration and exclusive license
agreement with Lilly to utilize ARCUS for the research and development of
potential in vivo therapies for genetic disorders, with an initial focus on
Duchenne muscular dystrophy ("DMD"), a liver-directed target and a CNS-directed
target. Under the agreement, Lilly has the right to nominate up to three
additional gene targets for genetic disorders over the first four years of the
Development and License Agreement, which may be extended to six years upon
Lilly's election and payment of an extension fee. In January 2021 , we entered
into the Development and License Agreement and completed the transactions under
the Stock Purchase Agreement. In connection with the closing of the
transactions, we received an upfront cash payment of $100.0 million under the
Development and License agreement and $35.0 million in exchange for 3,762,190
shares of our common stock under the Stock Purchase Agreement.
In
InApril 2021 , we entered into the Program Purchase Agreement withServier to reacquire all global development and commercialization rights for all CAR T partnered programs covered under the Servier Agreement. This includes our two clinical stage CD19-targeting allogeneic CAR T candidates, PBCAR0191 and PBCAR19B stealth cell, as well as four additional product targets. Under the terms of the Program Purchase Agreement, we paid$1.25 million in cash toServier and agreed to waive earned, but unpaid milestones totaling$18.75 million that would have otherwise been payable to us.Servier is also eligible to receive milestones and low- to mid-single-digit royalties subject to product development achievement. 25
-------------------------------------------------------------------------------- InJune 2021 , we announced updated interim clinical results from our Phase 1/2a study of PBCAR0191, our lead anti-CD19 CAR T candidate for the treatment of R/R NHL and R/R B-ALL. As ofMay 21, 2021 , 18 subjects with R/R NHL completed Day 28 evaluation and received either enhanced lymphodepletion ("eLD", n=12) or standard lymphodepletion ("sLD", n=6) with dose level 3 of PBCAR0191 (3.0 x 106 cells per kg). After a single dose of PBCAR0191 following eLD, overall response rates and complete response rates were 75% and 50%, respectively, at Day ? 28. Five of nine responding patients (56%) who received PBCAR0191 cells following eLD remained progression-free, including 4/9 evaluable subjects with responses lasting greater than 4 months. New interim data for PBCAR0191 will be presented at the upcoming 63rdAmerican Society of Hematology Annual Meeting. We are continuing to enroll patients in our Phase 1/2a study of PBCAR0191 and expect to provide an update on the study inDecember 2021 . InJuly 2021 , we announced that the first patient was dosed in our Phase 1 clinical study with PBCAR19B, our anti-CD19 immune-evading stealth cell candidate for the treatment of R/R NHL. In preclinical studies, PBCAR19B has shown to delay both T cell and natural killer cell mediated allogeneic rejection in vitro and may improve the persistence of allogeneic CAR T cells. The Phase 1 study is a non-randomized, open-label, single-dose, dose-escalation and dose-expansion study of PBCAR19B. PBCAR19B is being administered at flat dose levels starting at, 2.7 x 108 CAR T cells per patient, the same as Dose Level 3 for PBCAR0191. We expect to provide an initial study update on PBCAR19B in 2022. InAugust 2021 , we signed a license and collaboration agreement with iECURE (the "iECURE Agreement"), a mutation-agnostic in vivo gene editing company co-founded byJames M. Wilson , M.D., Ph.D. Under the iECURE Agreement, iECURE will advance our wholly-owned PBGENE-PCSK9 candidate into a Phase 1 study in familial hypercholesterolemia ("FH"), with a clinical trial application ("CTA") filing expected as early as 2022. iECURE will also use our PCSK9-directed ARCUS nuclease to develop four other pre-specified gene insertion therapies for rare genetic diseases, including OTC deficiency, phenylketonuria, and two other programs focused on liver diseases. We received a partial equity stake in iECURE and are eligible to receive milestone and mid-single digit to low double digit royalty payments on sales of iECURE products developed with ARCUS. InSeptember 2021 , we entered into an exclusive license agreement to evaluate Tiziana's foralumab, a fully human anti-CD3 monoclonal antibody ("mAb"), as a lymphodepleting agent in conjunction with our allogeneic CAR T cells for the potential treatment of cancers. This agreement reflects our ongoing pursuit of a best-in-class allogeneic CAR T cell therapy. InNovember 2021 , we announced that we will not continue development of PBCAR20A based on data observed to date in a heterogeneous R/R NHL population previously treated with anti-CD20 monoclonal antibodies, as treatment with PBCAR20A did not result in compelling response rates in a Phase 1/2a clinical study. While this study provided important information regarding allogeneic CAR T dosing and lymphodepletion regimens, we have decided to focus our clinical efforts in R/R lymphoma on CD19 targeting programs, as CD19 is a more robust antigenic target in R/R heterogeneous NHL populations. All subjects enrolled in the study and evaluated for treatment with PBCAR20A had acceptable tolerability with no GvHD, no Grade ? 3 cytokine release syndrome, and no Grade ? 3 neurotoxicity. Pre-clinical research continues to progress for our wholly-owned in vivo gene correction program applying ARCUS to knock out the HAO1 gene as a potential one-time treatment for primary hyperoxaluria type 1 ("PH1"). InSeptember 2021 , we presented non-human primate ("NHP") data showing on average, a 98.0% reduction in HAO1 mRNA and a 97.9% reduction in the encoded protein after a single administration of an adeno-associated virus ("AAV") vector encoding ARCUS. We have initiated IND-enabling activities and expect to submit an IND/CTA in 2023 for PBGENE-PH1 delivered by lipid nanoparticle ("LNP"). Our gene editing program for chronic hepatitis B virus ("HBV") applies ARCUS to knock out persistent closed circular DNA ("cccDNA") and potentially reduce viral persistence. Previously reported preclinical data has shown that ARCUS efficiently targeted and degraded HBV cccDNA in HBV-infected primary human hepatocytes and reduced expression of HBV S-antigen ("HBsAg") by as much as 95%. Similar levels of HBsAg reduction were observed in a newly developed mouse model of HBV infection following administration of ARCUS mRNA using LNP delivery. We expect to submit an IND/CTA in 2024 for our HBV program. Since our formation in 2006, we have devoted substantially all of our resources to developing ARCUS, conducting research and development activities, recruiting skilled personnel, developing manufacturing processes, establishing our intellectual property portfolio and providing general and administrative support for these operations. We have financed our operations primarily through proceeds from upfront payments from collaboration and licensing agreements, our initial public offering ("IPO"), private placements of our convertible preferred stock and convertible debt financings and at-the-market offerings of common stock. Since our inception, we have incurred significant operating losses and have not generated any revenue from the sale of products. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties. As ofSeptember 30, 2021 , we had an accumulated deficit of$294.4 million . 26 -------------------------------------------------------------------------------- We expect our operating expenses to increase substantially in connection with the expansion of our product development programs and capabilities. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution. In addition, we expect to continue to incur additional costs associated with operating as a public company. As a result of these anticipated expenditures, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our cash needs through a combination of public equity, debt financings or other sources, which may include current and new collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We cannot assure you that we will ever generate significant revenue to achieve profitability. Because of the numerous risks and uncertainties associated with the development of therapeutic and agricultural products, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be required to raise additional capital on terms that are unfavorable to us or we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. We currently conduct our operations through two reportable segments: Therapeutics and Food. Our Therapeutics segment is focused on allogeneic CAR T immunotherapy and in vivo gene correction. Our Food segment focuses on applying ARCUS to develop food and nutrition products through collaboration agreements with consumer-facing companies.
Impact of COVID-19 Pandemic
We are closely monitoring how the ongoing pandemic related to COVID-19 and variants thereof continues to affect our employees, business, preclinical studies and clinical trials. The Company has taken steps in line with guidance from theU.S. CDC and theState of North Carolina to protect the health and safety of its employees and the community. We have implemented measures to mitigate exposure risks and support operations. We initiated a health and safety program addressing mandatory use of face masks, social distancing, sanitary handwashing practices, use of personal protective equipment stations, stringent cleaning and sanitization of all facilities and measures to reduce total occupancy in facilities. We have also implemented temperature and symptom screening procedures at each location, and we have continuously communicated to all our Precisioneers that if they are not comfortable coming to work, regardless of role, then they do not have to do so. We are working closely with our clinical sites, physician partners and the patient community to monitor and manage the impact of the evolving pandemic related to COVID-19 and variants thereof. We remain committed to our clinical programs and development plans, however, disruptions, competing resource demands and safety concerns caused by the pandemic related to COVID-19 and variants thereof have caused, and are likely to continue to cause delays in our clinical trial site activation and impact our ability to enroll patients. We may also experience other difficulties, disruptions or delays in conducting preclinical studies or initiating, enrolling, conducting or completing our planned and ongoing clinical trials, and we may incur other unforeseen costs as a result. We expect that the pandemic related to COVID-19 and variants thereof may continue to impact our business, including our preclinical studies and clinical trials. At this time, there is still significant uncertainty relating to the trajectory of the pandemic related to COVID-19 and variants thereof and impact of related responses. The impact of COVID-19 and variants thereof on our preclinical studies and any further impact to our clinical trials will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing inthe United States and other countries, business closures or business disruptions, the ultimate impact of COVID-19 and variants thereof on financial markets and the global economy, and the effectiveness of actions taken inthe United States and other countries to contain and treat the disease. The Coronavirus, Aid, Relief and Economic Security Act ("CARES Act") was signed into law onMarch 27, 2020 , which provides for, among other things, the deferral of the deposit and payment of certain taxes. Pursuant to the CARES Act, we continue to elect to defer payment of the employer's share of social security taxes sinceMay 1, 2020 . See "Risk Factors- The outbreak of the ongoing novel coronavirus disease, COVID-19 has impacted our business, or and any other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials." In Part II, Item 1A. of this Quarterly Report on Form 10-Q.
Therapeutics Segment Collaborations
Eli Lilly and Company
InNovember 2020 , we entered into a research collaboration and exclusive license agreement withLilly , subsequently amended by the First Amendment to the Development and License Agreement datedAugust 9, 2021 , to utilize ARCUS for the research and 27
-------------------------------------------------------------------------------- development of potential in vivo therapies for genetic disorders.Lilly has initially nominated DMD, a liver-directed target and a CNS-directed target. Under the terms of the Development and License Agreement,Lilly has the right to nominate up to three additional gene targets for genetic disorders over the first four years of the Development and License Agreement.Lilly may extend the Nomination Period for an additional two years from the date on which such initial Nomination Period ends, uponLilly's election and payment of an extension fee. Under the terms of the Development and License Agreement,Lilly will receive an exclusive license to research, develop, manufacture and commercialize the resulting licensed products to diagnose, prevent and treat any and all diseases by in vivo gene editing directed against the applicable gene target. The Development and License Agreement provides that we will be responsible for conducting certain pre-clinical research and IND-enabling activities with respect to the gene targets nominated byLilly to be subject to the collaboration, including manufacture of initial clinical trial material for the first licensed product.Lilly will be responsible for, and must use commercially reasonable efforts with respect to, conducting clinical development and commercialization activities for licensed products resulting from the collaboration, and may engage us for additional clinical and/or initial commercial manufacture of licensed products. InJanuary 2021 , we andLilly closed the Development and License Agreement. In connection with the closing, we received an upfront cash payment of$100.0 million in cash, as well as$35.0 million fromLilly's purchase of 3,762,190 newly issued shares of our common stock pursuant to a stock purchase agreement as described below. We will also be eligible to receive milestone payments of up to an aggregate of$420.0 million per licensed product as well as nomination fees for additional targets and certain research funding. If licensed products resulting from the collaboration are approved and sold, we will also be entitled to receive tiered royalties ranging from the mid-single digit percentages to the low-teens percentages on world-wide net sales of the licensed products, subject to customary potential reductions.Lilly's obligation to pay royalties to us expires on a country-by-country and licensed product-by-licensed product basis, upon the latest to occur of certain events related to expiration of patents, regulatory exclusivity or a period of ten years following first commercial sale of the licensed product. We have the right to elect to co-fund the clinical development of one licensed product, which may be selected from among the third or any subsequent licensed products to reach IND filing. If we elect to co-fund such licensed product, we would reimburseLilly for a portion of the clinical development expenses for such product and, in exchange, each royalty tier with respect to net sales of such licensed product would be increased by a low single digit percentage. During the term of the Development and License Agreement, we may not (and may not license or collaborate with any third party to) research, develop, or commercialize any in vivo gene editing product directed against any gene targets that have been nominated and are subject to the Development and License Agreement. Unless earlier terminated, the Development and License Agreement will remain in effect on a licensed product-by-licensed product and country-by-country basis until the expiration of a defined royalty term for each licensed product and country.Lilly has the right to terminate the Development and License Agreement for convenience by providing advance notice to us. Either party may terminate the Development and License Agreement (i) for material breach by the other party and a failure to cure such breach within the time period specified in the agreement or (ii) due to a challenge to its patents brought by the other party. During the nine months endedSeptember 30, 2021 we recognized revenue under the agreement withLilly of approximately$15.6 million . We did not recognize any revenue under the agreement withLilly in 2020. Deferred revenue related to the agreement withLilly amounted to$93.1 million as ofSeptember 30, 2021 , of which$21.3 million was included in current liabilities. No deferred revenue related to the Lilly Agreement was recorded as ofDecember 31, 2020 .
iECURE
On
Pursuant to the iECURE Agreement, we retain the rights to PBGENE-PCSK9,
including all products developed for genetic indications with increased risk of
severe cardiovascular events such as FH. In return, we granted iECURE a license
to use our PCSK9-directed ARCUS nuclease to insert genes into the PCSK9 locus to
develop treatments for four other pre-specified rare genetic diseases, including
OTC deficiency, phenylketonuria, and two other programs focused on liver
diseases. Simultaneously with the entry into the iECURE Agreement, we entered
into an Equity Issuance Agreement with iECURE, pursuant to which iECURE granted
us partial equity ownership in iECURE as partial consideration for the license
to use its PCSK9-directed ARCUS nuclease. We concluded that the iECURE Equity
Issuance Agreement is to be combined with the iECURE Agreement (together, the
"iECURE Agreements") for accounting purposes. Additionally, we are eligible to
receive milestone and mid-single digit to low double digit royalty payments on
sales of iECURE products developed with ARCUS.
We assessed the iECURE Agreements in accordance with ASC 606 and concluded that
the promises in the iECURE Agreements represent a transaction with a customer.
Further, we concluded that the iECURE Agreements contain the following promises:
(i) the PCSK9 license and (ii) JSC Participation. The JSC participation was
determined to be an immaterial promise as the time commitment and related cost
associated with performance of JSC participation is expected to be
inconsequential to the total consideration in the
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--------------------------------------------------------------------------------contract. Accordingly, we concluded that the promise of the PCSK9 license is the sole performance obligation in the iECURE Agreements.
The fair value of the iECURE equity and the estimated fair value of the costs to be incurred by iECURE to progress our PBGENE-PCSK9 candidate through Phase 1 studies were concluded to be non-cash consideration, and as such were included in the transaction price of the iECURE Agreements. We concluded the PCSK9 license represents functional intellectual property in accordance with ASC 606 given we will not be providing any additional services to iECURE outside of the right to use the PCSK9 license. Therefore, the fair value of the iECURE equity and the fair value of the costs to be incurred by iECURE to progress our PBGENE-PCSK9 candidate through Phase 1 studies was recognized at the inception of the iECURE Agreements. The fair value of the iECURE equity at inception of the iECURE agreements was assessed to be$0.5 million and was initially recorded to the investment in equity securities line item of the condensed consolidated balance sheets. As further discussed in Note 7 to the condensed consolidated financial statements, "Fair Value Measurements", on issuance, we elected to account for the iECURE equity at fair value under ASC 825. Accordingly, we adjust the carrying value of the iECURE equity to fair value each reporting period with any changes in fair value recorded to other income (expense). The fair value of the costs to be incurred by iECURE to progress our PBGENE-PCSK9 candidate through Phase 1 studies was assessed to be$17.4 million and was recorded to the prepaid expenses and other assets line items of the condensed consolidated balance sheets in the amounts of$15.1 million and$2.3 million , respectively. The PCSK9 Prepaid will be amortized to research and development expense on a pro-rata basis as iECURE incurs costs to progress our PBGENE-PCSK9 candidate through Phase 1 studies. During the nine months endedSeptember 30, 2021 , we recognized revenue under the iECURE agreements of$17.9 million . We recognized no revenue under the iECURE agreements in 2020.Servier InFebruary 2016 , we entered into the Servier Agreement, pursuant to which we agreed to develop allogeneic CAR T cell therapies for five unique antigen targets. One target was selected at the agreement's inception. Two additional hematological cancer targets beyond CD19 and two new solid tumor targets were selected in 2020. With the addition of these new targets, we received development milestone payments in 2020. Upon selection of an antigen target under the agreement, we agreed to perform early-stage research and development on individual T cell modifications for the selected target, develop the resulting therapeutic product candidates through Phase 1 clinical trials and prepare initial clinical trial material of such product candidates for use in Phase 2 clinical trials. InApril 2021 , we entered into the Program Purchase Agreement withServier to reacquire all global development and commercialization rights for all CAR T partnered programs covered under the Servier Agreement. This includes our two clinical stage CD19-targeting allogeneic CAR T candidates, PBCAR0191 and PBCAR19B stealth cell, as well as four additional product targets. Under the terms of the Program Purchase Agreement, we paid$1.25 million in cash toServier and agreed to waive earned, but unpaid milestones totaling$18.75 million that would have otherwise been payable to us. The Program Purchase Agreement also requires us to make certain payments toServier based on the achievement of regulatory and commercial milestones for each product, and a low- to mid-single-digit percentage royalty (subject to certain reductions) based on net sales of approved products, if any, resulting from any continued development and commercialization of the programs, for a period not to exceed ten years after first commercial sale of the applicable product inthe United States or certain countries inEurope . If we enter into specified product partnering transactions, the Program Purchase Agreement requires us to pay toServier a portion of certain consideration received pursuant to such product partnering transactions in lieu of the foregoing milestones (with the exception of a one-time clinical phase development milestone) and royalties. Upon the closing of the Program Purchase Agreement, we concluded that the combined performance obligation associated with the Servier Agreement was fully satisfied as Precision is no longer required to perform research and development work on the Servier Targets and Precision regained all of its global development and commercialization rights previously granted to under theServier agreement. Accordingly, all remaining deferred revenue related to theServier agreement was recognized as revenue in the three months endedJune 30, 2021 . During the nine months endedSeptember 30, 2021 and 2020, we recognized revenue under the agreement withServier of approximately$72.9 million and$9.7 million , respectively. No deferred revenue related to the agreement withServier was recorded as ofSeptember 30, 2021 . Deferred revenue related to the agreement withServier amounted to$82.9 million as ofDecember 31, 2020 , of which$28.9 million was included in current liabilities.
Gilead
OnJuly 6, 2020 , Gilead Sciences ("Gilead") notified us of its termination of the collaboration and license agreement datedSeptember 10, 2018 , subsequently amended by Amendment No. 1 datedMarch 10, 2020 or (the "Gilead Agreement"), to develop genome editing 29
-------------------------------------------------------------------------------- tools using ARCUS to target viral DNA associated with the hepatitis B virus. Pursuant to the termination notice, the Gilead Agreement terminated onSeptember 4, 2020 . Upon termination, we regained full rights and all data we generated for the in vivo chronic hepatitis B program developed under the Gilead Agreement.
We recognized no revenue and
Trustees of the
InJanuary 2018 , we entered into a research, collaboration and license agreement with the Trustees of theUniversity of Pennsylvania ("Penn") to collaborate on the preclinical development for gene editing products involving the delivery of an ARCUS nuclease. OnApril 29, 2020 , both parties agreed to coordinate a wind-down of all activities in their entirety under the agreement, effective as ofJune 30, 2020 , however, inAugust 2020 and subsequently inJanuary 2021 , both parties agreed to extend certain portions of the agreement until 2022. We will not be required to make termination payments to Penn.
InApril 2006 , we entered into the Duke License, pursuant to whichDuke University ("Duke") granted us an exclusive (subject to certain non-commercial rights reserved by Duke), sublicensable, worldwide license under certain patents related to certain meganucleases and methods of making such meganucleases owned by Duke to develop, manufacture, use and commercialize products and processes that are covered by such patents, in all fields and in all applications. For additional discussion of the Duke License, see "Item 1. Business-License and Collaboration Agreements" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . SpringWorks Therapeutics InSeptember 2020 , we entered into a Clinical Trial Collaboration Agreement with SpringWorks. Pursuant to such agreement, PBCAR269A will be evaluated in combination with nirogacestat, SpringWorks' investigational GSI, in patients with R/R multiple myeloma. Under the terms of the agreement, we will bear all costs with the conduct of the clinical trial including providing PBCAR269A for use in the trial, and SpringWorks is responsible for providing nirogacestat at its sole cost and expense. The first patient was dosed in the combination arm inJune 2021 . Tiziana InSeptember 2021 , we entered into an exclusive license agreement to evaluate Tiziana's foralumab, a fully human anti-CD3 mAb, as a lymphodepleting agent in conjunction with our allogeneic CAR T cells for the potential treatment of cancers. Food Segment CollaborationDole Food Company Through our wholly owned subsidiary, Elo, inJune 2020 , we entered into a Research, Development, and Commercialization Agreement with Dole with the aim to co-develop banana varieties resistant to Foc TR4, utilizing proprietary computational biology workflows and the ARCUS genome editing platform. The disease caused by Foc TR4, commonly known as Fusarium wilt, threatens the continued cultivation of the world's most popular variety of banana called Cavendish, which is of considerable economic significance as this variety is used to produce export bananas for key markets around the globe and Dole is one of the largest producers in the industry. Fungicides, or other traditional means of disease control have failed as the pandemic continues to spread across vital banana growing economies. Development of Foc TR4 varieties is critically important to save the banana industry, to protect the livelihoods of millions of banana growers and continue to provide consumers an affordable and nutritious fruit. Under the terms of the collaboration, Dole will fully fund research and development efforts executed by Elo, and Elo is eligible to receive royalties on any commercialized plant product.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect
to generate any revenue from product sales in the foreseeable future. We record
revenue from collaboration agreements, including amounts related to upfront
payments, annual fees for licenses of our intellectual property and research and
development funding.
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Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. These include the following:
• salaries, benefits and other related costs, including share-based
compensation expense, for personnel engaged in research and development
functions;
• expenses incurred under agreements with third parties, including contract
research organizations ("CROs") and other third parties that conduct
preclinical research and development activities and clinical trials on our
behalf;
• costs of developing and scaling our manufacturing process andmanufacturing drug products for use in our preclinical studies and ongoing
and future clinical trials, including the costs of contract manufacturing
organizations ("CMOs") and our MCAT facility that will manufacture our
clinical trial material for use in our preclinical studies and ongoing and
potential future clinical trials;
• costs of outside consultants, including their fees and related travel
expenses;
• costs of laboratory supplies and acquiring, developing and manufacturing
preclinical study and clinical trial materials;
• license payments made for intellectual property used in research and
development activities; and
• facility-related expenses, which include direct depreciation costs and
expenses for rent and maintenance of facilities and other operating costs
if specifically identifiable to research activities.
We expense research and development costs as incurred. We track external
research and development costs, including the costs of laboratory supplies and
services, outsourced research and development, clinical trials, contract
manufacturing, laboratory equipment and maintenance and certain other
development costs, by product candidate if and when the program IND is cleared
by the FDA. Internal and external costs associated with infrastructure
resources, other research and development costs, facility related costs and
depreciation and amortization that are not identifiable to a specific product
candidate are included in the platform development, early-stage research and
unallocated expenses category.
Research and development activities are central to our business model. We expect
that our research and development expenses will continue to increase
substantially for the foreseeable future and will comprise a larger percentage
of our total expenses as we continue our clinical trials for our CD19, CD19B and
BCMA product candidates, and continue to discover and develop additional product
candidates.
We cannot determine with certainty the duration and costs of ongoing and future
clinical trials of our CD19, CD19B and BCMA product candidates, or any other
product candidate we may develop or if, when or to what extent we will generate
revenue from the commercialization and sale of any product candidate for which
we obtain marketing approval. We may never succeed in obtaining marketing
approval for any product candidate. The duration, costs and timing of clinical
trials and development of our CD19, CD19B and BCMA product candidates, and any
other our product candidate we may develop will depend on a variety of factors,
including:
• the scope, rate of progress, expense and results of clinical trials of our
CD19, CD19B and BCMA product candidates, as well as of any future clinical
trials of other product candidates and other research and development
activities that we may conduct;
• increased costs of additional clinical sites to address slowed enrollment
due to the impact of COVID-19 and variants thereof or any similar
pandemic;
• uncertainties in clinical trial design and patient enrollment rates;
• the actual probability of success for our product candidates, including
their safety and efficacy, early clinical data, competition, manufacturing
capability and commercial viability;
• significant and changing government regulation and regulatory guidance;
• the timing and receipt of any marketing approvals; and
• the expense of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights.
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-------------------------------------------------------------------------------- A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in our executive, finance, business development, operations and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.
We expect that our general and administrative expenses will increase in the future as we continue research activities and development of product candidates.
Change in Fair Value of
On issuance, we elected to account for the iECURE equity at fair value under ASC 825. Accordingly, the Change in fair value of equity investment represents the change in fair value of the iECURE equity investment between reporting periods.
Interest Expense
Interest expense consists of interest payments and debt discount amortization on the Elo Loan.
Interest Income
Interest income consists of interest income earned on our cash and cash equivalents.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months endedSeptember 30, 2021 andSeptember 30, 2020 , together with the changes in those items: Three Months Ended September 30, (in thousands) 2021 2020 Change Revenue$ 24,036 $ 7,363 $ 16,673 Operating expenses: Research and development 25,940 24,873 1,067 General and administrative 9,638 8,534 1,104 Total operating expenses 35,578 33,407 2,171 Operating loss (11,542 ) (26,044 ) 14,502 Other income (expense): Change in fair value of equity investment 274 - 274 Interest expense (55 ) - (55 ) Interest income 44 28 16 Total other income, net 263 28 235 Net loss$ (11,279 ) $ (26,016 ) $ 14,737 Revenue Revenue for the three months endedSeptember 30, 2021 was$24.0 million , compared to$7.4 million for the three months endedSeptember 30, 2020 . The increase of$16.6 million in revenue during the three months endedSeptember 30, 2021 was primarily the result of a$17.9 million increase in revenue recognized under the iECURE Agreement as the iECURE Agreement was executed in 2021, a$4.9 million increase in revenue recognized under the Lilly Agreement as work began in 2021 and a$0.9 million increase in 32 -------------------------------------------------------------------------------- revenue recognized from a partnering collaboration. These increases in revenue were partially offset by a$7.0 million decrease in revenue recognized under the Servier Agreement as the performance obligation was deemed fully satisfied upon the execution of the Program Purchase Agreement inApril 2021 .
Research and Development Expenses
Three Months Ended
September 30,
(in thousands) 2021 2020 Change
Direct research and development expenses by product
candidate:
CD19 external development costs $ 2,376 $ 2,250 $ 126
CD20 external development costs 1,289 1,457 (168 )
BCMA external development costs 1,282 357 925
CD19B external development costs 330 - 330
Platform development, early-stage research and
unallocated expenses:
Employee-related costs 10,470 9,635 835
Laboratory supplies and services 3,729 3,571 158
Outsourced research and development 670 1,758 (1,088 )
CMOs and research organizations 1,729 2,086 (357 )
Laboratory equipment and maintenance 526 318 208
Facility-related costs 850 843 7
Depreciation and amortization 1,904 1,883 21
Licensing fees 746 639 107
Other research and development costs 39 76 (37 )
Total research and development expenses $ 25,940 $
24,873
Research and development expenses for the three months endedSeptember 30, 2021 were$25.9 million , compared to$24.9 million for the three months endedSeptember 30, 2020 . The increase of$1.0 million in research and development expense was primarily due to increases of$0.1 million ,$0.9 million , and$0.3 million in direct costs associated with our CD19, BCMA, and CD19B clinical trials, respectively, primarily driven by increased CRO costs associated with the respective clinical trials. Further contributing to the increase in research and development expenses during the three months endedSeptember 30, 2021 was an increase in employee-related costs of$0.8 million associated increased wages and share-based compensation expense and a$0.2 million increase in expenses related to laboratory supplies and services. These increases in research and development expenses were partially offset by decreases of$1.1 million in outsourced research and development related to preclinical studies that were completed in 2020 as well as costs related to CD19B that are now directly allocated to the product candidate as well as a$0.2 million decrease in CD20 external development costs as development of PBCAR20A has been discontinued.
General and Administrative Expenses
General and administrative expenses were$9.6 million for the three months endedSeptember 30, 2021 compared to$8.5 million for the three months endedSeptember 30, 2020 . The increase of$1.1 million in general and administrative expenses was primarily due to costs required to meet our growing infrastructure needs, including increases of$1.2 million in employee-related costs due to increased general and administrative headcount and higher share-based compensation expense and$0.2 million in information technology costs. These increases in general and administrative expenses were partially offset by a decrease of$0.3 million in consulting and legal fees.
Change in Fair Value of
The Change in Fair Value of Equity Investments was$0.3 million for the three months endedSeptember 30, 2021 . The change in fair value is attributed to an increase in the assessed fair value of our equity investment in iECURE from issuance inAugust 2021 toSeptember 30, 2021 . No change in fair value was assessed in the three months endedSeptember 30, 2020 as we obtained the iECURE equity inAugust 2021 . Interest Income (expense)
Interest income was less than
33
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Interest expense was less than $0.1 million for the three months ended
September 30, 2021 . Interest expense represents interest incurred on the
principal amount of the Elo Loan as well as amortization of the Elo Loan debt
discount. No interest expense was incurred in the three months ended
September 30, 2020 .
Segment Results
Three Months Ended September 30,
(in thousands) 2021 2020 Change
Revenue:
Therapeutics $ 22,795 $ 7,048 $ 15,747
Food 1,241 315 926
Total segment revenue 24,036 7,363 16,673
Segment operational cash expenditures:
Therapeutics 18,111 17,612 499
Food 1,732 1,467 265
Total segment operational cash expenditures 19,843 19,079 764
Segment operating income (loss):
Therapeutics 4,684 (10,564 ) 15,248
Food (491 ) (1,152 ) 661
Total segment operating income (loss) 4,193 (11,716 ) 15,909
We evaluate the operating performance of each segment based on segment operating
income (loss). Segment operating income (loss) is derived by deducting
operational cash expenditures, net, from GAAP revenue. Operational cash
expenditures are cash disbursements made that are specifically identifiable to
the reportable segment, including specifically identifiable research and
development and property, equipment and software expenditures. The reportable
segment operational cash expenditures include cash disbursements for
compensation, laboratory supplies, purchases of property, equipment and software
and procuring services from CROs, CMOs and research organizations. We do not
allocate general operational expenses or non-cash income statement amounts to
our reportable segments.
Therapeutics Segment
Revenue for the three months ended September 30, 2021 was $22.8 million ,
compared to $7.0 million for the three months ended September 30, 2020 . The
increase of $15.8 million was the result of a $17.9 million increase in revenue
recognized under the iECURE Agreement as the iECURE Agreement was executed in
2021 and a $4.9 million increase in revenue recognized under the Lilly Agreement
as work began in 2021. These increases in revenue were partially offset by a
$7.0 million decrease in revenue recognized under the Servier Agreement as the
performance obligation was deemed fully satisfied upon the execution of the
Program Purchase Agreement in April 2021 .
Segment operational cash expenditures for the three months ended September 30,
2021 were $18.1 million , compared to $17.6 million for the three months ended
September 30, 2020 . The increase of $0.5 million was primarily due to increases
in employee-related cash expenditures partially offset by lower clinical
trial-related cash expenditures. Segment operating income was $4.7 million for
the three months ended September 30, 2021 compared to an operating loss of $10.6
million for three months ended September 30, 2020 . The increase of $15.3 million
in operating income is primarily due to the factors discussed above.
Food Segment
Revenue for the three months endedSeptember 30, 2021 was$1.2 million , compared to$0.3 million for the three months endedSeptember 30, 2020 . The increase of$0.9 million was attributable to a$0.9 million increase in revenue from a partnered collaboration. Segment operational cash expenditures for the three months endedSeptember 30, 2021 were$1.7 million , compared to$1.5 million for the three months endedSeptember 30, 2020 . The increase of$0.2 million was primarily due to increases in employee-related cash expenditures and lab-related cash expenditures. Segment operating loss decreased$0.7 million to$0.5 million for the three months endedSeptember 30, 2021 compared to$1.2 million for the three months endedSeptember 30, 2020 primarily due to the factors listed above. 34 --------------------------------------------------------------------------------
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months endedSeptember 30, 2021 andSeptember 30, 2020 , together with the changes in those items in dollars: Nine Months Ended September 30, (in thousands) 2021 2020 Change Revenue$ 109,190 $ 15,439 $ 93,751 Operating expenses: Research and development 88,768 74,935 13,833 General and administrative 29,074 26,852 2,222 Total operating expenses 117,842 101,787 16,055 Operating loss (8,652 ) (86,348 ) 77,696 Other income (expense): Change in fair value of equity investment 274 - 274 Interest expense (79 ) - (79 ) Interest income 145 795 (650 ) Total other income, net 340 795 (455 ) Net loss$ (8,312 ) $ (85,553 ) $ 77,241 Revenue Revenue for the nine months endedSeptember 30, 2021 was$109.2 million , compared to$15.4 million for the nine months endedSeptember 30, 2020 . The increase of$93.8 million in revenue during the nine months endedSeptember 30, 2021 was primarily the result of a$63.2 million increase in revenue recognized under the Servier Agreement as the performance obligation was deemed fully satisfied upon the execution of the Program Purchase Agreement, a$17.9 million increase in revenue recognized under the iECURE Agreement as the iECURE Agreement was executed in 2021, a$15.6 million increase in revenue recognized under the Lilly Agreement as work began in 2021, and a$2.5 million increase in revenue recognized from a partnering collaboration. These increases in revenue were partially offset by a$3.9 million decrease in revenue recognized from Gilead due to the termination of the Gilead Agreement in 2020 and a$1.5 million decrease in milestone revenue recognized from an agriculture industry collaboration partner.
Research and Development Expenses
Nine Months Ended
September 30,
(in thousands) 2021 2020 Change
Direct research and development expenses by product
candidate:
CD19 external development costs $ 6,532 $ 7,198 $ (666 )
CD20 external development costs 3,312 4,486 (1,174 )
BCMA external development costs 3,133 2,640 493
CD19B external development costs 2,662 - 2,662
Platform development, early-stage research and
unallocated expenses:
Employee-related costs 31,814 27,826 3,988
Program Purchase Agreement costs and contract
liability 11,250 - 11,250
Laboratory supplies and services 11,024 9,672 1,352
Sublicensing royalty payable to Duke 1,111 - 1,111
Outsourced research and development 1,583 6,599 (5,016 )
CMOs and research organizations 4,133 5,365 (1,232 )
Laboratory equipment and maintenance 1,553 1,078 475
Facility-related costs 2,745 2,488 257
Depreciation and amortization 5,747 5,593 154
Licensing fees 1,875 1,789 86
Other research and development costs 294 201 93
Total research and development expenses $ 88,768 $ 74,935 $ 13,833
Research and development expenses for the nine months ended September 30, 2021
were $88.8 million , compared to $74.9 million for the nine months ended
September 30, 2020 . The increase of $13.9 million was primarily due to the
Program Purchase Agreement in which a $10.0 million financial contract liability
was accrued as it was deemed probable to occur and the $1.3 million cash payment
to
35
--------------------------------------------------------------------------------Servier was recorded to expense in the nine months endedSeptember 30, 2021 . Further contributing to the increase in research and development expenses during the nine months endedSeptember 30, 2021 were an increase in employee-related costs of$4.0 million associated with increased wages and share-based compensation expense, a$2.7 million increase in CD19B external development costs as the CD19B Phase 1 clinical trial commenced inJune 2021 , a$1.8 million increase in laboratory related costs, a$1.1 million sublicensing royalty payable to Duke on theLilly upfront payment received, a$0.3 million increase in facility-related costs primarily driven by higher common area maintenance fees, and a$0.1 million increase in licensing fees. These increases in research and development expenses for the nine months endedSeptember 30, 2021 were partially offset by decreases of$5.0 million in outsourced research and development costs related to preclinical studies that were completed in 2020 as well as costs related to CD19B that are now directly allocated to the product candidate,$1.2 million in CMO and research organization expense, and$1.2 million in CD20 external development costs as development of PBCAR20A has been discontinued.
General and Administrative Expenses
General and administrative expenses were$29.1 million for the nine months endedSeptember 30, 2021 , compared to$26.9 million for the nine months endedSeptember 30, 2020 . The increase of$2.2 million was primarily due to costs required to meet our growing infrastructure needs, including increases of$2.4 million in employee-related costs primarily driven by higher share-based compensation expense,$0.7 million in information technology costs,$0.4 million in insurance expense,$0.3 million in consulting fees and$0.1 million in depreciation and amortization expense. These increases in general and administrative expenses for the nine months endedSeptember 30, 2021 were partially offset by decreases of$1.3 million in legal fees and$0.2 million in office maintenance expense.
Change in Fair Value of
The Change in Fair Value of Equity Investments was$0.3 million for the nine months endedSeptember 30, 2021 . The change in fair value is attributed to an increase in the assessed fair value of our equity investment in iECURE from issuance inAugust 2021 toSeptember 30, 2021 . No change in fair value was assessed in the nine months endedSeptember 30, 2020 as we obtained the iECURE equity inAugust 2021 . Interest Income (expense) Interest income was$0.1 million for the nine months endedSeptember 30, 2021 , compared to$0.8 million for the nine months endedSeptember 30, 2020 . The decrease of$0.7 million of interest income generated on our cash and cash equivalent balances was the result of lower interest rates in the nine months endedSeptember 30, 2021 compared to the same period in 2020. Interest expense was an amount less than$0.1 million for the nine months endedSeptember 30, 2021 . Interest expense represents interest incurred on the principal amount of the Elo Loan as well as amortization of the Elo Loan debt discount. No interest expense was incurred in the nine months endedSeptember 30, 2020 . Segment Results Nine Months Ended September 30, (in thousands) 2021 2020 Change Revenue: Therapeutics$ 106,361 $ 13,541$ 92,820 Food 2,829 1,898 931 Total segment revenue 109,190 15,439 93,751 Segment operational cash expenditures: Therapeutics $ 62,334 $ 55,986$ 6,348 Food 5,985 5,873 112 Total segment operational cash expenditures 68,319 61,859 6,460 Segment operating income (loss): Therapeutics $ 44,027$ (42,445 ) $ 86,472 Food (3,156 ) (3,975 ) 819 Total segment operating income (loss) 40,871 (46,420 ) 87,291 We evaluate the operating performance of each segment based on segment operating income (loss). Segment operating income (loss) is derived by deducting operational cash expenditures, net, from GAAP revenue. Operational cash expenditures are cash disbursements made that are specifically identifiable to the reportable segment (including specifically identifiable research and development and property, equipment and software expenditures). The reportable segment operational cash expenditures include cash disbursements for compensation, laboratory supplies, purchases of property, equipment and software and procuring services from 36
--------------------------------------------------------------------------------
CROs, CMOs and research organizations. We do not allocate general operational expenses or non-cash income statement amounts to our reportable segments.
Therapeutics Segment
Revenue for the nine months endedSeptember 30, 2021 was$106.4 million , compared to$13.5 million for the nine months endedSeptember 30, 2020 . The increase of$92.9 million in revenue during the nine months endedSeptember 30, 2021 was primarily the result of a$63.2 million increase in revenue recognized under the Servier Agreement as the performance obligation was deemed fully satisfied upon the execution of the Program Purchase Agreement, a$17.9 million increase in revenue recognized under the iECURE Agreement as the iECURE Agreement was executed in 2021, a$15.6 million increase in revenue recognized under the Lilly Agreement as work began in 2021. These increases in revenue were partially offset by a$3.9 million decrease in revenue recognized from Gilead due to the termination of the Gilead Agreement in 2020. Segment operational cash expenditures for the nine months endedSeptember 30, 2021 were$62.3 million , compared to$56.0 million for the nine months endedSeptember 30, 2020 . The increase of$6.3 million was primarily due increases in employee-related cash expenditures, a$1.3 million cash payment toServier in 2021 in connection with the Program Purchase Agreement, and a$1.1 million sublicensing royalty payable to Duke on theLilly upfront payment received. Segment operating income was$44.0 million for the nine months endedSeptember 30, 2021 compared to an operating loss of$42.4 million for nine months endedSeptember 30, 2020 . The increase of$86.4 million in operating income is primarily due to the factors discussed above.
Food Segment
Revenue for the nine months endedSeptember 30, 2021 was$2.8 million , compared to$1.9 million for the nine months endedSeptember 30, 2020 . The increase of$0.9 million in revenue during the nine months endedSeptember 30, 2021 was primarily due to a$2.5 million increase in revenue recognized from a partnering collaboration, partially offset by a$1.5 million decrease in milestone revenue recognized from an agriculture industry collaboration partner. Segment operational cash expenditures for the nine months endedSeptember 30, 2021 were$6.0 million , compared to$5.9 million for the nine months endedSeptember 30, 2020 . The increase of$0.1 million was primarily due to increases in employee-related cash expenditures and lab supply cash expenditures, partially offset by a decrease in fixed asset cash expenditures. Segment operating loss decreased$0.8 million to$3.2 million for the nine months endedSeptember 30, 2021 compared to$4.0 million for the same period in 2020 primarily due to the factors discussed above.
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs will continue to increase, including in connection with conducting preclinical studies and clinical trials for our product candidates, contracting with CROs and CMOs, the addition of laboratory equipment to MCAT in support of preclinical studies and clinical trials, expanding our intellectual property portfolio and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light of the economic downturn and ongoing uncertainty related to the pandemic related to COVID-19 and variants thereof. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates. In addition, the magnitude and duration of the pandemic related to COVID-19 and variants thereof and its impact on our liquidity and future funding requirements remains uncertain as of the filing date of this Quarterly Report on Form 10-Q, as the pandemic continues to evolve globally. See "Impact of COVID-19 Pandemic" above and "Risk Factors- The ongoing novel coronavirus disease, COVID-19 has impacted our business and any other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials" in Part II, Item 1A. of this Quarterly Report on Form 10-Q for a further discussion of the potential impact of the pandemic related to COVID-19 and its variants on our business. We do not currently have any approved products and have never generated any revenue from product sales. Through the date of filing this Quarterly Report on Form 10-Q, we have financed our operations primarily through proceeds from upfront payments from collaboration and licensing agreements, our IPO, private placements of our convertible preferred stock and convertible debt, and at-the-market offerings of common stock. As ofSeptember 30, 2021 , we had raised approximately$652.0 million of proceeds from third parties through a combination of financings including our IPO, preferred stock and convertible note financings, at-the-market offerings of common stock as part of our shelf registration statement, upfront and milestone payments from customers and funding from other strategic alliances and grants. 37 -------------------------------------------------------------------------------- We currently have an effective shelf registration statement on Form S-3 (No. 333-238857) filed with theSEC onJune 1, 2020 (the "Form S-3") under which we may offer from time to time in one or more offerings any combination of common and preferred stock, debt securities, warrants and units of up to$200.0 million in the aggregate. As ofSeptember 30, 2021 , we had sold 1,642,186 shares of our common stock in at-the-market offerings as part of our shelf registration statement, resulting in net proceeds of$18.7 million , after deducting agent commissions and issuance costs.
Cash Flows
Our cash and cash equivalents totaled
The following table summarizes our sources and uses of cash for the periods
presented:
Nine Months Ended September 30,
(in thousands) 2021 2020
Net cash provided by (used in) operating activities
$ (73,934 ) Net cash used in investing activities (4,298 ) (3,935 ) Net cash provided by financing activities 62,143 1,131 Increase (decrease) in cash and cash equivalents$ 70,673 $ (76,738 )
Cash Provided by (Used in) Operating Activities
Our primary use of cash is to fund operating expenses, which consist primarily of research and development and general and administrative expenses. Cash provided by (used in) operating activities during the nine months endedSeptember 30, 2021 andSeptember 30, 2020 resulted from our net loss adjusted for non-cash expenses and changes in working capital. Cash provided by operating activities during the nine months endedSeptember 30, 2021 was$12.8 million compared to$73.9 million used in operating activities during the nine months endedSeptember 30, 2020 . The increase in cash provided by operating activities in the nine months endedSeptember 30, 2021 was primarily driven by the$100.0 million upfront payment received fromLilly inJanuary 2021 , partially offset by increases in employee-related costs, costs related to our Phase 1 clinical trial of CD19B which began inJune 2021 , and the$1.3 million cash payment toServier in connection with the Program Purchase Agreement.
Cash Used in Investing Activities
Cash used in investing activities primarily relates to cash expenditures to acquire leasehold additions, equipment, software and intangible assets. Net cash used in investing activities during the nine months endedSeptember 30, 2021 was$4.3 million , compared to$3.9 million in the nine months endedSeptember 30, 2020 . The$0.4 million increase in cash used in investing activities was primarily driven by a$0.8 million cash expenditure for the license to evaluate Tiziana's foralumab as a lymphodepletion agent in conjunction with our allogeneic CAR T therapeutics, which was capitalized as an intangible asset. The increase in investing activities related to the Tiziana license was partially offset by a$0.4 million decrease in cash expenditures for purchases of leasehold additions, equipment, and software.
Cash Provided by Financing Activities
Net cash provided by financing activities during the nine months endedSeptember 30, 2021 were$62.1 million , compared to$1.1 million during the nine months endedSeptember 30, 2020 . The increase in cash provided by financing activities during the nine months endedSeptember 30, 2021 was primarily due to the$35.0 million in proceeds received under the Stock Purchase Agreement withLilly inJanuary 2021 ,$18.1 million in net proceeds received from sales of our common stock under our shelf registration statement,$2.5 million in net proceeds received from the issuance of the Elo Term Loan, and an increase in proceeds from stock option exercises.
Debt Obligations
Revolving Line
InMay 2019 , we entered into a loan and security agreement withPacific Western Bank , as subsequently amended pursuant to which we may request advances on a revolving line of credit of up to an aggregate principal of$30.0 million . The Pacific Western Loan matures onJune 23, 2023 . All outstanding principal amounts are due on the maturity date. The Company must also maintain an aggregate balance of unrestricted cash at Bank (not including amounts in certain specified accounts) equal to or 38 -------------------------------------------------------------------------------- greater than$10.0 million . The interest rate under the Pacific Western Loan is a variable annual rate equal to the greater of (a) 2.75% above the Prime Rate (as defined in the Pacific Western Loan), or (b) 6.00%.
There have been no borrowings under the Pacific Western Loan as of the date of
this Quarterly Report on Form 10-Q. The Company was in compliance with its
financial covenants under the Pacific Western Loan as of
Elo Loan OnMay 19, 2021 , Elo entered into a loan and security agreement with PWB for a term loan in the amount of$2.5 million . The Elo Loan matures onMarch 31, 2022 . Monthly payments on the Elo Loan are interest only until maturity. Elo may prepay principal before maturity without penalty or premium. The interest rate on the Elo Loan is a variable annual rate equal to the greater of a) 1.75% above the prime rate in effect (as defined in the Elo Loan); or b) 5.00%. All outstanding principal amounts are due on the maturity date. The Company was in compliance with its financial covenants under the Elo Loan as ofSeptember 30, 2021 . Funding Requirements
Our operating expenses increased substantially in the nine months ended
We believe that, as of the date the financial statements included in this Quarterly Report on Form 10-Q were issued, our cash and cash equivalents, expected operational receipts and available credit will allow us to fund our operating expense and capital expenditure requirements into 2023. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical and agricultural products, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:
• the progress, costs and results of our clinical development for our CD19,
CD19B and BCMA programs as we progress clinical trials, including CRO costs;
• the progress, costs and results of our additional research and preclinical
development programs;
• the outcome, timing and cost of meeting regulatory requirements established
by the FDA and other comparable foreign regulatory authorities;
• the costs and timing of internal process development and manufacturing
scale-up activities and contract with CMOs associated with our CD19, CD19B
and BCMA programs and other programs we advance through preclinical and
clinical development;
• our ability to establish and maintain strategic collaborations, licensing or
other agreements and the financial terms of such agreements;
• the scope, progress, results and costs of any product candidates that we may
derive from ARCUS or any other product candidates we may develop alone or
with collaborators;
• the extent to which we in-license or acquire rights to other products,
product candidates or technologies;
• the costs and timing of preparing, filing and prosecuting patentapplications, maintaining and protecting our intellectual property rights
and defending against any intellectual property-related claims; and
• the costs and timing of future commercialization activities, including
product manufacturing, marketing, sales and distribution, for any product
candidates for which we or our collaborators obtain marketing approval.
Until such time, if ever, that we can generate product revenue sufficient to
achieve profitability, we expect to finance our cash needs through a combination
of public or private equity or debt financings, collaboration agreements, other
third party funding, strategic alliances, licensing arrangements and marketing
and/or distribution arrangements.
To the extent that we raise additional capital through the sale of equity or
convertible debt securities, shareholders' ownership interest will be diluted,
and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of our shareholders. Debt financing and
preferred equity financing, if available, may involve agreements that include
covenants limiting or
39
-------------------------------------------------------------------------------- restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, product development and research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations
Other than the$10.0 million financial contract liability accrued in the nine months endedSeptember 30, 2021 related to the Program Purchase Agreement described further in Note 4 to the condensed consolidated financial statements, "Commitments and Contingencies," and the$2.5 million Elo Loan described further under "-Debt Obligations" above, there have been no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
Critical Accounting Policies and Use of Estimates
Our critical accounting policies and estimates are described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Use of Estimates" in our Annual Report on Form 10-K. We have reviewed those critical accounting policies and estimates for the three and nine months endedSeptember 30, 2021 , and there have been no significant changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under
Emerging Growth Company Status
We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards. As an "emerging growth company," we are also exempted from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b). We will remain an "emerging growth company" until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of$1.07 billion or more, (2)December 31, 2024 , (3) the date on which we have issued more than$1.0 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of theSEC , which means the market value of our common stock held by non-affiliates exceeds$700 million as of the priorJune 30th , we have been a public company for at least 12 months and have filed one Annual Report on Form 10-K.
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