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 April 2020 , we commenced patient dosing in a Phase 1/2a clinical trial with
our second allogeneic CAR T cell therapy product candidate, PBCAR20A. PBCAR20A
targets the validated tumor cell surface target CD20. It is being investigated
in R/R NHL, including those with R/R chronic lymphocytic leukemia ("CLL"), or
R/R small lymphocytic lymphoma ("SLL"). A subset of the NHL patients will have
the diagnosis of MCL and we have received orphan drug designation for PBCAR20A
from the FDA for the treatment of this disease. Dose level 3, 4.8 x 108 cells
per patient given as a fixed dose, has been completed and we have paused the
study until PBCAR0191 and PBCAR19B durability is demonstrated. We expect to
provide an interim update on the program in 2021.
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. We expect to provide an interim update for the
monotherapy arm of the PBCAR269A study in 2021. In June 2021 , Precision
announced that it dosed the first patient in its combination arm with PBCAR269A
and nirogacestat, a gamma secretase inhibitor ("GSI") being developed by
SpringWorks. 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. In April 2021 , we announced we started
conducting IND-enabling studies for PBCAR269B, our next-generation
immune-evading stealth cell candidate targeting BCMA.
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") and two other undisclosed gene targets.
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
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In April 2021 , we entered into the Program Purchase Agreement with Servier 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 to
Servier and agreed to waive earned, but as-yet 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.
In June 2021 , we announced updated interim clinical results from our Phase 1/2a
study of our lead anti-CD19 CAR T candidate, PBCAR0191. As of May 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. PBCAR0191 with
eLD continues to show acceptable tolerability with no evidence of GvHD and with
a similar frequency of immune effector cell-associated neurotoxicity syndrome
and cytokine release syndrome compared to patients who received sLD. A subset of
this data set was also presented at ASCO 2021.
Also in June 2021 , the first patient was dosed in our Phase 1 clinical trial
with PBCAR19B, our anti-CD19 immune-evading stealth cell candidate for patients
with 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 at flat dose levels following sLD. The first dose level of
PBCAR19B (2.7 x 108 CAR T cells per patient) is comparable to dose level 3 of
the PBCAR0191 clinical trial. The primary objective of the study is to identify
the maximum tolerated dose and any dose-limiting toxicities. Clinical trial
material for this study is generated at our MCAT facility.
We expect to advance a program targeting the rare genetic disease primary
hyperoxaluria type 1 ("PH1") as our lead wholly owned in vivo gene correction
program. PH1 affects approximately 1-3 people per million in the United States
and is caused by loss of function mutations in the AGXT gene, leading to the
accumulation of calcium oxalate crystals in the kidneys. Patients suffer from
painful kidney stones which may ultimately lead to renal failure. Using ARCUS,
we are developing a potential therapeutic approach to PH1 that involves knocking
out a gene called HAO1 which acts upstream of AGXT. Suppressing HAO1 has
prevented the formation of calcium oxalate in preclinical models. We therefore
believe that a one-time administration of an ARCUS nuclease targeting HAO1 may
be a viable strategy for a durable treatment of PH1 patients. Pre-clinical
research has continued to progress, and we expect to provide an update on the
PH1 program in September 2021 .
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 of June 30, 2021 ,
we had an accumulated deficit of $283.1 million .
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
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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 to utilize ARCUS for the research and development of potential in vivo therapies for genetic disorders.Lilly has initially nominated DMD and two other gene targets for other genetic disorders, and 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 (the "Nomination Period").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 25 -------------------------------------------------------------------------------- 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 six months endedJune 30, 2021 we recognized revenue under the agreement withLilly of approximately$10.7 million . We did not recognize any revenue under the agreement withLilly in 2020. Deferred revenue related to the agreement withLilly amounted to$97.5 million as ofJune 30, 2021 , of which$22.2 million was included in current liabilities as ofJune 30, 2021 . No deferred revenue related to the Lilly Agreement was recorded as ofDecember 31, 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 six months endedJune 30, 2021 and 2020, we recognized revenue under the agreement withServier of approximately$72.9 million and$2.6 million , respectively. No deferred revenue related to the agreement withServier was recorded as ofJune 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. 26 --------------------------------------------------------------------------------
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 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$3.9 million in revenue under the Gilead Agreement during the six months endedJune 30, 2021 and 2020, respectively. We did not receive any milestone payments under the Gilead Agreement.
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 . Food Segment CollaborationsDole 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,
CD20, 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, CD20, 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, CD20, 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, CD20, 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;
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• the expense of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights.
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.
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 endedJune 30, 2021 andJune 30, 2020 , together with the changes in those items: Three Months Ended June 30, (in thousands) 2021 2020 Change Revenue$ 68,805 $ 1,078$ 67,727 Operating expenses: Research and development 37,235 25,183 12,052 General and administrative 9,938 8,703 1,235 Total operating expenses 47,173 33,886 13,287 Operating income (loss) 21,632 (32,808 ) 54,440 Other income (expense): Interest expense (24 ) - (24 ) Interest income 48 107 (59 ) Total other income, net 24 107 (83 ) Net income (loss)$ 21,656 $ (32,701 ) $ 54,357 Revenue Revenue for the three months endedJune 30, 2021 was$68.8 million , compared to$1.1 million for the three months endedJune 30, 2020 . The increase of$67.7 million in revenue during the three months endedJune 30, 2021 was the result of a$62.0 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$5.3 million increase in revenue recognized under the Lilly Agreement as work began in 2021, and a$0.9 million increase in revenue recognized from a partnering collaboration, partially offset by a$0.5 million decrease in revenue recognized from Gilead due to the termination of the Gilead Agreement in 2020. 29
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Research and Development Expenses
Three Months Ended June 30,
(in thousands) 2021 2020 ChangeDirect research and development expenses by product candidate: CD19 external development costs
$ 1,940 $ 2,612 $ (672 ) CD20 external development costs 1,234 1,874 (640 ) BCMA external development costs 795 1,682 (887 ) CD19B external development costs 1,073 - 1,073 Platform development, early-stage research and unallocated expenses: Employee-related costs 10,742 9,086 1,656 Program Purchase Agreement costs and contract liability 11,250 - 11,250 Laboratory supplies and services 3,511 2,443 1,068 Outsourced research and development 316 2,092 (1,776 ) CMOs and research organizations 2,121 1,628 493 Laboratory equipment and maintenance 538 408 130 Facility-related costs 996 843 153 Depreciation and amortization 2,009 1,871 138 Licensing fees 583 582 1 Other research and development costs 127 62 65 Total research and development expenses$ 37,235 $ 25,183 $ 12,052 Research and development expenses for the three months endedJune 30, 2021 were$37.2 million , compared to$25.2 million for the three months endedJune 30, 2020 . The increase of$12.0 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 toServier was recorded to expense in the three months endedJune 30, 2021 . Further contributing to the increase in research and development expenses during the three months endedJune 30, 2021 were an increase in employee-related costs of$1.7 million associated with increased headcount and higher share-based compensation expense, a$1.2 million increase in laboratory related costs including supplies, services, equipment and maintenance, a$1.1 million increase in CD19B external development costs as the CD19B Phase 1 clinical trial commenced inJune 2021 , a$0.5 million increase in CMO and research organization expenses related to our preclinical studies, and a$0.2 million increase in facility-related costs primarily driven by higher common area maintenance fees. These increases in research and development expenses were partially offset by decreases of$0.7 million ,$0.6 million and$0.9 million in direct costs associated with our CD19, CD20, and BCMA clinical trials, respectively, as well as a$1.8 million decrease in outsourced research and development expense as costs associated with our CD19B program were allocated directly to the program beginning in 2021.
General and Administrative Expenses
General and administrative expenses were$9.9 million for the three months endedJune 30, 2021 compared to$8.7 million for the three months endedJune 30, 2020 . The increase of$1.2 million was primarily due to costs required to meet our growing infrastructure needs, including increases of$1.3 million in employee-related costs associated with increased headcount and higher share-based compensation expense,$0.3 million in information technology costs, and$0.1 million in consulting fees, partially offset by a$0.5 million decrease in legal fees. Interest Income (expense) Interest income was less than$0.1 million for the three months endedJune 30, 2021 , compared to$0.1 million for the three months endedJune 30, 2020 . The slight decrease in interest income generated on our cash and cash equivalent balances was the result of lower interest rates in three months endedJune 30, 2021 compared to the same period in 2020. Interest expense was less than$0.1 million for the three months endedJune 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 endedJune 30, 2020 . 30 --------------------------------------------------------------------------------
Segment Results
Three Months Ended June 30,
(in thousands) 2021 2020 Change
Revenue:
Therapeutics $ 67,887 $ 1,020 $ 66,867
Food 918 58 860
Total segment revenue 68,805 1,078 67,727
Segment operational cash expenditures:
Therapeutics 21,360 19,117 2,243
Food 1,961 1,588 373
Total segment operational cash expenditures 23,321 20,705 2,616
Segment operating income (loss):
Therapeutics 46,527 (18,097 ) 64,624
Food (1,043 ) (1,530 ) 487
Total segment operating income (loss) 45,484 (19,627 ) 65,111
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 June 30, 2021 was $67.9 million , compared to
$1.0 million for the three months ended June 30, 2020 . The increase of $66.9
million was primarily the result of a $62.0 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 $5.3
million increase in revenue recognized under the Lilly Agreement as work began
in 2021, partially offset by a $0.5 million decrease in revenue recognized from
Gilead due to the termination of the Gilead Agreement in 2020.
Segment operational cash expenditures for the three months ended June 30, 2021
were $21.4 million , compared to $19.1 million for the three months ended
June 30, 2020 . The increase of $2.3 million was primarily due to the $1.3
million payment made to Servier in connection with the Program Purchase
Agreement and increases in employee-related cash expenditures associated with
higher headcount. Segment operating income was $46.5 million for the three
months ended June 30, 2021 compared to an operating loss of $18.1 million for
three months ended June 30, 2020 . The increase of $64.6 in operating income is
primarily due to the factors discussed above.
Food Segment
Revenue for the three months endedJune 30, 2021 was$0.9 million , compared to$0.1 million for the three months endedJune 30, 2020 . The increase of$0.8 million was attributable to a$0.9 million increase in revenue from a partnered collaboration offset by a$0.1 million decrease in revenue from a joint development collaboration, as the agreement to provide services thereunder ended in 2020. Segment operational cash expenditures for the three months endedJune 30, 2021 were$2.0 million , compared to$1.6 million for the three months endedJune 30, 2020 . The increase of$0.4 million was primarily due to increase in employee-related cash expenditures partially offset by a decrease in fixed asset expenditures. Segment operating loss decreased$0.5 million to$1.0 million for the three months endedJune 30, 2021 compared to$1.5 million for the three months endedJune 30, 2020 primarily due to the factors listed above. 31 --------------------------------------------------------------------------------
Comparison of the Six Months Ended
The following table summarizes our results of operations for the six months endedJune 30, 2021 andJune 30, 2020 , together with the changes in those items in dollars: Six Months Ended June 30, (in thousands) 2021 2020 Change Revenue$ 85,154 $ 8,076 $ 77,078 Operating expenses: Research and development 62,828 50,062 12,766 General and administrative 19,436 18,318 1,118 Total operating expenses 82,264 68,380 13,884 Operating income (loss) 2,890 (60,304 ) 63,194 Other income (expense): Interest expense (24 ) - (24 ) Interest income 101 767 (666 ) Total other income, net 77 767 (690 ) Net income (loss)$ 2,967 $ (59,537 ) $ 62,504 Revenue Revenue for the six months endedJune 30, 2021 was$85.2 million , compared to$8.1 million for the six months endedJune 30, 2020 . The increase of$77.1 million in revenue during the six months endedJune 30, 2021 was primarily the result of a$70.3 million increase in revenue recognized under theServier Agreement as the performance obligation was deemed fully satisfied upon the execution of the Program Purchase Agreement, a$10.7 million increase in revenue recognized under the Lilly Agreement as work began in 2021, and a$1.5 million increase in revenue recognized from a partnering collaboration, 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 revenue recognized from an agriculture industry collaboration partner.
Research and Development Expenses
Six Months Ended June 30,
(in thousands) 2021 2020 ChangeDirect research and development expenses by product candidate: CD19 external development costs
$ 4,156 $ 4,948 $ (792 ) CD20 external development costs 2,023 3,029 (1,006 ) BCMA external development costs 1,851 2,283 (432 ) CD19B external development costs 2,332 - 2,332 Platform development, early-stage research and unallocated expenses: Employee-related costs 21,344 18,190 3,154 Program Purchase Agreement costs and contract liability 11,250 - 11,250 Laboratory supplies and services 7,295 6,101 1,194 Sublicensing royalty payable to Duke 1,111 - 1,111 Outsourced research and development 913 4,842 (3,929 ) CMOs and research organizations 2,404 3,279 (875 ) Laboratory equipment and maintenance 1,027 761 266 Facility-related costs 1,895 1,645 250 Depreciation and amortization 3,843 3,710 133 Licensing fees 1,129 1,150 (21 ) Other research and development costs 255 124 131 Total research and development expenses$ 62,828 $ 50,062 $ 12,766 Research and development expenses for the six months endedJune 30, 2021 were$62.8 million , compared to$50.1 million for the six months endedJune 30, 2020 . The increase of$12.8 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 toServier was recorded to expense in the six months endedJune 30, 2021 . Further contributing to the increase in research and development expenses during the six months endedJune 30, 2021 were an increase in employee-related costs of$3.2 million associated with increased headcount and higher share-based compensation expense, a$2.3 million increase in CD19B external development costs as the CD19B 32 -------------------------------------------------------------------------------- Phase 1 clinical trial commenced inJune 2021 , a$1.5 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, a$0.1 million increase in depreciation and amortization expense driven by fixed asset acquisitions. These increase in research and development expenses for the six months endedJune 30, 2021 were partially offset by decreases of$0.8 million ,$1.0 million and$0.4 million in direct costs associated with our CD19, CD20, and BCMA clinical trials, respectively, as well as a$3.9 million decrease in outsourced research and development expense as costs associated with our CD19B program were allocated directly to the program beginning in 2021 and a$0.9 million decrease in CMO and research organization expenses related to our preclinical studies.
General and Administrative Expenses
General and administrative expenses were$19.4 million for the six months endedJune 30, 2021 , compared to$18.3 million for the six months endedJune 30, 2020 . The increase of$1.1 million 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,$0.5 million in consulting fees,$0.5 million in information technology costs, and$0.1 million in depreciation and amortization expense, partially offset by a$1.2 million decrease in legal fees.
Interest Income (expense)
Interest income was$0.1 million for the six months endedJune 30, 2021 , compared to$0.8 million for the six months endedJune 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 six months endedJune 30, 2021 compared to the same period in 2020. Interest expense was an amount less than$0.1 million for the six months endedJune 30, 2021 . Interest expense represents interest incurred on the principal amount of the Elo Loan as well as amortization of the Elo Loan debt discount. No interest expense was incurred in the six months endedJune 30, 2020 . Segment Results Six Months Ended June 30, (in thousands) 2021 2020 Change Revenue: Therapeutics$ 83,566 $ 6,493 $ 77,073 Food 1,588 1,583 5 Total segment revenue 85,154 8,076 77,078 Segment operational cash expenditures: Therapeutics$ 44,223 $ 38,374 $ 5,849 Food 4,253 4,406 (153 ) Total segment operational cash expenditures 48,476 42,780 5,696 Segment operating income (loss): Therapeutics$ 39,343 $ (31,881 ) $ 71,224 Food (2,665 ) (2,823 ) 158 Total segment operating income (loss) 36,678 (34,704 ) 71,382 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. 33
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Therapeutics Segment
Revenue for the six months endedJune 30, 2021 was$83.6 million , compared to$6.5 million for the six months endedJune 30, 2020 . The increase of$77.1 million in revenue during the six months endedJune 30, 2021 was primarily the result of a$70.3 million increase in revenue recognized under theServier Agreement as the performance obligation was deemed fully satisfied upon the execution of the Program Purchase Agreement and a$10.7 million increase in revenue recognized under the Lilly Agreement as work began in 2021. These increases 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 six months endedJune 30, 2021 were$44.2 million , compared to$38.4 million for the six months endedJune 30, 2020 . The increase of$5.8 million was primarily due to the$1.3 million payment made toServier in connection with the Program Purchase Agreement, increases in employee-related cash expenditures associated with higher headcount, increases in lab supplies, and increases in facility-related costs. Segment operating income was$39.3 million for the six months endedJune 30, 2021 compared to an operating loss of$31.9 million for six months endedJune 30, 2020 . The increase of$71.2 in operating income is primarily due to the factors discussed above.
Food Segment
Revenue for the six months endedJune 30, 2021 was$1.6 million , consistent with the six months endedJune 30, 2020 . There was a$1.5 million increase in revenue recognized from a partnering collaboration and a$1.5 million decrease in revenue recognized from an agriculture industry collaboration partner during the six months endedJune 30, 2021 compared to the same period in 2020. Segment operational cash expenditures for the six months endedJune 30, 2021 were$4.3 million , compared to$4.4 million for the six months endedJune 30, 2020 . The decrease of$0.1 million was primarily due to a decrease in fixed asset expenditures and consultant fees partially offset by increases in employee-related cash expenditures. Segment operating loss decreased$0.1 million to$2.7 million for the six months endedJune 30, 2021 compared to$2.8 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 ofJune 30, 2021 , we had raised approximately$645.4 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. 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 ofJune 30, 2021 , we had sold 1,293,754 shares of our 34 --------------------------------------------------------------------------------
common stock in at-the-market offerings as part of our shelf registration
statement, resulting in net proceeds of
Cash Flows
Our cash and cash equivalents totaled
The following table summarizes our sources and uses of cash for the periods
presented:
Six Months Ended June 30,
(in thousands) 2021 2020
Net cash provided by (used in) operating activities
(2,815 ) (2,888 )
Net cash provided by financing activities 50,227 599
Increase (decrease) in cash and cash equivalents
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 six months endedJune 30, 2021 andJune 30, 2020 resulted from our net income (loss) adjusted for non-cash expenses and changes in working capital. Cash provided by operating activities during the six months endedJune 30, 2021 was$36.7 million compared to$51.7 million used in operating activities during the six months endedJune 30, 2020 . The increase in cash provided by operating activities in the six months endedJune 30, 2021 was primarily driven by the$100.0 million upfront payment received fromLilly inJanuary 2021 , partially offset by increases in employee-related costs associated with increased headcount, 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 leasehold additions, equipment and software. Net cash used in investing activities during the six months endedJune 30, 2021 was$2.8 million , compared to$2.9 million in the six months endedJune 30, 2020 .
Cash Provided by Financing Activities
Net cash provided by financing activities during the six months endedJune 30, 2021 was$50.2 million , compared to$0.6 million during the six months endedJune 30, 2020 . The increase in cash provided by financing activities during the six months endedJune 30, 2021 was primarily due to the$35.0 million in proceeds received under the Stock Purchase Agreement withLilly inJanuary 2021 ,$9.7 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 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 35 -------------------------------------------------------------------------------- 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 ofJune 30, 2021 .
Funding Requirements
Our operating expenses increased substantially in the six months endedJune 30, 2021 and are expected to continue to increase in the future in connection with the continuation of our current clinical trials, planned initiation of additional clinical trials and expected growth in our portfolio. 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 continue our operations 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, CD20, 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,
CD20, 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 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.
36
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Contractual Obligations
Other than the$10.0 million financial contract liability accrued in the six months endedJune 30, 2021 related to the Program Purchase Agreement described further in "Note 4: 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 six months endedJune 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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