What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-05 · 45 added, 44 removed, 193 unchanged (32% of the section changed)

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We are developing a pipeline of off-the-shelf T cell product candidates that are designed to target and kill cancer cells.

Our engineered T cells are allogeneic, meaning they are derived from healthy donors for intended use in any patient, rather than from an individual patient for that patient’s use, as in the case of autologous T cells.

Our engineered T cells are allogeneic, meaning they are derived from healthy donors for intended use in any patient, rather than from an individual patient for that patient’s use, as in the case of

autologous T cells.

We believe this key difference will enable us to deliver readily available treatments faster, more reliably, at greater scale, and to more patients.

We have a deep pipeline of allogeneic chimeric antigen receptor (CAR) T cell product candidates targeting multiple promising antigens in a host of hematological malignancies and solid tumors.

In collaboration with Servier, we are developing UCART19, ALLO-501 and ALLO-501A, CAR T cell product candidates targeting CD19.

UCART19, ALLO-501 and ALLO-501A use Cellectis technologies.

Servier grants to us exclusive rights to UCART19, ALLO-501 and ALLO-501A in the United States while Servier retains exclusive rights for all other countries.

Servier is sponsoring two Phase 1 clinical trials of UCART19 in patients with relapsed/refractory (R/R) B-cell precursor acute lymphoblastic leukemia (ALL), one for adult patients (the CALM trial) and one for pediatric patients (the PALL trial).

Pursuant to the Exclusive Collaboration and License Agreement with Servier (Servier Agreement), we have exclusive rights to UCART19, ALLO-501 and ALLO-501A, CAR T cell product candidates targeting CD19, in the United States while Servier retains exclusive rights for all other countries.

UCART19, ALLO-501 and ALLO-501A use Cellectis technologies under which Servier holds an exclusive worldwide license from Cellectis.

Servier sponsored two Phase 1 clinical trials of UCART19 in patients with relapsed/refractory (R/R) B-cell precursor acute lymphoblastic leukemia (ALL), one for adult patients (the CALM trial) and one for pediatric patients (the PALL trial).

As the Servier-sponsored trials have been completed or are near completion, Servier has determined that no new patients will be enrolled in the PALL study.

All patients from both studies will continue the long-term follow-up as planned.

We and Servier are reviewing our development strategy for ALL.

We are sponsoring a Phase 1 clinical trial (the ALPHA trial) of ALLO-501 in patients with R/R non-Hodgkin lymphoma (NHL).

We reported initial data from the ALPHA trial at the American Society of Clinical Oncology annual meeting on May 29, 2020.

We plan to continue the ALPHA trial to further explore and optimize the lymphodepletion regimen and treatment.

We are continuing the ALPHA trial to further explore and optimize the lymphodepletion regimen and treatment.

We are also progressing the development of the second-generation version of ALLO-501, known as ALLO-501A.

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(SpringWorks) to evaluate ALLO-715 in combination with SpringWorks’ investigational gamma secretase inhibitor, nirogacestat, in patients with R/R multiple myeloma.

We plan to file an investigational new drug application in the second half of 2020 to initiate this combination trial.

Due to the exceptional circumstances related to the COVID-19 pandemic, Servier halted recruitment in the CALM and PALL clinical trials in the first quarter of 2020.

Servier resumed recruitment in the CALM and PALL clinical trials in the second quarter of 2020 in an effort to complete previously planned cohorts and recently completed enrollment in the CALM clinical trial.

We plan to file an investigational new drug application by the end of 2020 to initiate this combination trial.

We are continuing to enroll patients in the ALPHA trial, ALPHA2 trial and UNIVERSAL trial, however, enrollment of new patients in all three trials and the ability to conduct patient follow-up is being adversely impacted by the COVID-19 pandemic.

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Since inception, we have had significant operating losses.

Our net losses were $61.0 million and $115.5 million for the three and six months ended June 30, 2020.

As of June 30, 2020, we had an accumulated deficit of $511.6 million.

As of June 30, 2020, we had $1.1 billion in cash and cash equivalents and investments.

Our net losses were $66.2 million and $181.7 million for the three and nine months ended September 30, 2020.

As of September 30, 2020, we had an accumulated deficit of $577.8 million.

As of September 30, 2020, we had $1.0 billion in cash and cash equivalents and investments.

We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase.

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Exclusive License and Collaboration Agreement with Servier

In October 2015, Pfizer entered into an Exclusive License and Collaboration Agreement (Servier Agreement) with Servier to develop, manufacture and commercialize certain allogeneic anti-CD19 CAR products, including UCART19, in the United States with the option to obtain the rights over additional allogeneic anti-CD19 CAR product candidates and for allogeneic CAR T cell product candidates directed against one additional target.

In October 2015, Pfizer entered into the Servier Agreement to develop, manufacture and commercialize certain allogeneic anti-CD19 CAR products, including UCART19, in the United States with the option to obtain the rights over additional allogeneic anti-CD19 CAR product candidates and for allogeneic CAR T cell product candidates directed against one additional target.

In April 2018, Pfizer assigned the agreement to us pursuant to the Pfizer Agreement.

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Transition Services Agreement

In connection with the closing of the Pfizer Agreement, we entered into a Transition Services Agreement (TSA) with Pfizer in April 2018, pursuant to which we obtained from Pfizer certain (i) research and development services, including services relating to testing, studies, and clinical trials, project management services, laboratory equipment and operations services, animal care services, data storage services and regulatory strategy services, and (ii) general and administrative services, including business technology services, compliance services, finance/accounting services, and procurement,

manufacturing and supply chain services, with respect to the assets that we purchased from Pfizer.

Under the TSA, Pfizer also provided us with certain facilities and facility management services.

Under the TSA, Pfizer also

provided us with certain facilities and facility management services.

The services were provided by certain employees of Pfizer as independent contractors of Allogene.

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To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates.

Research and development expenses for the three and six months ended June 30, 2020 included costs associated with our clinical and preclinical stage pipeline candidates and research into newer technologies.

Research and development expenses for the three and nine months ended September 30, 2020 included costs associated with our clinical and preclinical stage pipeline candidates and research into newer technologies.

The most significant research and development expenses for the year relate to costs incurred for the development of our most advanced product candidates and include:

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Results of Operations

Comparison of the Three Months Ended June 30, 2020 and 2019

The following sets forth our results of operations for the three months ended June 30, 2020 and 2019 (dollars in thousands):

Three Months Ended June 30, Change

Comparison of the Three Months Ended September 30, 2020 and 2019

The following sets forth our results of operations for the three months ended September 30, 2020 and 2019 (dollars in thousands):

Three Months Ended September 30, Change

2020 2019 $ %

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Loss before income taxes (66,197) (50,702) (15,495) 31 %

Benefit from income tax — 159 (159) (100) %

Income tax expense — (33) 33 (100) %

Net Loss $ (66,197) $ (50,735) $ (15,462) 30 %

Research and Development Expenses

Research and development expenses were $47.3 million and $31.8 million for the three months ended June 30, 2020 and 2019, respectively.

The increase of $15.5 million was driven primarily by an increase in personnel related costs of $7.3 million, of which $3.2 million was increased stock-based compensation expense, an increase in external costs relating the advancement of our product candidates of $6.9 million, and an increase in building rent and facilities costs of $1.6 million, offset by a decrease in TSA expenses of $0.3 million and a decrease in travel related costs of $0.3 million due to the impact of the COVID-19 pandemic.

Research and development expenses were $51.4 million and $40.0 million for the three months ended September 30, 2020 and 2019, respectively.

The increase of $11.4 million was driven primarily by an increase in personnel related costs of $7.6 million, of which $3.3 million was increased stock-based compensation expense, an increase in external costs relating to the advancement of our product candidates of $3.8 million, and an increase in building rent and facilities costs of $0.5 million, offset by a decrease in travel related costs of $0.3 million due to the impact of the COVID-19 pandemic and a decrease in TSA expenses of $0.1 million.

General and Administrative Expenses

General and administrative expenses were $15.9 million and $14.2 million for the three months ended June 30, 2020 and 2019, respectively.

The net increase of $1.7 million was primarily due to an increase in personnel related costs of $2.4 million, of which $2.1 million was increased stock-based compensation expense, and a $0.8 million increase in building rent and facilities costs, offset by a decrease of $1.5 million in TSA expenses.

General and administrative expenses were $16.6 million and $15.0 million for the three months ended September 30, 2020 and 2019, respectively.

The net increase of $1.6 million was primarily due to an increase in personnel related costs of $1.8 million, of which $1.7 million was increased stock-based compensation expense, and an increase in building rent and facilities costs of $0.6 million, offset by a decrease in TSA expenses of $0.6 million.

Interest and Other Income, Net

Interest and other income, net was $2.3 million and $4.6 million for the three months ended June 30, 2020 and 2019, respectively.

Interest and other income, net was $2.0 million and $4.3 million for the three months ended September 30, 2020 and 2019, respectively.

The decrease of $2.3 million was due to lower interest earned on our cash, cash equivalents and investments.

Comparison of the Six Months Ended June 30, 2020 and 2019

The following sets forth our results of operations for the six months ended June 30, 2020 and 2019 (dollars in thousands):

Six Months Ended June 30, Change

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following sets forth our results of operations for the nine months ended September 30, 2020 and 2019 (dollars in thousands):

Nine Months Ended September 30, Change

2020 2019 $ %

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Research and Development Expenses

Research and development expenses were $89.3 million and $55.2 million for the six months ended June 30, 2020 and 2019, respectively.

The increase of $34.2 million was driven primarily by an increase in personnel related costs of $16.3 million, of which $7.2 million was increased stock-based compensation expense, an increase in external costs relating to the advancement of our product candidates of $15.1 million, and an increase in building rent and facilities costs of $4.2 million, offset by a decrease in TSA costs of $1.2 million and a decrease in travel related costs of $0.5 million due to the impact of the COVID-19 pandemic.

Research and development expenses were $140.8 million and $95.2 million for the nine months ended September 30, 2020 and 2019, respectively.

The increase of $45.6 million was driven primarily by an increase in personnel related costs of $23.9 million, of which $10.5 million was increased stock-based compensation expense, an increase in external costs relating to the advancement of our product candidates of $18.9 million, and an increase in building rent and facilities costs of $4.7 million, offset by a decrease in TSA expenses of $1.2 million and a decrease in travel related costs of $0.7 million due to the impact of the COVID-19 pandemic.

General and Administrative Expenses

General and administrative expenses were $31.5 million and $27.2 million for the six months ended June 30, 2020 and 2019, respectively.

The net increase of $4.3 million was primarily due to an increase in personnel related costs of $5.3 million, of which $4.5 million was increased stock-based compensation expense, a $1.4 million increase in building rent and facilities costs, and a $0.9 million increase in business and consulting fees, offset by a decrease of $3.3 million in TSA expenses.

General and administrative expenses were $48.1 million and $42.3 million for the nine months ended September 30, 2020 and 2019, respectively.

The net increase of $5.9 million was primarily due to an increase in personnel related costs of $7.2 million, of which $6.2 million was increased stock-based compensation expense, an increase in building rent and facilities costs of $2.0 million, and an increase in business and consulting fees of $0.9 million, offset by a decrease in TSA expenses of $3.9 million.

Interest and Other Income, Net

Interest and other income, net was $5.6 million and $9.4 million for the six months ended June 30, 2020 and 2019, respectively.

Interest and other income, net was $7.6 million and $13.7 million for the nine months ended September 30, 2020 and 2019, respectively.

The decrease of $6.1 million was due to lower interest earned on our cash, cash equivalents and investments.

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To date, we have incurred significant net losses and negative cash flows from operations.

As of June 30, 2020, we had $1.1 billion in cash and cash equivalents and investments.

As of September 30, 2020, we had $1.0 billion in cash and cash equivalents and investments.

We anticipate that the aggregate of our current cash and cash equivalents and investments available for operations will enable us to maintain our operations for a period of at least one year from the date this Quarterly Report on Form 10-Q is filed with the SEC.

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The following table summarizes our cash flows for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

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Operating Activities

During the six months ended June 30, 2020, cash used in operating activities of $67.5 million was attributable to a net loss of $115.5 million, partially offset by non-cash charges of $36.2 million and an increase of $11.7 million in our net operating assets and liabilities.

The non-cash charges consisted primarily of stock compensation expense of $31.0 million, depreciation of $3.8 million and non-cash rent expense of $1.1 million.

The change in operating assets and liabilities was primarily due to a $6.8 million increase in accrued and other current liabilities, a $2.5 million decrease in other long-term assets, a $1.2 million decrease in other long-term liabilities and a $0.5 million decrease in accounts payable, offset by a $4.1 million decrease in prepaid expenses and other current assets.

During the nine months ended September 30, 2020, cash used in operating activities of $105.1 million was attributable to a net loss of $181.7 million, partially offset by non-cash charges of $57.6 million and an increase of $18.9 million in our net operating assets and liabilities.

The non-cash charges consisted primarily of stock compensation expense of $48.8 million, depreciation of $5.6 million, net amortization and accretion on investment securities of $1.4 million and non-cash rent expense of $1.2 million.

The change in operating assets and liabilities was primarily due to a $16.2 million increase in accrued and other current liabilities, a $2.0 million decrease in other long-term assets, a $1.7 million increase in accounts payable, a $0.7 million decrease in prepaid expenses and other current assets, offset by a $1.6 million decrease in other long-term liabilities.

Investing Activities

During the six months ended June 30, 2020, net cash used in investing activities of $444.0 million was related to cash provided by investment maturities of $221.6 million and investment sales of $4.9 million, offset by cash used in purchases of investments of $642.2 million and purchases of property and equipment of $28.3 million.

During the nine months ended September 30, 2020, net cash used in investing activities of $527.3 million was related to cash provided by investment maturities of $371.8 million and investment sales of $4.9 million, offset by cash used in purchases of investments of $855.4 million and purchases of property and equipment of $48.6 million.

Financing Activities

During the six months ended June 30, 2020, cash provided by financing activities of $616.8 million was related to net proceeds from the issuance of common stock through a public offering of $595.7 million, net proceeds from the issuance of

common stock through ATM transactions of $14.8 million, $4.8 million of cash provided by the issuance of common stock upon exercise of stock options and $1.4 million of cash provided by the sale of common stock through the employee stock purchase plan.

During the nine months ended September 30, 2020, cash provided by financing activities of $620.6 million was related to net proceeds from the issuance of common stock through a public offering of $595.7 million, net proceeds from the issuance

of common stock through ATM transactions of $14.8 million, $7.2 million of cash provided by the issuance of common stock upon exercise of stock options and $2.8 million of cash provided by the sale of common stock through the employee stock purchase plan.

Contractual Obligations and Commitments

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The payment obligations under the license agreements are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and we will be required to make development milestone payments and royalty payments in connection with the sale of products developed under these agreements.

As of June 30, 2020, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

As of September 30, 2020, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

For additional information regarding our agreements, see “—Our Research and Development and License Agreements” above.

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These agreements generally provide for termination or cancellation, other than for costs already incurred.

As of June 30, 2020, the Company had non-cancellable purchase commitments of $ 5.6 million.

As of September 30, 2020, the Company had non-cancellable purchase commitments of $ 3.9 million.

We also have a Change in Control and Severance Plan that require the funding of specific payments, if certain events occur, such as a change of control and the termination of employment without cause.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis