What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-27 · 156 added, 65 removed, 213 unchanged (51% of the section changed)

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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.

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 ALLO-501 and ALLO-501A, CAR T cell product candidates targeting CD19, in the United States, while Servier retains exclusive rights for these product candidates for all other countries.

ALLO-501 and ALLO-501A use Cellectis S.A.

(Cellectis) technologies under which Servier holds an exclusive worldwide license from Cellectis.

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

We expect to report initial data from the trial in the second quarter of 2020.

We plan to use the clinical data from ALLO-501 to accelerate the development of the second-generation version of ALLO-501, known as ALLO-501A.

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.

We have removed rituximab recognition domains in ALLO-501A, which we believe will potentially facilitate treatment of more patients, as rituximab is a typical part of a treatment regimen for a patient with NHL.

In December 2019, the FDA cleared our IND to initiate a Phase 1/2 clinical trial for ALLO-501A (the ALPHA2 trial) and we plan to initiate the trial in the second quarter of 2020, subject to completing the manufacturing of ALLO-501A.

In May 2019, the FDA cleared our IND to initiate a Phase 1 clinical trial (the UNIVERSAL trial) of ALLO-715, an allogeneic CAR T cell product candidate targeting B-cell maturation antigen (BCMA), in adult patients with R/R multiple myeloma.

The UNIVERSAL trial was initiated in the third quarter of 2019 and is ongoing.

We initiated a Phase 1/2 clinical trial for ALLO-501A (the ALPHA2 trial) in the second quarter of 2020 and, subject to data, we plan to progress to the Phase 2 portion of the trial in 2021.

We are also progressing three programs targeting B-cell maturation antigen (BCMA) for the treatment of multiple myeloma.

We initiated a Phase 1 clinical trial (the UNIVERSAL trial) of ALLO-715, an allogeneic CAR T cell product candidate targeting BCMA, in adult patients with R/R multiple myeloma in the third quarter of 2019.

In January 2020, we entered into a clinical trial collaboration agreement with SpringWorks Therapeutics, Inc.

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

In December 2020, the FDA cleared our investigational new drug application (IND) and we recently initiated this combination trial as a cohort of the UNIVERSAL trial.

Finally, we are advancing ALLO-605, an allogeneic CAR T cell product candidate targeting BCMA and our first product candidate to incorporate our TurboCAR technology.

We expect to submit an IND in the first half of 2021 to initiate a Phase 1 clinical trial of ALLO-605.

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.

We have also limited the number of staff working at our facilities.

The exact timing of delays and overall impact of the COVID-19 pandemic to our business, preclinical studies and clinical trials is currently unknown, and we are monitoring the pandemic as it continues to rapidly evolve.

In December 2020, the FDA cleared our IND to initiate a Phase 1 clinical trial (the TRAVERSE trial) of ALLO-316, an allogeneic CAR T cell product candidate targeting CD70, in adult patients with advanced or metastatic clear cell renal cell carcinoma (ccRCC).

The TRAVERSE trial is expected to initiate in the first quarter of 2021.

Since inception, we have had significant operating losses.

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As of December 31, 2020, we had an accumulated deficit of $646.3 million.

As of December 31, 2019, we had $588.9 million 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.

Our Research Development and License Agreements

As of December 31, 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 and general and administrative expenses will continue to increase.

Our Research and Development and License Agreements

Asset Contribution Agreement with Pfizer

In April 2018, we entered into an Asset Contribution Agreement (Pfizer Agreement) with Pfizer pursuant to which we acquired certain assets and assumed certain liabilities from Pfizer, including agreements with Cellectis and Servier as described below, and other intellectual property for the development and administration of CAR T cells for the treatment of cancer.

See Notes 6 and 7 to our financial statements included elsewhere in this report for further description of the Pfizer Agreement.

See Notes 6 and 7 to our consolidated financial statements included elsewhere in this report for further description of the Pfizer Agreement.

Research Collaboration and License Agreement with Cellectis

In June 2014, Pfizer entered into a Research Collaboration and License Agreement with Cellectis S.A.

In June 2014, Pfizer entered into a Research Collaboration and License Agreement with Cellectis.

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

In March 2019, we terminated the agreement with Cellectis and entered into a new license agreement with Cellectis.

See Note 7 to our financial statements included elsewhere in this report for further descriptions of the prior agreement with Cellectis and the new license agreement with Cellectis.

See Note 7 to our consolidated financial statements included elsewhere in this report for further descriptions of the prior agreement with Cellectis and the new license agreement with Cellectis.

Exclusive License and Collaboration Agreement with 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 certain additional allogeneic anti-CD19 CAR product candidates.

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

See Note 7 to our financial statements included elsewhere in this report for further description of the Servier Agreement.

In April 2018, Pfizer assigned the agreement to

us pursuant to the Pfizer Agreement.

In October 2019, we agreed to waive our rights to the one additional target.

See Note 7 to our consolidated financial statements included elsewhere in this report for further description of the Servier Agreement.

Collaboration and License Agreement with Notch

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The Notch Agreement includes a research collaboration to conduct research and pre-clinical development activities to generate engineered cells directed to our exclusive targets, which will be conducted in accordance with an agreed research plan and budget under the oversight of a joint development committee.

See Note 7 to our consolidated financial statements included elsewhere in this report for further description of the Notch Agreement.

In connection with the execution of the Notch Agreement, we made an upfront payment to Notch of $10.0 million.

In addition, we made a $5.0 million investment in Notch’s series seed convertible preferred stock, resulting in us having a 25% ownership interest in Notch’s outstanding capital stock on a fully diluted basis immediately following the investment.

See Note 7 to our financial statements included elsewhere in this report for further description of the Notch Agreement.

In addition, we made a $5.0 million investment in Notch’s series seed convertible preferred stock.

In February 2021, we made a further investment as part of a Series A preferred stock financing of Notch of approximately $15.9 million.

Immediately following this investment, we had a 17% ownership interest in Notch’s capital stock on a fully diluted basis.

Strategic Alliance with The University of Texas MD Anderson Cancer Center

On October 6, 2020, we entered into a strategic five-year collaboration agreement with The University of Texas MD Anderson Cancer Center (MD Anderson) for the preclinical and clinical investigation of allogeneic CAR T cell product candidates.

See Note 7 to our consolidated financial statements included elsewhere in this report for further description of the agreement with MD Anderson.

License Agreement with Allogene Overland Biopharm (CY) Limited

On December 14, 2020, we entered into a License Agreement with Allogene Overland Biopharm (CY) Limited (Allogene Overland), a joint venture established by us and Overland Pharmaceuticals (CY) Inc.

(Overland), pursuant to a Share Purchase Agreement, dated December 14, 2020, for the purpose of developing, manufacturing and commercializing certain allogeneic CAR T cell therapies for patients in greater China, Taiwan, South Korea and Singapore (the JV Territory).

Pursuant to the Share Purchase Agreement, we acquired Seed Preferred Shares in Allogene Overland representing 49% of Allogene Overland's outstanding stock as partial consideration for the License Agreement, and Overland acquired Seed Preferred Shares representing 51% of Allogene Overland's outstanding stock for $117.0 million in upfront and certain quarterly cash payments, to support operations of Allogene Overland.

As of December 31, 2020, Allogene and Overland are the sole equity holders in Allogene Overland.

The Company received $40 million from Allogene Overland as partial consideration for the License Agreement .

Pursuant to the License Agreement, we granted Allogene Overland an exclusive license to develop, manufacture and commercialize certain allogeneic CAR T cell candidates directed at four targets, BCMA, CD70, FLT3, and DLL3, in the JV Territory.

As consideration, we would also be entitled to additional regulatory milestone payments of up to $40.0 million and, subject to certain conditions, tiered low-to-mid single-digit sales royalties.

Promises that we concluded were distinct performance obligations in the License Agreement included:

(1) the license of intellectual property and delivery of know-how, (2) the manufacturing license, related know-how and support, (3) if and when available know-how developed in future periods, and (4) participation in the joint steering committee.

In order to determine the transaction price, we evaluated all the payments to be received during the duration of the contract.

Fixed consideration exists in the form of the upfront payment.

Regulatory milestones and royalties were considered variable consideration.

We constrain the estimated variable consideration when we assess it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods.

Milestone fees were constrained and not included in the transaction price due to the uncertainties of research and development.

We re-evaluate the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting

period and as uncertain events are resolved or other changes in circumstances occur.

The shares of Series Seed Preferred Stock were accounted for as part of our joint venture and equity method accounting upon formation of the joint venture, and as such, were excluded from the transaction price.

We determined that the initial transaction price consists of the upfront payment of $40.0 million.

The allocation of the transaction price is performed based on standalone selling prices, which are based on estimated amounts that we would charge for a performance obligation if it were sold separately .

The transaction price allocated to the license of intellectual property and delivery of know-how will be recognized upon grant of license and delivery of know-how.

The transaction price allocated to (i) the manufacturing license, related know-how and support services, (ii) if and when available know-how developed in future periods, and (iii) participation in the joint steering committee, will be recognized over time as the services are delivered.

Funds received in advance are recorded as deferred revenue and will be recognized as the performance obligations are satisfied.

We expect a substantial portion of the upfront payment of $40 million will be recognized during the quarter ending on March 31, 2021.

See Note 7 to our consolidated financial statements included elsewhere in this report for further description of the License Agreement and Share Purchase Agreement with Allogene Overland.

Transition Services Agreement

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Research and development expenses for the year ended December 31, 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, UCART19, ALLO-501, ALLO-501A and ALLO-715, which include:

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

• expenses incurred under agreements with our collaboration partners and third-party contract organizations, investigative clinical trial sites that conduct research and development activities on our behalf, and consultants;

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• facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies;

• other significant research and development costs include overhead costs.

• other significant research and development costs, which include overhead costs.

We expense all research and development costs in the periods in which they are incurred.

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Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, milestone payment obligations are expensed when the milestone results are achieved.

We are required to reimburse Servier for 60% of the costs associated with the development of UCART19, including for the CALM and PALL clinical trials.

We accrue for costs incurred by monitoring the status of the CALM and PALL clinical trials and the invoices received from Servier.

We are required to reimburse Servier for 60% of the costs associated with the prior development of UCART19, including for the CALM and PALL clinical trials of UCART19.

We accrue for costs incurred by monitoring the status of

clinical trials and the invoices received from Servier.

We adjust our accrual as actual costs become known.

Servier is required to reimburse us for 40% of the costs associated with the development of ALLO-501 and ALLO-501A.

Collaboration expenses and cost reimbursement are recorded on a net basis as a research and development expense in our statements of operations and comprehensive loss.

Collaboration expenses and cost reimbursement are recorded on a net basis as a research and development expense in our consolidated statements of operations and comprehensive loss.

Research and development activities are central to our business model.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect our research and development expenses to increase in the future as our UCART19, ALLO-501, ALLO-501A and ALLO-715 clinical programs progress and as we seek to initiate clinical trials of additional product candidates.

We expect our research and development expenses to increase in the future as our clinical programs progress and as we seek to initiate clinical trials of additional product candidates.

The cost of advancing our manufacturing process as well as the cost of manufacturing product candidates for clinical trials are included in our research and development expense.

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• the efficacy and safety profile of the product candidates.

In the case of UCART19, we are also dependent on Servier’s ability to manage the CALM and PALL clinical trials.

In addition, the probability of success for each product candidate will depend on numerous factors, including safety, efficacy, competition, manufacturing capability and commercial viability.

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We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, potential commercialization of our product candidates and the increased costs of operating as a public company, including additional compliance-related expenses as a result of no longer being an emerging growth company.

These increases are anticipated to include increased costs related to the hiring of additional personnel, developing infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs.

These increases are anticipated to include increased costs related to the hiring of additional

personnel, developing infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs.

Other (Expense) Income, Net:

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We elected on issuance to account for the 2018 Notes at fair value until their settlement.

In the prior reporting period, the change in fair value of the 2018 Notes was recognized through the statement of operations.

In the year ended December 31, 2018, the change in fair value of the 2018 Notes was recognized through the statement of operations.

The 2018 Notes settled on the closing of our IPO in October 2018.

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Interest and Other Income, Net

Interest and other income, net consists of interest earned on our cash equivalents and investment gains and losses recognized during the period.

Interest and other income, net consists of interest earned on our cash, cash equivalents and investments and gains and losses recognized during the period.

Other Expense

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Results of Operations

For the period from November 30, 2017 (inception) to December 31, 2017, we incurred $2,000 in start-up costs to establish our company.

Principal operations commenced in April 2018 when we acquired certain assets from Pfizer and completed a Series A and A-1 preferred stock financing.

Due to our limited operations in 2017, the following discussion does not contain a comparison of the results of operations for the period from November 30, 2017 (inception) to December 31, 2017.

Comparison of the Years Ended December 31, 2020, 2019 and 2018

The following sets forth our results of operations for the years ended December 31, 2020, 2019, and 2018 (in thousands):

Year Ended December 31,

2019 2018 Change

Year Ended December 31, Change

2020 2019 2018 2020 vs 2019 2019 vs 2018

Operating expenses:

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Research and development expenses were $193.0 million and $144.5 million for the years ended December 31, 2020 and 2019, respectively.

The net decrease of $7.3 million in research and development expenses during this period was primarily due to $109.4 million in expenses related to the acquired in-process research and development assets with no alternative future use, acquired from Pfizer in April 2018.

The net increase of $48.5 million was primarily due to an increase in personnel related costs of $28.9

million, of which $11.9 million was increased stock-based compensation expense, an increase in external costs relating to the advancement of our product candidates of $16.1 million, and an increase in allocated building rent and facilities costs of $5.3 million, offset by a decrease in TSA expenses of $1.2 million and a decrease in travel related costs of $1.0 million due to the impact of the COVID-19 pandemic.

Research and development expenses were $144.5 million and $151.9 million for the years ended December 31, 2019 and 2018, respectively.

The net decrease of $7.3 million was primarily due to $109.4 million in expenses related to the acquired in-process research and development assets with no alternative future use, acquired from Pfizer in April 2018.

This was offset by a $102.1 million increase, driven primarily by increased external costs related to the advancement of our pipeline candidates of $44.6 million, increased personnel related costs of $40.8 million, including an increase of $18.0 million in stock-based compensation expense, and increased allocated building rent and facilities costs of $19.2 million, offset by a decrease of $4.0 million in Pfizer TSA costs.

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General and administrative expenses were $65.3 million and $57.5 million for the years ended December 31, 2020 and 2019, respectively.

The net increase of $7.8 million was primarily due to an increase in personnel related costs of $8.4 million, of which $7.3 million was increased stock-based compensation expense, an increase in building rent and facilities costs of $2.4 million, an increase in legal and professional services of $1.2 million, offset by a decrease in TSA expenses of $3.5 million and a decrease in travel related costs of $0.8 million due to the impact of the COVID-19 pandemic.

General and administrative expenses were $57.5 million and $41.0 million for the years ended December 31, 2019 and 2018, respectively.

The net increase of $16.5 million was primarily due to a $18.6 million increase in personnel related costs, including an increase of $9.7 million in stock-based compensation expense, and increased legal and professional services of $2.7 million.

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Change in Fair Value of 2018 Notes

The change in fair value of convertible notes was zero and $21.2 million for the years ended December 31, 2019 and 2018, respectively.

The decrease of $21.2 million was due to the accretion of the 2018 Notes to their fair value from the date of issuance at $120.2 million to the fair value upon settlement of $141.4 million which occurred in 2018.

There was no comparative transaction in the year ended December 31, 2019.

The change in fair value of convertible notes of $21.2 million for the year ended December 31, 2018 was due to the accretion of the 2018 Notes to their fair value from the date of issuance at $120.2 million to the fair value upon settlement of $141.4 million which occurred in 2018.

There were no similar transactions in the years ended December 31, 2020 and 2019.

Interest Expense

Interest expense of $3.4 million for the year ended December 31, 2018 consists of debt issuance costs that were expensed on issuance of the 2018 Notes.

There was no comparative transaction in the year ended December 31, 2019.

There were no similar transactions in the years ended December 31, 2020 and 2019.

Interest and Other Income, Net

Interest and other income, net was $9.2 million and $17.4 million for the years ended December 31, 2020 and 2019, respectively.

The $8.2 million decrease was due to lower yields and a corresponding reduction in the interest earned on our cash, cash equivalents and investments.

Interest and other income, net was $17.4 million and $5.8 million for the years ended December 31, 2019 and 2018, respectively.

The $11.6 million increase was due to interest earned on our cash equivalents and investments as our combined cash, cash equivalents and investments interest earning balance was higher on average during the 12 months ended December 31, 2019 compared to the 12 months ended December 31, 2018.

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

As of December 31, 2019, we had $588.9 million in cash, cash equivalents and investments.

As of December 31, 2020, we had $1.0 billion in cash, cash equivalents and investments.

We believe that the aggregate of our current cash and cash equivalents and investments available for operations will be sufficient to fund our operations for at least the next 12 months from the date this Annual Report on Form 10-K is filed with the SEC.

Our operations have been financed primarily by net proceeds from the sale and issuance of our convertible preferred stock, the issuance of the 2018 Notes and net proceeds from our IPO.

In connection with our IPO in 2018, we sold an aggregate of 20,700,000 shares of our common stock (inclusive of 2,700,000 shares of common stock pursuant to the over-allotment option granted to the underwriters) at a price of $18.00 per share and received approximately $343.3 million in net proceeds.

In November 2019, we entered into a sales agreement with Cowen and Company, LLC (Cowen) under which we may from time to time issue and sell shares of our common stock through Cowen in at-the-market (ATM) offerings for an aggregate offering price of up to $250.0 million.

From November 2019 to December 31, 2019, we sold an aggregate of 1,965,082 shares of common stock in ATM offerings resulting in net proceeds of $54.2 million, after deducting commissions and offering costs of $1.6 million.

Our operations have been financed primarily by net proceeds from the sale and issuance of our convertible preferred stock, the issuance of the 2018 Notes, net proceeds from our IPO, our at-the-market (ATM) offerings, and our June 2020 underwritten public offering.

In connection with our IPO in 2018, we sold an aggregate of 20,700,000 shares of our common

stock (inclusive of 2,700,000 shares of common stock pursuant to the over-allotment option granted to the underwriters) at a price of $18.00 per share and received approximately $343.3 million in net proceeds.

In November 2019, we entered into a sales agreement with Cowen and Company, LLC (Cowen) under which we may from time to time issue and sell shares of our common stock through Cowen in ATM offerings for an aggregate offering price of up to $250.0 million.

During the year ended December 31, 2020, we sold an aggregate of 848,663 shares of common stock in ATM offerings resulting in net proceeds of $26.2 million.

As of December 31, 2020, $167.3 million remains available for sale under the sales agreement with Cowen.

In June 2020, we sold 13,457,447 shares of our common stock, which included 1,755,319 shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $47.00 per share, which resulted in net proceeds of approximately $595.7 million after deducting the underwriting discounts and commissions and other expenses.

Capital Resources

Our primary use of cash is to fund construction projects for our manufacturing facility and operating expenses, which consist primarily of clinical manufacturing and research and development expenditures related to UCART19, ALLO-501, ALLO-501A and ALLO-715;

other research efforts;

and to a lesser extent, general and administrative expenditures.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses and other current liabilities.

Our product candidates are still in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain.

Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration and license arrangements.

If, and when, we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights.

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Year Ended December 31,

2020 2019 2018

(in thousands)

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During the year ended December 31, 2020, cash used in operating activities of $115.1 million was attributable to a net loss of $250.2 million, substantially offset by non-cash charges of $81.2 million and a net change of $53.9 million in our net operating assets and liabilities.

The non-cash charges consisted primarily of stock-based compensation of $46.1 million, non-cash rent expense of $6.8 million and depreciation and amortization of $4.4 million, offset by net amortization and accretion on investment securities of $3.6 million.

The non-cash charges consisted primarily of stock-based compensation of $65.3 million, depreciation and amortization of $7.4 million, non-cash rent expense of $4.0 million and net amortization and accretion on investment securities of $3.3 million.

The net change in operating assets and liabilities was primarily due to a $39.0 million increase in deferred revenue within current liabilities, a $18.7 million increase in accrued and other current liabilities and $0.6 million increase in accounts payable, offset by an increase in prepaid expenses and other current assets of $3.2 million and a decrease in other-long term liabilities of $1.3 million.

During the year ended December 31, 2019, cash used in operating activities of $137.4 million was attributable to a net loss of $184.6 million, substantially offset by non-cash charges of $54.1 million and a net change of $6.9 million in our net operating assets and liabilities.

The non-cash charges consisted primarily of stock-based compensation of $46.1 million, non-

cash rent expense of $6.8 million and depreciation and amortization of $4.4 million, offset by net amortization and accretion on investment securities of $3.6 million.

The net change in operating assets and liabilities was primarily due to a $6.4 million increase in accrued and other current liabilities, offset by an increase in prepaid expenses and other current assets of $5.4 million, an increase in other long-term assets of $4.4 million and a decrease in other-long term liabilities of $2.4 million.

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Investing Activities

During the year ended December 31, 2020, net cash used by investing activities of $505.1 million was related to the purchase of investments of $1.0 billion and purchases of property and equipment of $66.0 million, offset by cash inflows from maturities of investments of $593.6 million and cash inflows from sales of investments of $4.8 million.

During the year ended December 31, 2019, net cash provided by investing activities of $164.1 million was related to proceeds from investment maturities of $472.6 million, offset by cash used for investment purchases of $252.6 million, cash used in purchases of property and equipment of $50.8 million and cash used in connection with our investment in Notch’s series seed convertible preferred stock of $5.1 million, inclusive of transaction costs.

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Financing Activities

During the year ended December 31, 2020, net cash provided by financing activities of $633.6 million was related to net proceeds from the issuance of common stock in ATM offerings and an underwritten public offering of $621.9 million, proceeds from the issuance of common stock upon the exercise of stock options of $8.8 million and proceeds from the employee stock purchase plan of $2.8 million.

During the year ended December 31, 2019, net cash provided by financing activities of $59.0 million was related to net proceeds from the issuance of common stock in ATM offerings of $54.2 million, proceeds from the issuance of common stock upon the exercise of stock options of $3.0 million and proceeds from the employee stock purchase plan of $1.8 million.

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In February 2019, we entered into a lease agreement for manufacturing space in Newark, California.

The lease term is for 188 months beginning October 2019.

The lease term is for 188 months beginning November 2020.

Our commitments primarily consist of obligations under our agreements with Pfizer, Cellectis, Servier and Notch.

Under these agreements we are required to make milestone payments upon successful completion of certain regulatory and sales milestones on a target-by-target and country-by-country basis.

The payment obligations under the license agreements are

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

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 December 31, 2020, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

Additionally, we have entered into an agreement with third-party contract manufacturers for the manufacture and processing of certain of our product candidates for clinical testing purposes, and we have entered and will enter into other contracts in the normal course of business with contract research organizations for clinical trials and other vendors for other services and products for operating purposes.

Additionally, we have entered into agreements with third-party contract manufacturers for the manufacture and processing of certain of our product candidates for clinical testing purposes, and we have entered and will enter into other contracts in the normal course of business with contract research organizations for clinical trials and other vendors for other services and products for operating purposes.

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

As of December 31, 2020, the Company had non-cancellable purchase commitments of $5.4 million.

On October 6, 2020, we announced we entered into a strategic five-year collaboration agreement with MD Anderson for the preclinical and clinical investigation of allogeneic CAR T cell product candidates.

We and MD Anderson are collaborating on the design and conduct of preclinical and clinical studies with oversight from a joint steering committee.

Under the terms of the agreement, we have committed up to $15.0 million of funding for the duration of the agreement.

Payment of this funding is contingent on mutual agreement to study orders in order for any study to be included under the alliance.

We made an upfront payment of $3.0 million to MD Anderson in the year ended December 31, 2020.

We are obligated to make further payments to MD Anderson each year upon the anniversary of the agreement effective date through the duration of the agreement term.

The agreement may be terminated by either party for material breach by the other party.

Individual studies may be terminated for, among other things, material breach, health and safety concerns or where the institutional review board, the review board at the clinical site with oversight of the clinical study, requests termination of any study.

Where any legal or regulatory authorization is finally withdrawn or terminated, the relevant study will also terminate automatically.

In July 2020, we entered into a Solar Power Purchase and Energy Services Agreement for the installation and operation of a solar photovoltaic generating system and battery energy storage system at our manufacturing facility in Newark, California.

The agreement has a term of 20 years and is expected to commence in the first half of 2021.

We are obligated to pay for electricity generated from the system at an agreed rate for the duration of the agreement term.

Termination of the agreement by us will result in a termination payment due of approximately $4.3 million.

In connection with the agreement, we maintain a letter of credit for the benefit of the service provider in the amount of $4.3 million which is disclosed as restricted cash in the consolidated balance sheet as of December 31, 2020.

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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Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods.

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated

financial statements, as well as the reported expenses incurred during the reporting periods.

Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with accrued research and development expenditures, research and development expenses, stock-based compensation and leases have the most significant impact on our financial statements.

We believe that the assumptions and estimates associated with accrued research and development expenditures, revenue recognition, research and development expenses, stock-based compensation and leases have the most significant impact on our consolidated financial statements.

Therefore, we consider these to be our critical accounting policies and estimates.

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We accrue liabilities for estimated costs of research and development activities conducted by our collaboration partners and third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities.

We recorded the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in the accrued and other current liabilities on the balance sheets and within research and development expense on the statements of operations and comprehensive loss.

We recorded the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in the accrued and other current liabilities on the consolidated balance sheets and within research and development expense on the consolidated statements of operations and comprehensive loss.

We accrue for these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers.

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We have not experienced any material differences between accrued costs and actual costs incurred since our inception.

Revenue Recognition

In the near future, our revenue is anticipated to be generated through collaboration research and license agreements.

The terms of these agreements are expected to contain multiple deliverables which may include (i) grant of licenses, (ii) transfer of know-how, (iii) research and development activities, (iii) clinical manufacturing and, (iv) product supply.

The payment terms of these agreements may include nonrefundable upfront fees, payments for research and development activities, payments based upon the achievement of certain milestones, royalty payments based on product sales derived from the collaboration, and payments for supplying product.

We will analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (ASC 808) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities.

This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of Topic 606, Revenue from Contracts with Customers (ASC 606).

For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to Topic 606.

For elements of those arrangements that we determine should be accounted for under ASC 606, we assess which activities in our collaboration agreements are performance obligations that should be accounted for separately and determine the transaction price of the arrangement, which includes the assessment of the probability of achievement of future milestones and other potential consideration.

A performance obligation represents a promise in a contract to transfer a distinct good or service to a customer, which represents a unit of accounting in accordance with ASC 606.

A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract.

We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service.

A portion of the consideration should be allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The total consideration which we expect to collect in exchange for our products is an estimate and may be fixed or variable.

We constrain the estimated variable consideration when we assess it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods.

The transaction price is re-evaluated, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

The allocation of the transaction price is performed based on standalone selling prices, which are based

on estimated amounts that we would charge for a performance obligation if it were sold separately.

Revenue is recognized when, or as, performance obligations in the contracts are satisfied, in the amount reflecting the expected consideration to be received from the goods or services transferred to the customers.

Funds received in advance are recorded as deferred revenue and are recognized as the related performance obligation is satisfied.

Research and Development Expenses

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The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

‑ Expected volatility — We use an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as we do not have sufficient trading history for our common stock.

‑ Expected volatility — We use an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends, in addition to some consideration to our own stock price volatility.

We continue to utilize comparable public companies as part of this process as we do not have sufficient trading history for our common stock.

We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

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Therefore, we used an expected dividend yield of zero.

For the years ended December 31, 2019 and 2018, stock-based compensation was $46.1 million and $18.6 million respectively.

As of December 31, 2019 and 2018, we had $148.6 million and $87.4 million of total unrecognized stock-based compensation relating to options, restricted stock units and founders stock.

For the years ended December 31, 2020, 2019 and 2018, stock-based compensation was $65.3 million, $46.1 million and $18.6 million, respectively.

As of December 31, 2020 and 2019, we had $149.4 million and $148.6 million, respectively, of total unrecognized stock-based compensation relating to options, restricted stock units and founders stock.

We early adopted Accounting Standards Update (ASU) No.

2016-02, Leases as of January 1, 2018 in accordance with ASC 250, Accounting Changes and Error Corrections .

For our long-term operating leases, we recognized right-of-use assets and lease liabilities on our balance sheet.

2016-02, Leases as of January 1, 2018.

For our long-term operating leases, we recognized right-of-use assets and lease liabilities on our consolidated balance sheet.

The lease liabilities are determined as the present value of future lease payments using an estimated rate of interest that we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date.

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For each lease, the lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise.

Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses on the statements of operations and comprehensive loss.

Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses on the consolidated statements of operations and comprehensive loss.

Variable lease payments include lease operating expenses.

We elected to exclude from our balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for our long-term real estate leases.

We elected to exclude from our consolidated balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for our long-term real estate leases.

Recent Accounting Pronouncements

Please refer to Note 2 to our financial statements for a discussion of new accounting standards updates that may impact us.

Please refer to Note 2 to our consolidated financial statements for a discussion of new accounting standards and updates that may impact us.

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-K

Item 7. Management’s Discussion and Analysis