What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-05 · 75 added, 72 removed, 177 unchanged (45% 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.

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.

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

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

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We initiated a Phase 1/2 clinical trial for ALLO-501A (the ALPHA2 trial) in the second quarter of 2020.

We plan to report updated data from the ALPHA trial and initial data from the ALPHA2 trial on May 19, 2021.

We also plan to continue to progress the ALPHA and ALPHA2 trials and, subject to data, we plan to progress to the Phase 2 portion of the ALPHA2 trial by the end of 2021.

We reported updated data from the ALPHA trial and initial data from the ALPHA2 trial in May 2021, and expect to report additional data in late 2021.

We plan to collect additional data from the ALPHA and ALPHA2 trials, finalize a dose and schedule of ALLO-501A and lymphodepletion for a potential Phase 2 trial, and discuss the chemistry, manufacturing and controls (CMC) as well as the Phase 2 trial design of both ALLO-501A and ALLO-647 with the U.S.

Food and Drug Administration (FDA).

Pending the collection of data and favorable FDA feedback on the design of the trial for the registration of both ALLO-501A and ALLO-647, we may progress to the Phase 2 portion of the ALPHA2 trial at the end of 2021.

We are 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 in adult patients with R/R multiple myeloma in the third quarter of 2019 and presented initial clinical data at the American Society of Hematology annual meeting in December 2020.

Based on preliminary clinical data, the U.S.

Food and Drug Administration (FDA) granted Regenerative Medicine Advanced Therapy (RMAT) designation for ALLO-715 for the treatment of adult patients with R/R multiple myeloma after three or more prior lines of therapies.

RMAT does not change the standards for approval but may expedite the development or approval process.

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 the first quarter of 2021, we initiated this combination trial as part of the UNIVERSAL trial.

We initiated a Phase 1 clinical trial (the UNIVERSAL trial) of ALLO-715 in adult patients with R/R multiple myeloma in the third quarter of 2019.

We presented initial clinical data at the American Society of Hematology annual meeting in December 2020 and expect to report additional data in the fourth quarter of 2021.

In the first quarter of 2021, we initiated a combination trial of ALLO-715 and SpringWorks Therapeutics, Inc.'s gamma secretase inhibitor, nirogacestat, as part 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.

The FDA recently cleared our investigational new drug application (IND) to initiate a Phase 1 clinical trial (the IGNITE trial) of ALLO-605.

We expect to initiate the IGNITE trial in mid-2021.

We recently initiated 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).

We are continuing to enroll patients in the ALPHA trial, ALPHA2 trial, UNIVERSAL trial and TRAVERSE trial, however, enrollment of new patients in our 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.

TurboCAR technology allows cytokine signaling to be engineered selectively into CAR T cells and has shown the ability to improve the potency and persistence of the cells and to prevent and delay exhaustion of the cells in preclinical models.

In June 2021, the FDA granted ALLO-605 Fast Track designation for the treatment of R/R multiple myeloma.

We initiated a Phase 1 clinical trial (the IGNITE trial) of ALLO-605 in mid-2021.

We continue to advance the 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).

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

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.

Since inception, we have had significant operating losses.

Our net losses were $33.0 million for the three months ended March 31, 2021.

As of March 31, 2021, we had an accumulated deficit of $679.4 million.

As of March 31, 2021, we had $964.2 million in cash and cash equivalents and investments.

Our net losses were $70.9 million and $104.0 million for the three and six months ended June 30, 2021.

As of June 30, 2021, we had an accumulated deficit of $750.3 million.

As of June 30, 2021, we had $913.2 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 and general and administrative expenses will continue to increase.

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(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 March 31, 2021, 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 recognized $38.3 million of the upfront payment of $40.0 million as collaboration revenue for the quarter ending on March 31, 2021 .

See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the License Agreement and Share Purchase Agreement with Allogene Overland.

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

Components of Results of Operations

As of March 31, 2021, our revenue has been exclusively generated from our collaboration and license agreement with Allogene Overland Biopharm (CY) limited (Allogene Overland).

As of June 30, 2021, our revenue has been exclusively generated from our collaboration and license agreement with Allogene Overland Biopharm (CY) limited (Allogene Overland).

See Notes 2 and 6 to our financial statements appearing elsewhere in this Quarterly Report for more information related to our recognition of revenue and the Allogene Overland agreement.

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

Research and development expenses for the three months ended March 31, 2021 included costs associated with our clinical and preclinical stage pipeline candidates and research into newer

technologies.

Research and development expenses for the three and six months ended June 30, 2021 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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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.

We also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates.

We also expect to incur increased research and development expenses as we selectively

identify and develop additional product candidates.

However, it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates.

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Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

The following sets forth our results of operations for the three months ended March 31, 2021 and 2020 (dollars in thousands):

Three Months Ended March 31, Change

Comparison of the Three Months Ended June 30, 2021 and 2020

The following sets forth our results of operations for the three months ended June 30, 2021 and 2020 (dollars in thousands):

Three Months Ended June 30, Change

2021 2020 $ %

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Total other income (expense), net 93 2,184 (2,091) (96) %

Loss before income taxes (33,015) (54,480) 21,465 (39) %

Income tax expense — — — —

Net Loss $ (70,936) $ (60,974) $ (9,962) 16 %

Collaboration revenue - related party

Collaboration revenue was $38.3 million and zero for the three months ended March 31, 2021 and 2020, respectively.

The increase of $38.3 million was due to collaboration revenue recognized pursuant to the license agreement with Allogene Overland.

Collaboration revenue was less than $0.1 million and zero for the three months ended June 30, 2021 and 2020, respectively.

Revenue recognized in the three months ended June 30, 2021 was due to delivery of the know-how performance obligations related to the License Agreement entered into with Allogene Overland on December 14, 2020.

Research and Development Expenses

Research and development expenses were $55.2 million and $42.0 million for the three months ended March 31, 2021 and 2020, respectively.

The increase of $13.1 million was driven primarily by an increase in personnel related costs of $6.6 million, of which $1.3 million was increased stock-based compensation expense, an increase in external costs relating to the advancement of our product candidates of $5.1 million, and an increase in building rent and facilities costs of $1.7 million, offset by a decrease in travel related costs of $0.1 million due to the impact of the COVID-19 pandemic.

Research and development expenses were $52.3 million and $47.3 million for the three months ended June 30, 2021 and 2020, respectively.

The increase of $5.0 million was driven primarily by an increase in personnel related costs of $6.4 million, of which $2.5 million was increased stock-based compensation expense, an increase in building rent and facilities costs of $1.5 million, offset by a decrease in external costs relating to the advancement of our product candidates of $3.5 million due to the timing of product development activities.

General and Administrative Expenses

General and administrative expenses were $16.4 million and $15.6 million for the three months ended March 31, 2021 and 2020, respectively.

The net increase of $0.7 million was primarily due to an increase in personnel related costs of $1.8 million, of which $1.3 million was increased stock-based compensation expense, offset by a decrease in business expenses and professional service fees of $0.7 million and a decrease in building rent and facilities costs of $0.3 million.

General and administrative expenses were $18.8 million and $15.9 million for the three months ended June 30, 2021 and 2020, respectively.

The net increase of $2.9 million was primarily due to an increase in personnel related costs of $2.7 million, of which $1.8 million was increased stock-based compensation expense.

Interest and Other Income, Net

Interest and other income, net was $0.5 million and $3.3 million for the three months ended March 31, 2021 and 2020, respectively.

Interest and other income, net was $0.6 million and $2.3 million for the three months ended June 30, 2021 and 2020, respectively.

The decrease of $1.7 million was due to lower interest earned on our cash, cash equivalents and investments.

Comparison of the Six Months Ended June 30, 2021 and 2020

The following sets forth our results of operations for the six months ended June 30, 2021 and 2020 (dollars in thousands):

Six Months Ended June 30, Change

2021 2020 $ %

Collaboration revenue - related party $ 38,389 $ — $ 38,389 —

Operating expenses:

Research and development 107,473 89,337 18,136 20 %

General and administrative 35,146 31,502 3,644 12 %

Total operating expenses 142,619 120,839 21,780 18 %

Loss from operations (104,230) (120,839) 16,609 (14) %

Other income (expense), net:

Interest and other income, net 1,135 5,600 (4,465) (80) %

Other expenses (856) (215) (641) 298 %

Total other income (expense), net 279 5,385 (5,106) (95) %

Net Loss $ (103,951) $ (115,454) $ 11,503 (10) %

Collaboration revenue - related party

Collaboration revenue was $38.4 million and zero for the six months ended June 30, 2021 and 2020, respectively.

Revenue recognized in the six months ended June 30, 2021 was related to grant of license and delivery of the know-how performance obligations related to the License Agreement entered into with Allogene Overland on December 14, 2020.

Research and Development Expenses

Research and development expenses were $107.5 million and $89.3 million for the six months ended June 30, 2021 and 2020, respectively.

The increase of $18.1 million was driven primarily by an increase in personnel related costs of $13.0 million, of which $3.8 million was increased stock-based compensation expense, an increase in building rent and facilities costs of $3.2 million, and an increase in external costs relating to the advancement of our product candidates of $1.6 million.

General and Administrative Expenses

General and administrative expenses were $35.1 million and $31.5 million for the six months ended June 30, 2021 and 2020, respectively.

The net increase of $3.6 million was primarily due to an increase in personnel related costs of $4.4 million, of which $3.2 million was increased stock-based compensation expense, offset by a decrease in building rent and facilities costs of $0.6 million and a decrease in business expenses and professional service fees of $0.4 million.

Interest and Other Income, Net

Interest and other income, net was $1.1 million and $5.6 million for the six months ended June 30, 2021 and 2020, respectively.

The decrease of $4.5 million was due to lower interest earned on our cash, cash equivalents and investments.

Liquidity, Capital Resources and Plan of Operations

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

As of March 31, 2021, we had $964.2 million in cash and cash equivalents and investments.

As of June 30, 2021, we had $913.2 million 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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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.

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 March 31, 2021, $167.3 million remains available for sale under the sales agreement with Cowen.

During the six months ended June 30, 2021, we did not sell any shares of common stock in ATM offerings.

As of June 30, 2021, $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.

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 our lead product candidates, other research efforts, and to a lesser extent, general and administrative expenditures.

Our primary use of cash is for operating expenses, which consist primarily of clinical manufacturing and research and development expenditures related to our lead product candidates, 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.

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

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

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Operating Activities

During the three months ended March 31, 2021, cash used in operating activities of $49.3 million was attributable to a net loss of $33.0 million, partially offset by non-cash charges of $23.0 million and an increase of $39.3 million in our net operating assets and liabilities.

The non-cash charges consisted primarily of stock compensation expense of $16.8 million, non-cash rent expense of $2.0 million, depreciation of $1.9 million and net amortization and accretion on investment securities of $1.9 million.

The change in operating assets and liabilities was primarily due to a $38.8 million decrease in deferred revenue, a $4.3 million decrease in accrued and other current liabilities, a $0.8 million increase in other long-term assets and a $0.3 million decrease in other long-term liabilities, offset by a $4.2 million increase in accounts payable and a $0.7 million decrease in prepaid expenses and other current assets.

During the six months ended June 30, 2021, cash used in operating activities of $90.5 million was attributable to a net loss of $104.0 million, partially offset by non-cash charges of $48.8 million and an increase of $35.4 million in our net operating assets and liabilities.

The non-cash charges consisted primarily of stock-based compensation expense of $37.9 million, depreciation of $3.9 million, net amortization and accretion on investment securities of $3.7 million, and non-cash rent expense of $2.4 million.

The change in operating assets and liabilities was primarily due to a $38.7 million decrease in deferred revenue, a $2.5 million decrease in accrued and other current liabilities, and a $0.7 million increase in other long-term assets, offset by a $2.8 million decrease in prepaid expenses and other current assets, a $2.6 million increase in other long-term liabilities, and a $1.1 million increase in accounts payable.

Investing Activities

During the three months ended March 31, 2021, net cash used in investing activities of $96.8 million was related to cash provided by investment maturities of $268.2 million, offset by cash used in purchases of investments of $149.1 million,

cash used in the purchase of stock in equity method investment of $15.9 million and cash used in the purchase of property and equipment of $6.5 million.

During the six months ended June 30, 2021, net cash used in investing activities of $121.4 million was related to cash provided by investment maturities of $484.1 million, offset by cash used in purchases of investments of $329.4 million, cash used in the purchase of stock in equity method investment of $15.9 million and cash used in the purchase of property and equipment of $17.4 million.

Financing Activities

During the three months ended March 31, 2021, cash provided by financing activities of $6.0 million was related to $4.1 million of cash provided by the issuance of common stock upon exercise of stock options and $2.0 million of cash provided by the sale of common stock through the employee stock purchase plan.

During the six months ended June 30, 2021, cash provided by financing activities of $9.3 million was related to $7.3 million of cash provided by the issuance of common stock upon exercise of stock options and $2.0 million of cash provided by the sale of common stock through our 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 March 31, 2021, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales.

As of June 30, 2021, 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 March 31, 2021, the Company had non-cancellable purchase commitments of $4.1 million.

As of June 30, 2021, the Company had non-cancellable purchase commitments of $4.2 million.

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 second quarter of 2021.

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

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

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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