Allogene Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2020 (Annual Report), which was filed with the Securities and Exchange Commission (SEC) on February 25, 2021. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Allogene,” “we,” “us” and “our” refer to Allogene Therapeutics, Inc., and references to “Servier” collectively refer to Les Laboratoires Servier SAS and Institut de Recherches Internationales Servier SAS. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements . Overview We are a clinical stage immuno-oncology company pioneering the development and commercialization of genetically engineered allogeneic T cell therapies for the treatment of cancer. 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. 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. 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 20 Table of Contents 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 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. 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. We initiated a Phase 1/2 clinical trial for ALLO-501A (the ALPHA2 trial) in the second quarter of 2020. 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. 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. 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 $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. 21 Table of Contents 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 Note 6 to our condensed 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. 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 6 to our condensed 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 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 certain 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. In October 2019, we agreed to waive our rights to the one additional target. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the Servier Agreement. Collaboration and License Agreement with Notch On November 1, 2019, we entered into a Collaboration and License Agreement (the Notch Agreement) with Notch Therapeutics Inc. (Notch), pursuant to which Notch granted us an exclusive, worldwide, royalty-bearing, sublicensable license under certain of Notch’s intellectual property to develop, make, use, sell, import, and otherwise commercialize therapeutic gene-edited T cell and/or natural killer cell products from induced pluripotent stem cells directed at certain CAR targets for initial application in NHL, ALL and multiple myeloma. In addition, Notch has granted us an option to add certain specified targets to our exclusive license in exchange for an agreed upon per-target option fee. 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. 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. In February 2021, we made an additional $15.9 million investment in Notch's Series A preferred stock. Immediately following this transaction, our share in Notch was 20.7% on a voting interest basis. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the Notch Agreement. 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 6 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). See Note 22 Table of Contents 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 Revenues 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. In the future, we may generate revenue from a combination of product sales, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, milestone and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, will be materially adversely affected. Operating Expenses Research and Development 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 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: • 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; • costs related to production of clinical materials, including fees paid for raw materials and to contract manufacturers; • laboratory and vendor expenses related to the execution of preclinical and clinical trials; • employee-related expenses, which include salaries, benefits and stock-based compensation; • facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and supplies; and • other significant research and development costs including overhead costs. We expense all research and development costs in the periods in which they are incurred. We accrue for costs incurred as the services are being provided by monitoring the status of the project and the invoices received from our external service providers. We adjust our accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the 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 prior development of UCART19, including for the CALM and PALL clinical trials of UCART19. We accrue for costs incurred by monitoring the status of the CALM and PALL 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 condensed 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 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. We also expect to incur increased research and development expenses as we selectively 23 Table of Contents 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. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following: • per patient trial costs; • biomarker analysis costs; • the cost and timing of manufacturing for the trials; • the number of patients that participate in the trials; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the total number of cells that patients receive; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring or other studies requested by regulatory agencies; • the duration of patient follow-up; and • the efficacy and safety profile of the product candidates. In addition, the probability of success for each product candidate will depend on numerous factors, including safety, efficacy, competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential. Because our product candidates are still in clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability. General and Administrative General and administrative expenses consist primarily of salaries and other staff-related costs, including stock-based compensation for options and restricted stock units granted. Other significant costs include costs relating to facilities and overhead costs, legal fees relating to corporate and patent matters, insurance, investor relations costs, fees for accounting and consulting services, information technology, and other general and administrative costs. General and administrative costs are expensed as incurred, and we accrue for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from our service providers, and adjusting our accruals as actual costs become known. 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 commercial 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. Interest and Other Income, Net Interest and other income, net consists of interest earned on our cash, cash equivalents and investments, as well as investment gains and losses recognized during the period. Other Expense Other expense consists of non-operating expenses, including our share of equity investments' net losses for the period. 24 Table of Contents Results of Operations 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 $ % Collaboration revenue - related party $ 44 $ — $ 44 — Operating expenses: Research and development 52,290 47,296 4,994 11 % General and administrative 18,783 15,862 2,921 18 % Total operating expenses 71,073 63,158 7,915 13 % Loss from operations (71,029) (63,158) (7,871) 12 % Other income (expense), net: Interest and other income, net 624 2,340 (1,716) (73) % Other expenses (531) (156) (375) 240 % Total other income (expense), net 93 2,184 (2,091) (96) % Net Loss $ (70,936) $ (60,974) $ (9,962) 16 % Collaboration revenue - related party 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 $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 $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 $0.6 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 25 Table of Contents 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 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. Our operations have been financed primarily by net proceeds from the sale and issuance of our convertible preferred stock, the issuance of convertible promissory 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 26 Table of Contents 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. 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 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. 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. If 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. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise capital when needed, we will need to delay, reduce or terminate planned activities to reduce costs. Doing so will likely harm our ability to execute our business plans. Cash Flows The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2021 2020 (In thousands) Net cash (used in) provided by: Operating activities $ (90,498) $ (67,530) Investing activities 121,392 (443,978) Financing activities 9,258 616,761 Net increase in cash, cash equivalents and restricted cash $ 40,152 $ 105,253 Operating Activities 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 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. 27 Table of Contents Financing Activities 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 For our contractual obligations and commitments as of December 31, 2020, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligation and Commitments” in our Annual Report. Commitments 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. 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. 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 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 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. 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. 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. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules. 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 condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these condensed 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 condensed 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 and stock-based compensation have the most significant impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. 28 Table of Contents There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Operations” included in our Annual Report. Recent Accounting Pronouncements Please refer to Note 2 to our unaudited condensed consolidated financial statements appearing under Part 1, Item 1 of this report for a discussion of new accounting standards and updates that may impact us.