Allogene Therapeutics, Inc. 10-Q

Item 1. Financial Statements ALLOGENE THERAPEUTICS, INC. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts) September 30, 2021 December 31, 2020 Assets (1) Current assets: Cash and cash equivalents $ 190,021 $ 183,351 Short-term investments 293,464 644,559 Prepaid expenses and other current assets 19,373 17,220 Total current assets 502,858 845,130 Long-term investments 378,222 204,208 Operating lease right-of-use asset 38,764 41,295 Property and equipment, net 125,883 118,840 Restricted cash 9,449 9,449 Other long-term assets 6,160 5,169 Equity method investment 17,910 3,738 Total assets $ 1,079,246 $ 1,227,829 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 11,499 $ 10,390 Accrued and other current liabilities 41,626 44,938 Deferred revenue 365 38,992 Total current liabilities 53,490 94,320 Lease liability, non-current 50,639 50,809 Other long-term liabilities 5,175 3,083 Total liabilities 109,304 148,212 Commitments and Contingencies (Notes 6 and 7) Stockholders’ equity: Preferred stock, $ 0.001 par value: 10,000,000 shares authorized as of September 30, 2021 and December 31, 2020; no shares were issued and outstanding as of September 30, 2021 and December 31, 2020 — — Common stock, $ 0.001 par value: 200,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 142,439,829 and 140,474,305 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 142 140 Additional paid-in capital 1,798,678 1,725,552 Accumulated deficit ( 828,480 ) ( 646,343 ) Accumulated other comprehensive (loss) income ( 398 ) 268 Total stockholders’ equity 969,942 1,079,617 Total liabilities and stockholders’ equity $ 1,079,246 $ 1,227,829 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. (1) The balance sheet as of December 31, 2020 is derived from the audited financial statements as of that date. 1 Table of Contents ALLOGENE THERAPEUTICS, INC. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (In thousands, except share and per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Collaboration revenue - related party $ 49 $ — $ 38,438 $ — Operating expenses: Research and development 58,720 51,421 166,193 140,759 General and administrative 18,999 16,619 54,144 48,122 Total operating expenses 77,719 68,040 220,337 188,881 Loss from operations ( 77,670 ) ( 68,040 ) ( 181,899 ) ( 188,881 ) Other income (expense), net: Interest and other income, net 393 2,005 1,528 7,606 Other expenses ( 909 ) ( 162 ) ( 1,766 ) ( 376 ) Total other income (expense), net ( 516 ) 1,843 ( 238 ) 7,230 Net loss ( 78,186 ) ( 66,197 ) ( 182,137 ) ( 181,651 ) Other comprehensive loss: Net unrealized loss on available-for-sale investments ( 64 ) ( 877 ) ( 666 ) ( 192 ) Net comprehensive loss $ ( 78,250 ) $ ( 67,074 ) $ ( 182,803 ) $ ( 181,843 ) Net loss per share, basic and diluted $ ( 0.57 ) $ ( 0.52 ) $ ( 1.35 ) $ ( 1.55 ) Weighted-average number of shares used in computing net loss per share, basic and diluted 137,025,698 127,140,755 134,690,310 117,227,079 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 Table of Contents ALLOGENE THERAPEUTICS, INC. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands, except share amounts) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance - June 30, 2021 142,120,731 $ 142 $ 1,774,298 $ ( 750,294 ) $ ( 334 ) $ 1,023,812 Issuance of common stock upon exercise of stock options and vesting of RSUs 229,918 — 750 — — 750 Vesting of early exercised common stock — — 1,142 — — 1,142 Stock-based compensation — — 20,856 — — 20,856 Employee stock purchase plan 89,180 — 1,632 — — 1,632 Net loss — — — ( 78,186 ) — ( 78,186 ) Net unrealized loss on available-for-sale investments — — — — ( 64 ) ( 64 ) Balance - September 30, 2021 142,439,829 $ 142 $ 1,798,678 $ ( 828,480 ) $ ( 398 ) $ 969,942 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance - December 31, 2020 140,474,305 $ 140 $ 1,725,552 $ ( 646,343 ) $ 268 $ 1,079,617 Issuance of common stock upon exercise of stock options and vesting of RSUs 1,778,318 2 8,021 — — 8,023 Vesting of early exercised common stock — — 2,706 — — 2,706 Stock-based compensation — — 58,782 — — 58,782 Employee stock purchase plan 187,206 — 3,617 — — 3,617 Net loss — — — ( 182,137 ) — ( 182,137 ) Net unrealized loss on available-for-sale investments — — — — ( 666 ) ( 666 ) Balance - September 30, 2021 142,439,829 $ 142 $ 1,798,678 $ ( 828,480 ) $ ( 398 ) $ 969,942 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents ALLOGENE THERAPEUTICS, INC. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands, except share amounts) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity Shares Amount Balance - June 30, 2020 139,233,450 $ 139 $ 1,673,026 $ ( 511,576 ) $ 1,830 $ 1,163,419 Issuance of common stock upon exercise of stock options and vesting of RSUs 431,812 1 2,446 — — 2,447 Vesting of early exercised common stock — — 710 — — 710 Stock-based compensation — — 17,823 — — 17,823 Employee stock purchase plan 90,577 — 1,406 — — 1,406 Net loss — — — ( 66,197 ) — ( 66,197 ) Net unrealized loss on available-for-sale investments — — — — ( 877 ) ( 877 ) Balance - September 30, 2020 139,755,839 $ 140 $ 1,695,411 $ ( 577,773 ) $ 953 $ 1,118,731 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ Equity Shares Amount Balance - December 31, 2019 124,267,358 $ 124 $ 1,023,876 $ ( 396,122 ) $ 1,145 $ 629,023 Issuance of common stock upon exercise of stock options and vesting of RSUs 1,285,053 2 7,225 — — 7,227 Vesting of early exercised common stock — — 2,130 — — 2,130 Stock-based compensation — — 48,808 — — 48,808 Employee stock purchase plan 175,142 — 2,843 — — 2,843 Issuance of common stock from public ATM offering, net of commissions and offering costs of $ 0.3 million 570,839 1 14,844 — — 14,845 Issuance of common stock from public offering, net of commissions and offering costs of $ 36.8 million 13,457,447 13 595,685 — — 595,698 Net loss — — — ( 181,651 ) — ( 181,651 ) Net unrealized loss on available-for-sale investments — — — — ( 192 ) ( 192 ) Balance - September 30, 2020 139,755,839 $ 140 $ 1,695,411 $ ( 577,773 ) $ 953 $ 1,118,731 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents ALLOGENE THERAPEUTICS, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 182,137 ) $ ( 181,651 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 58,782 48,808 Amortization of other intangible assets acquired — 151 Depreciation and amortization 6,212 5,591 Net amortization/accretion on investment securities 5,361 1,437 Non-cash rent expense 2,622 1,240 Share of losses from equity method investments 1,766 376 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 2,153 ) 657 Other long-term assets ( 991 ) 1,975 Accounts payable 1,277 1,681 Accrued and other current liabilities 6,420 16,175 Deferred revenue ( 38,627 ) — Other long-term liabilities 2,092 ( 1,558 ) Net cash used in operating activities ( 139,376 ) ( 105,118 ) Cash flows from investing activities: Purchases of property and equipment ( 20,710 ) ( 48,554 ) Purchase of stock in equity method investment ( 15,938 ) — Proceeds (loss) from sales of investments — 4,877 Proceeds from maturities of investments 645,854 371,777 Purchase of investments ( 474,801 ) ( 855,433 ) Net cash (used in) provided by investing activities 134,405 ( 527,333 ) Cash flows from financing activities: Proceeds from issuance of common stock from ATM offering, net of commissions and issuance costs — 14,845 Proceeds from issuance of common stock from public offering, net of commissions and issuance costs — 595,730 Proceeds from issuance of common stock upon exercise of stock options 8,024 7,194 Proceeds from issuance of common stock under the employee stock purchase plan 3,617 2,844 Net cash provided by financing activities 11,641 620,613 Net change in cash, cash equivalents and restricted cash 6,670 ( 11,838 ) Cash, cash equivalents and restricted cash — beginning of period 192,800 179,425 Cash, cash equivalents and restricted cash — end of period $ 199,470 $ 167,587 Non-cash investing activities: Property and equipment purchases in accounts payable and accrued and other current liabilities $ 1,112 $ 7,909 Supplemental disclosure: Cash paid for amounts included in the measurement of lease liabilities $ ( 4,058 ) $ ( 4,236 ) Cash received for amounts related to tenant improvement allowances $ 1,111 $ 2,321 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents ALLOGENE THERAPEUTICS, INC. Notes to Condensed Consolidated Financial Statements 1. Description of Business Allogene Therapeutics, Inc. (the Company or Allogene) was incorporated on November 30, 2017 in the State of Delaware and is headquartered in South San Francisco, California. Allogene is an immuno-oncology company pioneering the development and commercialization of genetically engineered allogeneic T cell therapies for the treatment of cancer. The Company is developing a pipeline of off-the-shelf T cell product candidates that are designed to target and kill cancer cells. Need for Additional Capital The Company has sustained operating losses and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities as well as the ability to commercialize the Company's product candidates. The Company had cash and cash equivalents and investments of $ 861.7 million as of September 30, 2021. Since inception through September 30, 2021, the Company has incurred cumulative net losses of $ 828.5 million. Management expects to incur additional losses in the future to fund its operations and conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan. The Company intends to raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidates. The Company expects that its cash and cash equivalents and investments will be sufficient to fund its operations for a period of at least one year from the date the accompanying unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (SEC). The Company cannot at this time predict the specific extent, duration, or full impact that the ongoing COVID-19 pandemic will have on its financial condition and operations. The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain. If business conditions, financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the Company’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany balances and transactions have been eliminated during consolidation. The condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of stockholders’ equity as of September 30, 2021 and 2020, the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020, and the financial data and other financial information disclosed in the notes to the condensed consolidated financial statements are unaudited. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, or for any other future annual or interim period. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021. Use of Estimates 6 Table of Contents The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include but are not limited to the fair value of stock options, fair value of investments, income tax uncertainties, and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates. Significant Accounting Policies There have been no significant changes to the accounting policies during the three and nine months ended September 30, 2021, as compared to the significant accounting policies described in Note 1 of the “Notes to Financial Statements” in the Company’s audited financial statements included in its Annual Report, with the exception of revenue recognition related to the collaboration revenue recognized in the three and nine months ended September 30, 2021 and the recently adopted accounting pronouncements in the section below. Revenue Recognition The Company’s revenue has been generated through collaboration research and license agreements. The terms of these agreements may 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. The Company analyzes its 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, the Company first determines 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 the Company determines should be accounted for under ASC 606, the Company assesses which activities in the 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. The Company considers a performance obligation satisfied once the Company has 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 the Company expects to collect in exchange for the Company’s products is an estimate and may be fixed or variable. The Company constrains the estimated variable consideration when it assesses 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 the Company 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. Recently Adopted Accounting Pronouncements 7 Table of Contents In January 2020, the FASB issued Accounting Standard Update No. 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323) , which clarifies the interactions between Topics 321 and 323 in applying or discontinuing the equity method of accounting for investments. This guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company adopted this standard on January 1, 2021 on a prospective basis. Adoption of the new guidance had no significant impact on the Company's condensed consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company's condensed consolidated financial statements. 3. Fair Value Measurements The Company measures and reports its cash equivalents, restricted cash, and investments at fair value. Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1. Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs, except for investments in U.S. treasury securities which are classified as Level 1. There were no Level 3 assets or liabilities as of September 30, 2021 and as of December 31, 2020. Financial assets subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of September 30, 2021 and as of December 31, 2020 are presented in the following tables: September 30, 2021 Level 1 Level 2 Level 3 Fair Value (In thousands) Financial Assets: Money market funds (1) $ 134,803 $ — $ — $ 134,803 Commercial paper — 58,964 — 58,964 Corporate bonds — 210,817 — 210,817 U.S. treasury securities 353,375 — — 353,375 U.S. agency securities — 48,530 — 48,530 Total financial assets $ 488,178 $ 318,311 $ — $ 806,489 December 31, 2020 Level 1 Level 2 Level 3 Fair Value (In thousands) Financial Assets: Money market funds (1) $ 102,039 $ — $ — $ 102,039 Commercial paper — 58,975 — 58,975 Corporate bonds — 262,757 — 262,757 U.S. treasury securities 446,996 — — 446,996 U.S. agency securities — 80,039 — 80,039 Total financial assets $ 549,035 $ 401,771 $ — $ 950,806 (1) Included within cash and cash equivalents on the Company’s condensed consolidated balance sheets 4. Financial Instruments 8 Table of Contents The fair value and amortized cost of cash equivalents and available-for-sale securities by major security type as of September 30, 2021 and as of December 31, 2020 are presented in the following tables: September 30, 2021 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (In thousands) Money market funds $ 134,803 $ — $ — $ 134,803 Commercial paper 58,957 7 — 58,964 Corporate bonds 210,704 213 ( 100 ) 210,817 U.S. treasury securities 353,408 51 ( 84 ) 353,375 U.S. agency securities 48,573 1 ( 44 ) 48,530 Total cash equivalents and investments $ 806,445 $ 272 $ ( 228 ) $ 806,489 Classified as: Cash equivalents $ 134,803 Short-term investments 293,464 Long-term investments 378,222 Total cash equivalents and investments $ 806,489 December 31, 2020 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (In thousands) Money market funds $ 102,039 $ — $ — $ 102,039 Commercial paper 58,969 8 ( 2 ) 58,975 Corporate bonds 262,349 444 ( 36 ) 262,757 U.S. treasury securities 446,726 282 ( 12 ) 446,996 U.S. agency securities 80,012 30 ( 3 ) 80,039 Total cash equivalents and investments $ 950,095 $ 764 $ ( 53 ) $ 950,806 Classified as: Cash equivalents $ 102,039 Short-term investments 644,559 Long-term investments 204,208 Total cash equivalents and investments $ 950,806 As of September 30, 2021, the remaining contractual maturities of available-for-sale securities were less than 3 years. There have been no significant realized losses on available-for-sale securities for the periods presented. As of September 30, 2021, unrealized losses on available-for-sale investments are not attributed to credit risk. The Company believes that it is more likely than not that investments in an unrealized loss position will be held until maturity and all interest and principal will be received. The Company believes that an allowance for credit losses is unnecessary because the unrealized losses on certain of the Company’s marketable securities are due to market factors. As of September 30, 2021 and December 31, 2020, securities with a fair value of zero and $ 5.0 million, respectively, were in a net unrealized loss position for more than 12 months. To date, the Company has not recorded any impairment charges on marketable securities. 5. Balance Sheet Components Property and Equipment, Net 9 Table of Contents Property and Equipment consist of the following: September 30, 2021 December 31, 2020 (In thousands) Leasehold improvements 108,179 31,518 Laboratory equipment 28,225 23,810 Computer equipment and purchased software 4,380 4,088 Furniture and fixtures 3,929 3,388 Construction in progress 289 68,944 Total 145,002 131,748 Less: accumulated depreciation ( 19,119 ) ( 12,908 ) Total property and equipment, net $ 125,883 $ 118,840 6. License Agreements Asset Contribution Agreement with Pfizer In April 2018, the Company entered into an Asset Contribution Agreement (the Pfizer Agreement) with Pfizer pursuant to which the Company acquired certain assets, including certain contracts and intellectual property for the development and administration of chimeric antigen receptor (CAR) T cells for the treatment of cancer. The Company is required to make milestone payments upon successful completion of regulatory and sales milestones on a target-by-target basis for the targets, including CD19 and B-cell maturation antigen (BCMA), covered by the Pfizer Agreement. The aggregate potential milestone payments upon successful completion of various regulatory milestones in the United States and the European Union are $ 30.0 million or $ 60.0 million, depending on the target, with aggregate potential regulatory and development milestones of up to $ 840.0 million, provided that the Company is not obligated to pay a milestone for regulatory approval in the European Union for an anti-CD19 allogeneic CAR T cell product, to the extent Servier has commercial rights to such territory. The aggregate potential milestone payments upon reaching certain annual net sales thresholds in North America, Europe, Asia, Australia and Oceania (the Territory) for a certain number of targets covered by the Pfizer Agreement are $ 325.0 million per target. The sales milestones in the foregoing sentence are payable on a country-by-country basis until the last to expire of any Pfizer Royalty Term, as described below, for any product in such country in the Territory. In October 2019, the Territory was expanded to all countries in the world. No milestone or royalty payments were made in the three and nine months ended September 30, 2021 or 2020. Pfizer is also eligible to receive, on a product-by-product and country-by-country basis, royalties in single-digit percentages on annual net sales for products covered by the Pfizer Agreement or that use certain Pfizer intellectual property and for which an investigational new drug application (IND) is first filed on or before April 6, 2023. The Company’s royalty obligation with respect to a given product in a given country begins upon the first sale of such product in such country and ends on the later of (i) expiration of the last claim of any applicable patent or (ii) 12 years from the first sale of such product in such country. Research Collaboration and License Agreement with Cellectis As part of the Pfizer Agreement, Pfizer assigned to the Company a Research Collaboration and License Agreement (the Original Cellectis Agreement) with Cellectis S.A. (Cellectis). On March 8, 2019, the Company entered into a License Agreement (the Cellectis Agreement) with Cellectis. In connection with the execution of the Cellectis Agreement, on March 8, 2019, the Company and Cellectis also entered into a letter agreement (the Letter Agreement), pursuant to which the Company and Cellectis agreed to terminate the Original Cellectis Agreement. The Original Cellectis Agreement included a research collaboration to conduct discovery and pre-clinical development activities to generate CAR T cells directed at targets selected by each party, which was completed in June 2018. Pursuant to the Cellectis Agreement, Cellectis granted to the Company an exclusive, worldwide, royalty-bearing license, on a target-by-target basis, with sublicensing rights under certain conditions, under certain of Cellectis’s intellectual property, including its TALEN and electroporation technology, to make, use, sell, import, and otherwise exploit and commercialize CAR T products directed at certain targets, including BCMA, FLT3, DLL3 and CD70 (the Allogene Targets), for human oncologic therapeutic, diagnostic, prophylactic and prognostic purposes. In addition, certain Cellectis intellectual property rights granted by Cellectis to the Company and to Servier pursuant to the Exclusive License and Collaboration Agreement by and between 10 Table of Contents Servier and Pfizer, dated October 30, 2016, which Pfizer assigned to the Company in April 2018, will survive the termination of the Original Cellectis Agreement. Pursuant to the Cellectis Agreement, the Company granted Cellectis a non-exclusive, worldwide, royalty-free, perpetual and irrevocable license, with sublicensing rights under certain conditions, under certain of the Company's intellectual property, to make, use, sell, import and otherwise commercialize CAR T products directed at certain targets (the Cellectis Targets). The Cellectis Agreement provides for development and sales milestone payments by the Company of up to $ 185.0 million per product that is directed against an Allogene Target, with aggregate potential development and sales milestone payments totaling up to $ 2.8 billion. Cellectis is also eligible to receive tiered royalties on annual worldwide net sales of any products that are commercialized by the Company that contain or incorporate, are made using or are claimed or covered by, Cellectis intellectual property licensed to the Company under the Cellectis Agreement (the Allogene Products), at rates in the high single-digit percentages. Such royalties may be reduced, on a licensed product-by-licensed product and country-by-country basis, for generic entry and for payments due under licenses of third party patents. Pursuant to the Cellectis Agreement, and subject to certain exceptions, the Company is required to indemnify Cellectis against all third party claims related to the development, manufacturing, commercialization or use of any Allogene Product or arising out of the Company’s material breach of the representations, warranties or covenants set forth in the Cellectis Agreement, and Cellectis is required, subject to certain exceptions, to indemnify the Company against all third party claims related to the development, manufacturing, commercialization or use of CAR T products directed at Cellectis Targets or arising out of Cellectis’s material breach of the representations, warranties or covenants set forth in the Cellectis Agreement. The royalties are payable, on a licensed product-by-licensed product and country-by-country basis, until the later of (i) the expiration of the last to expire of the licensed patents covering such product; (ii) the loss of regulatory exclusivity afforded such product in such country, and (iii) the tenth anniversary of the date of the first commercial sale of such product in such country; however, in no event shall such royalties be payable, with respect to a particular licensed product, past the twentieth anniversary of the first commercial sale for such product. Depending on the Cellectis Target, the Company has a right of first refusal or right of first negotiation to purchase or license from Cellectis rights to develop and commercialize products against such Cellectis Targets. Under the Cellectis Agreement, the Company has certain diligence obligations to progress the development of CAR T product candidates and to commercialize one CAR T product per Allogene Target in one major market country where the Company has received regulatory approval. If the Company materially breaches any of its diligence obligations and fails to cure within 90 days, then with respect to certain targets, such target will cease to be an Allogene Target and instead will become a Cellectis Target. Unless earlier terminated in accordance with its terms, the Cellectis Agreement will expire on a product-by-product and country-by-country basis, upon expiration of all royalty payment obligations with respect to such licensed product in such country. The Company has the right to terminate the Cellectis Agreement at will upon 60 days’ prior written notice, either in its entirety or on a target-by-target basis. Either party may terminate the Cellectis Agreement, in its entirety or on a target-by-target basis, upon 90 days’ prior written notice in the event of the other party’s uncured material breach. The Cellectis Agreement may also be terminated by the Company upon written notice at any time in the event that Cellectis becomes bankrupt or insolvent or upon written notice within 60 days of a consummation of a change of control of Cellectis. All costs the Company incurred in connection with this agreement were recognized as research and development expenses. For the three and nine months ended September 30, 2021, $ 5.0 million and $ 10.0 million, respectively, in costs were incurred related to the achievement of clinical development milestones under this agreement. For the three and nine months ended September 30, 2020, zero costs were incurred related to the achievement of a clinical development milestone under this agreement. License and Collaboration Agreement with Servier As part of the Pfizer Agreement, Pfizer assigned to the Company an Exclusive License and Collaboration Agreement (the Servier Agreement), with Les Laboratoires Servier SAS and Institut de Recherches Internationales Servier SAS (collectively, Servier) to develop, manufacture and commercialize certain allogeneic anti-CD19 CAR T cell product candidates, including UCART19, in the United States with the option to obtain the rights over additional anti-CD19 product candidates and for allogeneic CAR T cell product candidates directed against one additional target. In October 2019, the Company agreed to waive its rights to the one additional target. 11 Table of Contents Under the Servier Agreement, the Company has an exclusive license to develop, manufacture and commercialize UCART19, ALLO-501 and ALLO-501A in the field of anti-tumor adoptive immunotherapy in the United States, with an exclusive option to obtain the same rights for additional product candidates in the United States and, if Servier does not elect to pursue development or commercialization of those product candidates in certain markets outside of the United States pursuant to its license, outside of the United States as well. The Company is not required to make any additional payments to Servier to exercise an option. If the Company opts-in to another product candidate, Servier has the right to obtain rights to such product candidate outside the United States and to share development costs for such product candidate. Under the Servier Agreement, the Company is required to use commercially reasonable efforts to develop and obtain marketing approval in the United States in the field of anti-tumor adoptive immunotherapy for at least one product directed against CD19, and Servier is required to use commercially reasonable efforts to develop and obtain marketing approval in the European Union, and one other country in a group of specified countries outside of the European Union and the United States, in the field of anti-tumor adoptive immunotherapy for at least one allogeneic adaptive T cell product directed against a certain Company-selected target. For product candidates that the Company is co-developing with Servier, including UCART19, ALLO-501 and ALLO-501A, the Company is responsible for 60 % of the specified development costs and Servier is responsible for the remaining 40 % of the specified development costs under the applicable global research and development plan. Subject to certain restrictions, each party has the right to conduct activities that are specific to its territory outside the global research and development plan at such party’s sole expense. In addition, each party is solely responsible for commercialization activities in its territory at such party’s sole expense. The Company is required to make milestone payments to Servier upon successful completion of regulatory and sales milestones. The Servier Agreement provides for aggregate potential payments by the Company to Servier of up to $ 137.5 million upon successful completion of various regulatory milestones, and aggregate potential payments by the Company to Servier of up to $ 78.0 million upon successful completion of various sales milestones. Similarly, Servier is required to make milestone payments upon successful completion of regulatory and sales milestones for products directed at the Allogene-target covered by the Servier Agreement that achieves such milestones. The total potential payments that Servier is obligated to make to the Company under the Servier Agreement upon successful completion of regulatory and sales milestones are $ 42.0 million and € 70.5 million ($ 81.8 million), respectively. The foregoing milestones are subject to certain adjustments if the Company obtains rights for certain products outside of the United States upon Servier’s election not to pursue such rights. Each party is also eligible to receive tiered royalties on annual net sales in countries within the paying party’s respective territory of any licensed products that are commercialized by such party that are directed at the targets licensed by such party under the Servier Agreement. The royalty rates are in a range from the low tens to the high teen percentages. Such royalties may be reduced for interchangeable drug entry, expiration of patent rights and amounts paid pursuant to licenses of third-party patents. The royalty obligation for each party with respect to a given licensed product in a given country in each party’s respective territory (the Servier Royalty Term) begins upon the first commercial sale of such product in such country and ends after a defined number of years. Unless earlier terminated in accordance with the Servier Agreement, the Servier Agreement will continue, on a licensed product-by-licensed product and country-by-country basis, until the Servier Royalty Term with respect to the sale of such licensed product in such country expires. For the three and nine months ended September 30, 2021, the Company recorded $ 5.1 million and $ 13.2 million, respectively of net cost recoveries under the cost-sharing terms of the Servier Agreement as a reduction to research and development expenses. For the three and nine months ended September 30, 2020, the Company recorded $ 4.1 million and $ 5.9 million, respectively, of net cost recoveries. As of September 30, 2021 and December 31, 2020, amounts due from Servier of $ 9.3 million and $ 3.8 million, respectively, were recorded in other current assets in the accompanying condensed consolidated balance sheets. Research Collaboration and License Agreement with Notch On November 1, 2019, the Company entered into a Collaboration and License Agreement (the Notch Agreement) with Notch Therapeutics Inc. (Notch), pursuant to which Notch granted to Allogene 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 (NK) cell products from induced pluripotent stem cells directed at certain CAR targets for initial application in non-Hodgkin lymphoma, acute lymphoblastic leukemia and multiple 12 Table of Contents myeloma. In addition, Notch has granted Allogene an option to add certain specified targets to its exclusive license in exchange for an agreed 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 Allogene’s exclusive targets, which will be conducted in accordance with an agreed research plan and budget under the oversight of a joint development committee. Allogene will reimburse Notch’s costs incurred in accordance with such plan and budget. The term of the research collaboration will expire upon the earlier of (i) the fifth anniversary of the date of the Notch Agreement, (ii) at Allogene’s election, following the joint development committee’s determination that for each exclusive target, Notch has met certain success criteria, or (iii) the joint development committee’s determination that the research collaboration cannot be reasonably pursued against any exclusive target due to technical infeasibility or safety issues. In connection with the execution of the Notch Agreement, Allogene made an upfront payment to Notch of $ 10.0 million in return for a license to access Notch's technology in order to conduct research pursuant to the Notch Agreement. The Company recognized a research and development expense of $ 10 million during the year ended December 31, 2019 as the license had no foreseeable alternative future use. In addition, Allogene made a $ 5.0 million investment in Notch’s series seed convertible preferred stock, resulting in Allogene having a 25 % ownership interest in Notch’s outstanding capital stock on a fully diluted basis immediately following the investment. In connection with this investment, David Chang, M.D., Ph.D., the Company's President, Chief Executive Officer and Board member, was appointed to Notch’s Board of Directors. In February 2021, the Company made an additional $ 15.9 million investment in Notch's Series A preferred stock. Immediately following this transaction, the Company's share in Notch was 20.7 % on a voting interest basis. The Company did not have a controlling interest in Notch as of September 30, 2021, and continued to account for its investment in Notch as an equity method investment. Under the Notch Agreement, Notch will be eligible to receive up to $ 7.25 million upon achieving certain agreed research milestones, up to $ 4.0 million per exclusive target upon achieving certain pre-clinical development milestones, and up to $ 283.0 million per exclusive target and cell type (i.e., T cell or NK cell) upon achieving certain clinical, regulatory and commercial milestones. Notch is also entitled to receive tiered royalties in the mid to high single digit range on Allogene’s sales of licensed products, subject to certain reductions, for a term, on a country-by-country and product-by-product basis, commencing on first commercial sale of such product in such country and continuing until the latest of (i) the date upon which there is no valid claim of the licensed patents in such country of sale that covers such product, (ii) the expiration of applicable data or other regulatory exclusivity in such country of sale or (iii) a defined period from the first commercial sale of such product in such country. The terms of the Notch Agreement will continue on a product-by-product and country-by-country basis until Allogene’s payment obligations with respect to such product in such country have expired. Following such expiration, Allogene’s license with respect to such product and country shall be perpetual, irrevocable, fully paid up and royalty-free. Allogene may terminate the Collaboration Agreement in whole or on a product-by-product basis upon ninety days’ prior written notice to Notch. Either party may also terminate the Collaboration Agreement with written notice upon material breach by the other party, if such breach has not been cured within a defined period of receiving such notice, or in the event of the other party’s insolvency. For the three and nine months ended September 30, 2021, the Company recorded $ 0.8 million and $ 3.9 million, respectively, in collaboration costs as research and development expenses. For the three and nine months ended September 30, 2020, the Company recorded $ 1.2 million and $ 2.0 million, respectively, in collaboration costs as research and development expenses. Strategic Alliance with The University of Texas MD Anderson Cancer Center On October 6, 2020, the Company 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. The Company 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, the Company has 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. The Company made an upfront payment of $ 3.0 million to MD Anderson in the year ended December 31, 2020. The Company is 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. These costs are expensed to research and development as MD Anderson renders the services under the strategic alliance. 13 Table of Contents 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. For the three and nine months ended September 30, 2021, the Company recorded $ 0.4 million and $ 0.8 million in collaboration costs as research and development expenses. Joint Venture and License Agreement with Allogene Overland Biopharm (CY) Limited On December 14, 2020, the Company entered into a License Agreement with Allogene Overland Biopharm (CY) Limited (Allogene Overland), a joint venture established by the Company 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, the Company 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, the Company 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, the Company 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, the Company 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. Subsequent to entering into the License Agreement, Allogene Overland assigned the License Agreement to a wholly-owned subsidiary, Allogene Overland BioPharm (HK) Limited. Promises that the Company 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, the Company 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. The Company constrains the estimated variable consideration when it assesses 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. The Company re-evaluates 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 the Company’s joint venture and equity method accounting upon formation of the joint venture, and as such, were excluded from the transaction price. The Company 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 the Company 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. The Company has determined that Allogene Overland is a variable interest entity as of September 30, 2021 and December 31, 2020. The Company does not have the power to independently direct the activities which most significantly affect Allogene Overland's economic performance. Accordingly, the Company did not consolidate Allogene Overland because the Company determined that it was not the primary beneficiary. For the three and nine months ended September 30, 2021, the Company recognized less than $ 0.1 million and $ 38.4 million, respectively, of collaboration revenue, primarily related to the license of intellectual property and delivery of the know-how performance obligation which was delivered in the first quarter of 2021. 14 Table of Contents 7. Commitments and Contingencies Leases In August 2018, the Company entered into an operating lease agreement for new office and laboratory space which consists of approximately 68,000 square feet located in South San Francisco, California. The lease term is 127 months beginning August 2018 through February 2029 with an option to extend the term for another seven years which is not reasonably assured of exercise. The Company has made certain tenant improvements, including the addition of laboratory space, and has received $ 5.0 million of tenant improvement allowances. The rent payments began on March 1, 2019 after an abatement period. In October 2018, the Company entered into an operating lease agreement for new office and laboratory space which consists of 14,943 square feet located in South San Francisco, California. The lease term is 124 months beginning November 2018 through February 2029, with an option to extend the term for another seven years which is not reasonably assured of exercise. The Company has made certain tenant improvements, including the upgrading of current office and laboratory space with a lease incentive allowance of $ 0.8 million. Rent payments began in November 2018. In February 2019, the Company entered into a lease agreement for approximately 118,000 square feet of space to develop a cell therapy manufacturing facility in Newark, California. The lease has a term of 188 months and commenced in November 2020. Upon certain conditions, the Company has two ten-year options to extend the lease, both of which are not reasonably assured of exercise. The Company is entitled to a tenant improvement allowance of $ 2.9 million for costs related to the design and construction of certain Company improvements and has received $ 2.7 million of tenant improvement allowances up to September 30, 2021. The Company maintains letters of credit for the benefit of landlords which is disclosed as restricted cash in the condensed consolidated balance sheets. Restricted cash related to letters of credit due to landlords was $ 5.2 million and $ 4.3 million as of September 30, 2021 and December 31, 2020, respectively. The balance sheet classification of our lease liabilities were as follows (in thousands): September 30, 2021 December 31, 2020 Operating lease liabilities Current portion included in accrued and other current liabilities $ 3,235 $ 2,974 Long-term portion of lease liabilities 50,639 50,809 Total operating lease liabilities $ 53,874 $ 53,783 The components of lease costs for operating leases, which were recognized in operating expenses, were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Operating lease cost $ 1,853 $ 1,845 $ 5,568 $ 5,543 Variable lease cost 448 353 979 961 Total lease costs $ 2,301 $ 2,198 $ 6,547 $ 6,504 Cash paid for amounts included in the measurement of lease liabilities for the nine months ended September 30, 2021 was $ 4.1 million and was included in net cash used in operating activities in our condensed consolidated statements of cash flows. 15 Table of Contents The undiscounted future lease payments under the lease agreements as of September 30, 2021 were as follows: Year ending December 31: (In thousands) 2021 (remaining 3 months) $ 1,949 2022 7,917 2023 8,168 2024 8,430 2025 8,509 2026 and thereafter 48,143 Total undiscounted lease payments 83,116 Less: Present value adjustment ( 28,917 ) Less: Tenant improvement allowance ( 325 ) Total $ 53,874 Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, we use our estimated incremental borrowing rate. The weighted average discount rate used to determine the operating lease liability was 8.43 %. As of September 30, 2021, the weighted average remaining lease term for our operating leases is 9.86 years. Other Commitments In July 2020, the Company 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 the Company's cell therapy manufacturing facility in Newark, California. The agreement has a term of 20 years and is expected to commence in the fourth quarter of 2021. The Company is 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 the Company will result in a termination payment due of approximately $ 4.3 million. In connection with the agreement, the Company maintains 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 condensed consolidated balance sheet as of September 30, 2021. The Company has entered into certain license agreements for intellectual property which is used as part of our development and manufacturing processes. Each of these respective agreements are generally cancellable by the Company. These agreements require payment of annual license fees and may include conditional milestone payments for achievement of specific research, clinical and commercial events, and royalty payments. The timing and likelihood of any significant conditional milestone payments or royalty payments becoming due was not probable as of September 30, 2021. The Company enters into contracts in the normal course of business that includes arrangements with clinical research organizations, vendors for preclinical research and vendors for manufacturing. These agreements generally allow for cancellation with notice. As of September 30, 2021, the Company had non-cancellable purchase commitments of $ 2.9 million. 8. Equity Method Investment Notch Therapeutics In conjunction with the execution of the Notch Agreement (see Note 6), the Company also entered into a Share Purchase Agreement with the Company acquiring shares of Notch’s Series Seed convertible preferred stock for a total investment cost of $ 5.1 million which includes transaction costs of $ 0.1 million, resulting in a 25 % ownership interest in Notch. In February 2021, the Company made a $ 15.9 million investment in Notch's Series A preferred stock. Immediately following this transaction, the Company's share in Notch was 20.7 % on a voting interest basis. The Company’s total equity investment in Notch as of September 30, 2021 and December 31, 2020 was $ 17.9 million and $ 3.7 million, respectively, and the Company accounted for the investment using the equity method of accounting. Allogene Overland Biopharm (CY) Limited In conjunction with the execution of the License Agreement with Allogene Overland (see Note 6), the Company also entered into a Share Purchase Agreement and Shareholders' Agreement with the joint venture company under which it acquired shares 16 Table of Contents of Allogene Overland’s Seed Preferred Shares representing a 49 % ownership interest as partial consideration for entering into a License Agreement which had a carrying value of zero . The Company accounts for its investment in Allogene Overland as an equity method investment at carrying value. The Company's total equity investment in Allogene Overland was zero as of September 30, 2021 and December 31, 2020, respectively. The Company’s equity investment in Allogene Overland as of September 30, 2021 and December 31, 2020 had a zero carryover basis. Therefore, the Company did not account for its share of losses incurred by Allogene Overland. See Note 6 for further details. 9. Stock-Based Compensation In June 2018, the Company adopted its 2018 Equity Incentive Plan (Prior 2018 Plan). The Prior 2018 Plan provided for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the Company’s Board of Directors and consultants of the Company under terms and provisions established by the Company’s Board of Directors. In September 2018, the Board of Directors adopted a new amended and restated 2018 Equity Incentive Plan as a successor to and continuation of the Prior 2018 Plan, which became effective in October 2018 (the 2018 Plan), which authorized additional shares for issuance and provided for an automatic annual increase to the number of shares issuable under the 2018 Plan by an amount equal to 5 % of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. The term of any stock option granted under the 2018 Plan cannot exceed 10 years. The Company generally grants stock-based awards with service conditions only. Options shall not have an exercise price less than 100 % of the fair market value of the Company’s common stock on the grant date. Options granted typically vest over a four-year period but may be granted with different vesting terms. Restricted Stock Units granted typically vest annually over a four-year period but may be granted with different vesting terms. As of September 30, 2021, there were 16,937,335 shares reserved by the Company under the 2018 Plan for the future issuance of equity awards. Stock Option Activity The following summarizes option activity under the 2018 Plan: Outstanding Options Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contract Term Aggregate intrinsic value (In years) (In thousands) Balance, December 31, 2020 10,434,034 $ 17.73 8.29 $ 93,149 Granted 1,983,601 32.41 Exercised ( 1,163,409 ) 11.45 Forfeited ( 1,145,057 ) 19.81 Balance, September 30, 2021 10,109,169 $ 21.10 7.83 $ 70,846 Exercisable, September 30, 2021 7,517,410 $ 19.73 7.69 $ 59,485 Vested and expected to vest, September 30, 2021 10,109,169 $ 21.10 7.83 $ 70,846 The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on the Nasdaq Global Select Market on September 30, 2021. For the nine months ended September 30, 2021, the estimated weighted-average grant-date fair value of employee options granted was $ 20.31 per share. As of September 30, 2021, there was $ 81.9 million of unrecognized stock-based compensation related to unvested stock options, which is expected to be recognized over a weighted-average period of 2 years, 205 days . 17 Table of Contents The fair value of employee, consultant and director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions: Nine Months Ended September 30, 2021 2020 Expected term in years 5.27 - 6.10 5.31 - 6.09 Expected volatility 69.73 % - 70.80 % 71.42 % - 72.14 % Expected risk-free interest rate 0.60 % - 1.16 % 0.38 % - 1.65 % Expected dividend 0 % 0 % Expected term — The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. 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 — The Company uses 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 the Company does not have sufficient trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Risk-free interest rate —The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option. Expected dividend —The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero . Restricted Stock Unit Activity The following summarizes restricted stock unit activity under the 2018 Plan: Outstanding Restricted Stock Units Restricted Stock Units Weighted- Average Fair Value at Date of Grant per Share Weighted Average Remaining Vesting Life Aggregate Intrinsic Value (In years) (In thousands) Unvested December 31, 2020 2,493,920 $ 26.14 1.66 $ 62,947 Granted 2,007,717 30.90 1.92 Vested ( 657,000 ) 26.68 Forfeited ( 451,033 ) 27.27 Unvested September 30, 2021 3,393,604 $ 28.70 1.76 $ 87,216 Vested and expected to vest, September 30, 2021 3,393,604 $ 28.70 1.76 $ 87,216 18 Table of Contents As of September 30, 2021, there was $ 82.8 million of unrecognized stock-based compensation related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2 years, 327 days . Total stock-based compensation related to stock options, restricted stock units, employee stock purchase plan and vesting of the founders’ common stock was as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Research and development $ 10,074 $ 8,829 $ 28,494 $ 23,465 General and administrative 10,782 8,994 30,288 25,343 Total stock-based compensation $ 20,856 $ 17,823 $ 58,782 $ 48,808 Early Exercised Options The Company allows certain of its employees and its directors to exercise options granted under the Prior 2018 Plan and the 2018 Plan prior to vesting. The shares related to early exercised stock options are subject to the Company’s lapsing repurchase right upon termination of employment or service on the Company’s board of directors at the lesser of the original purchase price or fair market value at the time of repurchase. In order to vest, the holders are required to provide continued service to the Company. The proceeds are initially recorded in accrued and other liabilities for the current portion, and other long-term liabilities for the non-current portion. The proceeds are reclassified to paid-in capital as the repurchase right lapses. In May 2021, 293,594 options were early exercised, resulting in proceeds of $ 5.3 million. As of September 30, 2021 and December 31, 2020 there was $ 3.6 million and $ 2.8 million, respectively, recorded in accrued and other liabilities and $ 3.0 million and $ 1.1 million, respectively, recorded in other long-term liabilities related to shares held by employees and directors that were subject to repurchase. The underlying shares are shown as outstanding in the condensed consolidated financial statements since the exercise date but the shares which are subject to future vesting conditions are not included in the calculation of earnings per share. 19 Table of Contents 10. Related Party Transactions PF Equity Holdings 2 B.V. held 22,032,040 shares of Common Stock based on the Schedule 13D/A filed on September 17, 2021 with the SEC. According to the Schedule 13D/A filing, PF Equity Holdings 2 B.V. is a wholly-owned subsidiary of Pfizer formed for the purpose of holding certain assets owned or controlled by Pfizer or its direct or indirect subsidiaries. During the second quarter of 2021, the Company sold excess raw materials to Pfizer. As of September 30, 2021 and December 31, 2020, the Company had an amount receivable from Pfizer of $ 0.1 million and zero , respectively, which was recorded in prepaid expenses and other current assets on the accompanying condensed consolidated balance sheets. Collaboration Revenue In December 2020, the Company entered into a license agreement with Allogene Overland, a corporate joint venture entity and related party (see Note 6). The license agreement was subsequently assigned to a wholly-owned subsidiary of Allogene Overland, Allogene Overland BioPharm (HK) Limited. During the three and nine months ending September 30, 2021, the Company recognized less than $ 0.1 million and $ 38.4 million, respectively, of collaboration revenue under this arrangement. Sublease Agreement In December 2018, the Company entered into a sublease with Bellco Capital LLC (Bellco) for 1,293 square feet of office space in Los Angeles, California for a three year term. On April 1, 2020, Bellco Capital Advisors Inc. assumed all rights, title, interests and obligations under the sublease from Bellco Capital LLC. The Company’s executive chairman, Arie Belldegrun, M.D., FACS, is a trustee of the Belldegrun Family Trust, which controls Bellco Capital Advisors Inc. The total right of use asset and associated liability recorded related to this related party lease was zero at September 30, 2021 and $ 0.1 million at December 31, 2020. Consulting Agreements In June 2018, the Company entered into a services agreement with Two River Consulting LLC (Two River) a firm affiliated with the Company’s President and Chief Executive Officer, the Company’s Executive Chairman of the Board of Directors, and a director of the Company to provide various managerial, clinical development, administrative, accounting and financial services to the Company. The costs incurred for services provided under this agreement were $ 0.2 million and $ 0.4 million for the three and nine months ended September 30, 2021, respectively, and $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2020, respectively. In August 2018, the Company entered into a consulting agreement with Bellco. Pursuant to the consulting agreement, Bellco provides certain services for the Company, which are performed by Dr. Belldegrun and include without limitation, providing advice and analysis with respect to the Company’s business, business strategy and potential opportunities in the field of allogeneic CAR T cell therapy and any other aspect of the CAR T cell therapy business as the Company may agree. In consideration for these services, the Company paid Bellco $ 37,500 per month in arrears commencing January 2020 and $ 38,583 per month in arrears commencing January 2021. The Company may also, at its discretion, pay Bellco an annual performance award in an amount up to 60 % of the aggregate compensation payable to Bellco in a calendar year. The Company also reimburses Bellco for out of pocket expenses incurred in performing the services. The cost incurred for services provided and out-of-pocket expenses incurred under this consulting agreement were $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2021, respectively, and $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2020, respectively. 11. Income Taxes The Company has a history of losses and expects to record a loss in 2021. The Company continues to maintain a full valuation allowance against its net deferred tax assets. 20 Table of Contents 12. Net Loss Per Share The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the period presented due to their anti-dilutive effect: September 30, 2021 2020 Stock options to purchase common stock 10,109,169 10,783,633 Restricted stock units subject to vesting 3,393,604 2,517,294 Expected shares to be purchased under Employee Stock Purchase Plan 276,253 199,821 Founders' shares of common stock subject to future vesting 3,028,848 9,086,540 Early exercised stock options subject to future vesting 1,057,793 2,050,924 Total 17,865,667 24,638,212 13. Subsequent Events In October 2021, the Company made an additional $ 1.8 million investment in Notch's common stock. Immediately following this transaction, the Company's share in Notch was 23.0 % on a voting interest basis. In October 2021, the U.S. Food and Drug Administration (FDA) placed a hold on the Company's clinical trials. At this stage, the Company cannot assess the likely timing to complete the clinical hold review process with the FDA, and for the clinical hold to be removed. If the Company is unable to resolve the clinical hold in a timely manner, its results of operations, financial position and prospects as a company, will be materially adversely affected.