Item 2. Management’s Discussion and Analysis
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 (Quarterly Report) and the audited financial statements and notes thereto as of and for the year ended December 31, 2023 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, 2023 (Annual Report), which was filed with the Securities and Exchange Commission (SEC) on March 14, 2024. Unless the context requires otherwise, references in this Quarterly Report 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, 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 of genetically engineered allogeneic T cell product candidates for the treatment of cancer and autoimmune diseases. We are developing a pipeline of “off-the-shelf” T cell product candidates that are designed to target and kill cancer cells in patients or eliminate pathogenic autoreactive cells in patients with autoimmune disorders. 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, solid tumors, and autoimmune disease. Earlier this year, however, we announced our 2024 Platform Vision under which we are now focusing on four core programs.
We are currently focused on developing cemacabtagene ansegedleucel (cema-cel, previously ALLO-501A) in large B-cell lymphoma (LBCL) and chronic lymphocytic leukemia (CLL). In June 2024, we initiated a pivotal Phase 2 clinical trial (ALPHA3) for cema-cel as part of a first line (1L) treatment plan for newly diagnosed and treated LBCL patients who are likely to relapse and need further therapy. The design of the ALPHA3 1L consolidation trial builds upon the results demonstrated in the Phase 1 ALPHA2 trial and leverages an investigational diagnostic test developed by Foresight Diagnostics, Inc. that we believe will identify patients who have achieved remission by standard disease assessment but who have minimal residual disease (MRD) at the completion of 1L chemoimmunotherapy. The ALPHA3 trial is designed to study the impact of treating MRD positive patients with cema-cel. The study will randomize approximately 240 patients who achieve a complete response or partial response to 1L therapy, but who are MRD positive. The patients will be randomized to either consolidation with cema-cel or the current standard of care, which is observation. The design, with a primary endpoint of event free survival (EFS), will initially include two lymphodepletion arms (one with standard fludarabine and cyclophosphamide plus ALLO-647 and one with standard fludarabine and cyclophosphamide but without ALLO-647). One lymphodepletion arm will be discontinued following a planned interim analysis in mid-2025 designed to select the most appropriate regimen for this patient population. ALPHA3 is expected to complete enrollment in the first half of 2026. Efficacy analyses are expected to occur in 2026, and will include the Independent Data Safety Monitoring Board (IDSMB) interim EFS analysis in the first half of 2026 and the data readout of the primary EFS analysis is expected year-end 2026. A biologics license application (BLA) submission is targeted for 2027. In view of the potential of the earlier line ALPHA3 trial, we have deprioritized the third line (3L) LBCL ALPHA2 and EXPAND trials.
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We have initiated the Phase 1b cohort of our ALPHA2 trial to evaluate cema-cel following lymphodepletion with fludarabine/cyclophosphamide and ALLO-647 in patients with relapsed/refractory chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL). This cohort will include up to 40 patients, and we expect to release initial data in early 2025.
We are enrolling a Phase 1 clinical trial (TRAVERSE) of ALLO-316, an allogeneic CAR T cell product candidate targeting CD70, in adult patients with advanced or metastatic clear cell renal cell carcinoma (RCC). We presented interim results from the TRAVERSE trial at the American Association of Cancer Research (AACR) Annual Meeting in April 2023. We have implemented a protocol amendment that incorporates a diagnostic and treatment algorithm into the study design. The algorithm is designed to mitigate the treatment-associated hyperinflammatory response without compromising the CAR T function needed to eradicate solid tumors. A data update from patients with CD70 positive RCC, which will include details on the algorithm, is planned by year-end 2024.
We are developing ALLO-329, a next-generation allogeneic CAR T cell product candidate targeting both CD19 and CD70 for the treatment of certain autoimmune diseases (AID). Inclusion of an anti-CD70 CAR in ALLO-329 incorporates the Dagger® technology, which is designed to reduce or eliminate the need for standard chemotherapy by preventing premature rejection while targeting CD19+ B-cells and CD70+ activated T-cells, both of which play a role in AID. We plan to file an investigational new drug (IND) application in the first quarter of 2025. We expect to initiate the Phase 1 trial with ALLO-329 in the first half of 2025 and have proof-of-concept by year-end 2025.
We are developing an anti-CD52 monoclonal antibody, ALLO-647, which is a proprietary component of our lymphodepletion regimen. ALLO-647 may be able to reduce the likelihood of a patient’s immune system rejecting the engineered allogeneic T cells for a sufficient period of time to enable a window of persistence during which our engineered allogeneic T cells can actively target and destroy cancer cells. During Part A of our pivotal ALPHA3 trial, we will be assessing ALLO-647’s contribution to the overall benefit to risk ratio of the lymphodepletion regimen for cema-cel. Patients will be randomized to receive cema-cel and a lymphodepletion regimen with fludarabine and cyclophosphamide either with or without ALLO-647. In mid-2025, we plan to select the lymphodepletion regimen with which we will complete enrollment in the study (Part B).
While we have additional programs in our pipeline, our development priorities are focused on cema-cel (1L Consolidation and CLL), ALLO-316, and ALLO-329. We will explore opportunities to partner with collaborators on product candidates across our pipeline.
In May 2024, we entered into an Amendment and Settlement Agreement (the Servier Amendment) under which we expanded the geographic territory for our license to include the European Union and the United Kingdom. The Servier Amendment also grants us an option to further expand the licensed territory to include China and Japan upon the objective showing of sufficient resources to develop licensed products in those countries, which could be met through the Company entering into a strategic partnership covering those countries. We estimate that the expansion of our license for the CD19 Products to the European Union and United Kingdom will substantially increase our market opportunity in 1L consolidation LBCL and R/R/ CLL from more than $6.0 billion in the U.S. alone to more than $9.5 billion across the U.S., European Union and United Kingdom, in turn increasing the potential future revenue opportunity for cema-cel by more than 50%.
Since inception, we have had significant operating losses. Our net losses were $66.4 million and $131.4 million for the three and six months ended June 30, 2024, respectively. As of June 30, 2024, we had an accumulated deficit of $1.7 billion. As of June 30, 2024, we had $444.6 million in cash and cash equivalents and investments and we expect our cash runway to fund operations into 2026. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses and general and administrative expenses will continue to increase.
Our Research and Development and License Agreements
Asset Contribution Agreement with Pfizer
In April 2018, we entered into an Asset Contribution Agreement (the Pfizer Agreement) with Pfizer pursuant to which we acquired certain assets and assumed certain liabilities from Pfizer, including agreements with Cellectis S.A. (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
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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 Agreement with Servier
In October 2015, Pfizer entered into an Exclusive License Agreement with Servier (the Original 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.
In May 2024, the Servier Amendment expanded our territory under the Original Servier Agreement to include the European Union and the United Kingdom, and provides for an option to further expand our territory to include China and Japan
upon the objective showing of sufficient resources to develop licensed products in those countries, which could be met through us entering into a strategic partnership covering those countries. Additionally, we agreed to waive certain of our rights under the Servier Agreement to elect a conversion of our license to the licensed products directed against CD19, including UCART19, ALLO-501 and cema-cel (collectively, CD19 Products) to a worldwide license.
Additionally, under the Servier Amendment all of our future milestone payments (regulatory and sales) under the Original Servier Agreement were modified to be the same as, and to coincide with, Servier’s milestone payments to Cellectis under a first development and commercialization agreement, dated February 7, 2014, by and between Cellectis and Servier (as amended, the Servier-Cellectis Agreement). The Servier Agreement provides for aggregate potential payments by us to Servier of up to €75 million, upon successful completion of various regulatory milestones and first commercial sale milestones in the United States, European Union and the United Kingdom for the initial indication of each licensed product, of which €60 million remains for the initial indication for cema-cel, with additional payments of €55 million due for each subsequent indication, of which €50 million remains for the first subsequent indication for cema-cel, and aggregate potential payments by us to Servier of up to €80 million upon achievement of certain net sales milestones for each licensed product. Should Servier’s rights and obligations under the Servier-Cellectis Agreement be assigned to us, these milestone payments would terminate, and we would assume Servier’s milestone payment obligation to Cellectis. In the absence of any such assignment, Servier will remain responsible for making milestone payments that may be due to Cellectis under the Servier-Cellectis Agreement.
As part of the settlement, we agreed to transfer €20 million into an escrow account in connection with a potential future milestone payment, which is included in the remaining €60 million in milestone payments referenced above for the initial indication for cema-cel. The milestone payment will be triggered, if at all, upon the occurrence of one of these events: (1) we dose the first subject in our first phase 3 clinical study for a CD19 CAR-T product that is a licensed product under the Servier Agreement, (2) we submit a phase 2 clinical study for a licensed product to the U.S. Food and Drug Administration or the European Medicines Agency, and, based on its results, such phase 2 clinical study is accepted for regulatory approval as a pivotal study, or (3) a final and definitive decision of a tribunal or court finding that under the corresponding milestone under the Servier-Cellectis Agreement has occurred and the €20 million payment is due to Cellectis.
The royalties under the Original Servier Agreement were also amended. The amended royalties include tiered royalties on annual net sales in the United States and a flat royalty on annual net sales in territories outside the United States. The United States royalty rates are in a range from the low tens to the mid teen percentages, and the ex-U.S. royalty rate is 10%. Such royalties may be reduced for interchangeable drug entry, expiration of patent rights and amounts paid pursuant to licenses of third-party patents. This royalty obligation begins upon the first commercial sale of such product in a given country and ends after the later of a defined number of years or the expiration of the last to expire licensed patent covering the product in such country. The net effect of the Servier Amendment is that our royalty rate in the United States for the first half of the first tier of net sales was increased by a low single digit percentage as compared to the Original Servier Agreement. Should Servier’s rights and obligations under the Servier-Cellectis Agreement be assigned to us, each tier of royalty rates in the United States to Servier would be reduced by 10%, the ex-U.S. royalties to Servier would terminate, and we would assume Servier’s royalty obligations to Cellectis. In the absence of any such assignment, Servier will remain responsible for making royalty payments that may be due to Cellectis under the Servier-Cellectis Agreement.
For more information, see “Risk Factors— Servier’s discontinuation of its involvement in the development of CD19 Products and Servier's disputes with Cellectis, or future disputes with us, may have adverse consequences. "
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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, B-cell precursor acute lymphoblastic leukemia (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. In October 2021, we made an additional $1.8 million investment in Notch's common stock. Immediately following this transaction, our share in Notch was 23.0% on a voting interest basis.
On January 25, 2024, we entered into an Amended and Restated Collaboration and License Agreement (the Amended Notch Agreement) with Notch. The Amended Notch Agreement amends and restates the Notch Agreement. Under the Amended Notch Agreement, we have relinquished our exclusive rights to all original CAR targets (the Released Targets) except for one CAR target, and have agreed to limit our option right to only one additional CAR target. If the option is exercised, we will have a minimum funding commitment for the overall development program. If Notch subsequently out-licenses any of the Released Targets, we will be entitled to receive a percentage of upfront and/or milestone payments associated therewith up to a set cap of $30.0 million, and will be entitled to a low, single-digit royalty on net sales of products containing a Released Target. In addition, with respect to our previous equity investments in Notch, the Amended Notch Agreement grants us certain anti-dilution protections up to certain limits for certain pre-IPO equity financings. On May 17, 2024, Notch completed the Notch Series B Financing. Although we did not participate in the Notch Series B Financing, we received Series B preferred stock of Notch pursuant to our anti-dilution rights. In connection with the Notch Series B Financing, we waived certain of our anti-dilution rights in exchange for a low single digit percentage reduction in the royalty rate for the royalties we are obliged to pay to Notch under our Notch intellectual property license should we commercialize a licensed product. We also waived our right to appoint one member of the Notch board of directors, but retained board observation rights. As a result of the Notch Series B Financing, our ownership interest in Notch was reduced from 23% to approximately 13%.
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 condensed consolidated financial statements included elsewhere in this report for further description of the agreement with MD Anderson.
License Agreement with Allogene Overland Biopharm (PRC) Co., Limited
On December 14, 2020, we entered into a License Agreement with Allogene Overland Biopharm (CY) Limited (Allogene Overland) (the License Agreement), a joint venture established by us and Overland Pharmaceuticals (CY) Inc. (Overland), pursuant to a Share Purchase Agreement (Share Purchase Agreement), dated December 14, 2020, for the purpose of developing, manufacturing and commercializing certain allogeneic CAR T cell therapies directed at four targets, BCMA, CD70, FLT3, and DLL3 (Overland Licensed Products) for patients in greater China, Taiwan, South Korea and Singapore (the JV Territory). Allogene Overland subsequently assigned the License Agreement to a wholly owned subsidiary, Allogene Overland BioPharm (HK) Limited (Allogene Overland HK). On April 1, 2022, Allogene Overland HK assigned the License Agreement to Allogene Overland Biopharm (PRC) Co., Limited (Allogene Overland PRC). See Note 6 to our condensed consolidated
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financial statements included elsewhere in this report for further description of the License Agreement and Share Purchase Agreement.
On May 24, 2024, we, Overland and Allogene Overland entered into a Share Exchange Agreement (Share Exchange Agreement) pursuant to which Overland’s cell therapy business merged into Allogene Overland (the Organizational Restructuring). Under a separate agreement between Overland and HH BioPharma Holdings Ltd. (HBP) executed on May 24, 2024, Overland distributed all Series Seed Preferred Shares of Allogene Overland held by Overland to HBP and HBP has assumed all rights and obligations attached to such shares and all rights and obligations of Overland under the Share Exchange Agreement.
In connection with the Organizational Restructuring, on May 24, 2024, we and Allogene Overland PRC entered into a First Amendment to Exclusive License Agreement (the License Amendment) to amend and supplement certain provisions of the License Agreement. Under the License Amendment, we continue to grant Allogene Overland PRC an exclusive license to develop, manufacture, and commercialize the Overland Licensed Products in the Territory, with us retaining exclusive rights to the Overland Licensed Products outside the JV Territory, and the royalty obligations to us were amended to a flat mid single-digit royalty on net sales in the JV Territory that are no longer subject to reductions as previously provided. The License Amendment also provides us with additional rights to terminate the License Agreement in its entirety or with respect to the relevant Overland Licensed Product(s) if Allogene Overland PRC fails to initiate manufacturing technology transfer with respect to an Overland Licensed Product as agreed in the License Amendment, or if HBP commits a funding default or a material breach of its representations, warranties, or covenants under the Share Exchange Agreement. The License Amendment also provides that the License Agreement will terminate automatically if our ownership in Allogene Overland falls below 7.5% (other than due to our sale of the shares of Allogene Overland), unless at that time we and Allogene Overland PRC have mutually agreed on the manufacturing technology transfer plan for the Overland Licensed Product(s) and Allogene Overland PRC elects to continue the license for such Overland Licensed Product(s) with increased milestones and royalties. Under the License Amendment terms such increased milestones and royalties consist of up to $115 million in milestone payments for each Overland Licensed Product and tiered mid single-digit to low double-digit royalties on net sales in the JV Territory.
As part of the Organizational Restructuring, Allogene Overland was renamed to Overland Therapeutics Inc. (Overland Therapeutics).
See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the License Agreement, Share Purchase Agreement, and Share Exchange Agreement.
Collaboration and License Agreement with Antion
On January 5, 2022, we entered into an exclusive collaboration and global license agreement (Antion Collaboration and License Agreement) with Antion Biosciences SA (Antion) for Antion’s miRNA technology (miCAR), to advance multiplex gene silencing as an additional tool to develop next generation allogeneic CAR T products. On July 11, 2023, we entered into an amendment to the Antion Collaboration and License Agreement, which included a $2.0 million investment in Antion’s preferred shares and the acquisition of warrants to purchase an additional $3.0 million of Antion’s preferred shares. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the Antion Agreement and the July 2023 amendment.
Strategic Collaboration Agreement with Foresight Diagnostics
On January 3, 2024, we entered into a Strategic Collaboration Agreement (the Foresight Agreement) with Foresight Diagnostics, Inc. (Foresight Diagnostics). Pursuant to the Foresight Agreement, the parties have agreed to collaborate on a non-exclusive basis in the development of Foresight Diagnostics’ MRD assay as an in vitro diagnostic to identify the MRD+ patient population to be enrolled in our ALPHA3 trial of cemacabtagene ansegedleucel, or cema-cel (previously known as ALLO-501A) for treatment of large B cell lymphoma (LBCL). Under the Foresight Agreement, we have agreed to use commercially reasonable efforts to obtain regulatory approval of cema-cel, and Foresight Diagnostics has agreed to use commercially reasonable efforts to obtain regulatory approval of an MRD assay for use as an in vitro diagnostic with cema-cel. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the Foresight Agreement.
Components of Results of Operations
Revenues
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As of June 30, 2024, our revenue has been exclusively generated from the License Agreement with Allogene Overland PRC. See Note 6 to our financial statements appearing elsewhere in this Quarterly Report for more information related to our recognition of revenue and the License Agreement.
In the future, we may generate revenue from a combination of product sales, 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, milestones 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, preclinical and clinical development, and manufacturing of our product candidates. Research and development expenses for the three and six months ended June 30, 2024 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 to date 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.
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 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;
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• 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, including to resolve any future clinical hold;
• 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.
We do not track most of our external research and development expenses by programs or product candidates because most of our external research and development expenses could be used for different programs or product candidates.
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, costs and support for our board of directors and board committees, 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 operating as a public 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 costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, complying with and advancing environmental, social and governance matters, and insurance and investor relations costs.
Other Income (Expense), Net:
Interest and Other Income, Net
Interest and other income, net consists of interest earned on our cash and cash equivalents and investments, as well as investment gains and losses recognized during the period.
Other Income and Expense, Net
Other income and expense, net consist of non-operating income and expenses, including our share of equity investments’ net losses for the period.
Results of Operations
Comparison of the Three Months Ended June 30, 2024 and 2023
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The following sets forth our results of operations for the three months ended June 30, 2024 and 2023 (dollars in thousands):
Three Months Ended June 30, Change
2024 2023 $ %
Collaboration revenue - related party $ — $ 22 $ (22) (100) %
Operating expenses:
Research and development 50,355 62,038 (11,683) (19) %
General and administrative 16,087 18,524 (2,437) (13) %
Impairment of long-lived assets
4,989 — 4,989 100 %
Total operating expenses 71,431 80,562 (9,131) (11) %
Loss from operations (71,431) (80,540) 9,109 (11) %
Other income (expense), net:
Interest and other income, net 4,988 3,778 1,210 32 %
Other income and expense, net
85 (2,470) 2,555 (103) %
Total other income (expense), net 5,073 1,308 3,765 288 %
Net Loss (66,358) (79,232) 12,874 (16) %
Collaboration revenue - related party
Collaboration revenue recognized for the three months ended June 30, 2023 was mainly due to participation in the joint steering committee performance obligation related to the License Agreement with Allogene Overland PRC.
Research and Development Expenses
The following table shows the primary components of our research and development expenses for the periods presented:
Three Months Ended June 30,
2024 2023 Change
Personnel $ 19,139 $ 29,574 $ (10,435)
Development costs 18,377 18,218 159
Facilities and depreciation 10,281 11,457 (1,176)
Other 2,558 2,789 (231)
Total research and development expenses 50,355 62,038 (11,683)
Our research and development expenses included $22.1 million of internal expenses and $28.3 million of external expenses for the three months ended June 30, 2024. Our research and development expenses included $31.1 million of internal expenses and $30.9 million of external expenses for the three months ended June 30, 2023.
Research and development expenses were $50.4 million and $62.0 million for the three months ended June 30, 2024 and 2023, respectively. The decrease of $11.7 million was driven primarily by a decrease in personnel related costs of $10.4 million, including $2.2 million related to a decrease in stock-based compensation expense and a decrease in facilities and depreciation expense of $1.2 million.
General and Administrative Expenses
General and administrative expenses were $16.1 million and $18.5 million for the three months ended June 30, 2024 and 2023, respectively. The decrease of $2.4 million was primarily due to a decrease in personnel related costs of $1.6 million, including $0.8 million related to a decrease in stock-based compensation expense.
Impairment of long-lived asset
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In June 2024, we made a decision to sublease one of our leased buildings in South San Francisco. We vacated and ceased occupancy of this building in June 2024 and currently we are actively marketing the leased building for sublease. We recorded long-lived asset impairment charge based on the performed impairment analysis.
Interest and Other Income, Net
Interest and other income, net was $5.0 million and $3.8 million for the three months ended June 30, 2024 and 2023, respectively. The increase of $1.2 million was due to higher yields and a corresponding increase in the interest earned on our cash, cash equivalents and investments.
Other Income and Expense, Net
Other income was $0.1 million and other expense was $2.5 million for the three months ended June 30, 2024 and 2023, respectively. The decrease in other expenses of $2.6 million was primarily due to a decrease in the share of net losses in our equity method investments and gain from the Organizational Restructuring of Overland Therapeutics.
Comparison of the Six Months Ended June 30, 2024 and 2023
The following sets forth our results of operations for the six months ended June 30, 2024 and 2023 (dollars in thousands):
Six Months Ended June 30,
Change
2024 2023 $ %
Collaboration revenue - related party $ 22 $ 52 $ (30) (58) %
Operating expenses:
Research and development 102,614 142,276 (39,662) (28) %
General and administrative 33,354 37,408 (4,054) (11) %
Impairment of long-lived assets
4,989 — 4,989 100 %
Total operating expenses 140,957 179,684 (38,727) (22) %
Loss from operations (140,935) (179,632) 38,697 (22) %
Other income (expense), net:
Interest and other income, net 10,421 5,837 4,584 79 %
Other income and expense, net
(844) (5,405) 4,561 (84) %
Total other income (expense), net 9,577 432 9,145 2117 %
Net Loss (131,358) (179,200) 47,842 (27) %
Collaboration revenue - related party
Collaboration revenue recognized for the six months ended June 30, 2024 and 2023 was mainly due to participation in the joint steering committee performance obligation related to the License Agreement with Allogene Overland PRC.
Research and Development Expenses
The following table shows the primary components of our research and development expenses for the periods presented:
Six Months Ended June 30,
2024 2023 Change
Personnel $ 41,891 $ 63,748 $ (21,857)
Development costs 35,083 49,479 (14,396)
Facilities and depreciation 20,784 22,650 (1,866)
Other 4,856 6,399 (1,543)
Total research and development expenses 102,614 142,276 (39,662)
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Our research and development expenses included $47.5 million of internal expenses and $55.1 million of external expenses for the six months ended June 30, 2024. Our research and development expenses included $66.3 million of internal expenses and $75.9 million of external expenses for the six months ended June 30, 2023.
Research and development expenses were $102.6 million and $142.3 million for the six months ended June 30, 2024 and 2023, respectively. The decrease of $39.7 million was driven primarily by a decrease in personnel related costs of $21.9 million, including $8.3 million related to a decrease in stock-based compensation expense, a decrease in external costs relating to the advancement of our product candidates due to the timing of development activities and manufacturing runs of $14.4 million and a decrease in facilities, depreciation, and other expense of $3.4 million.
General and Administrative Expenses
General and administrative expenses were $33.4 million and $37.4 million for the six months ended June 30, 2024 and 2023, respectively. The decrease of $4.1 million was primarily due to a decrease in personnel related costs of $3.3 million, including $1.6 million related to a decrease in stock-based compensation expense.
Impairment of long-lived asset
In June 2024, we made a decision to sublease one of our leased buildings in South San Francisco. We vacated and ceased occupancy of this building in June 2024 and currently we are actively marketing the leased building for sublease. We recorded long-lived asset impairment charge based on the performed impairment analysis.
Interest and Other Income, Net
Interest and other income, net was $10.4 million and $5.8 million for the six months ended June 30, 2024 and 2023, respectively. The increase of $4.6 million was due to higher yields and a corresponding increase in the interest earned on our cash, cash equivalents and investments.
Other Income and Expense, Net
Other expenses, net were $0.8 million and $5.4 million for the six months ended June 30, 2024 and 2023, respectively. The decrease in other expenses of $4.6 million was primarily due to a decrease in the share of net losses in our equity method investments and gain from the Organizational Restructuring of Overland Therapeutics.
Liquidity and Capital Resources
To date, we have incurred significant net losses and negative cash flows from operations. As of June 30, 2024, we had $444.6 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 be sufficient to fund our operations for at least the next 12 months from the date this Quarterly Report 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, our June 2020 underwritten public offering, our May 2024 registered offering, and an upfront cash payment of $40.0 million received in December 2020 pursuant to our License Agreement with Allogene Overland PRC. In November 2019, we entered into a sales agreement with Cowen and Company, LLC (Cowen), as amended on November 2, 2022 and November 2, 2023, under which we may from time to time issue and sell shares of our common stock through Cowen in ATM offerings. During the three and six months ended June 30, 2024, we sold an aggregate of 250,000 shares of our common stock in ATM offerings resulting in net proceeds of $1.0 million. The specified dollar limit on the amount of common stock that may be sold under the sales agreement was removed pursuant to the November 2, 2023 amendment to the sales agreement. In March 2024, we filed a sales agreement prospectus within a registration statement on Form S-3, registering the offering, issuance and sale of up to $250.0 million of our common stock in ATM offerings. On May 13, 2024, we entered into (i) an underwriting agreement (Underwriting Agreement) with Goldman Sachs & Co. LLC (Underwriter) and (ii) a Securities Purchase Agreement (Securities Purchase Agreement) with certain members of our Board of Directors and our executive officers or their respective affiliates (Purchasers), pursuant to which we sold and issued to the Underwriter and the Purchasers an aggregate of 37,931,035 shares of our common stock resulting in net proceeds of $105.2 million in a registered offering transaction that closed on May 16, 2024.
Cash Flows
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The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30,
2024 2023
(In thousands)
Net cash (used in) provided by:
Operating activities $ (119,487) $ (128,496)
Investing activities 96,746 130,095
Financing activities 110,253 91,255
Net increase (decrease) in cash and cash equivalents and restricted cash $ 87,512 $ 92,854
Operating Activities
During the six months ended June 30, 2024, cash used in operating activities of $119.5 million was attributable to a net loss of $131.4 million and a decrease of $21.2 million in our net operating assets and liabilities, partially offset by non-cash charges of $33.1 million. The non-cash charges consisted primarily of stock-based compensation expense of $25.5 million, impairment of long-lived assets of 5.0 million, depreciation of $7.2 million, and our share of equity investments’ net losses for the period of $0.6 million, partially offset by net amortization and accretion on investment securities of $5.0 million. The change in operating assets and liabilities was primarily due to a $21.4 million deposit placed in escrow related to the Servier Amendment, a $6.7 million decrease in accrued and other current liabilities, and a $2.0 million increase in prepaid expenses and other current assets, partially offset by a $6.7 million increase in accounts payable and a $2.1 million decrease in other long-term assets.
During the six months ended June 30, 2023, cash used in operating activities of $128.5 million was attributable to a net loss of $179.2 million, partially offset by non-cash charges of $47.6 million and an increase of $3.1 million in our net operating assets and liabilities. The non-cash charges consisted primarily of stock-based compensation expense of $35.4 million, depreciation of $7.2 million, our share of equity investments' net losses for the period of $5.4 million, and non-cash rent expense of $0.4 million, partially offset by net amortization and accretion on investment securities of $0.6 million. The change in operating assets and liabilities was primarily due to a $5.6 million increase in accrued and other current liabilities and a $1.4 million decrease in prepaid expenses and other current assets, partially offset by a $3.2 million decrease in accounts payable and a $0.6 million decrease in other long-term liabilities.
Investing Activities
During the six months ended June 30, 2024, net cash provided by investing activities of $96.7 million was related to cash provided by investment maturities of $220.5 million, partially offset by cash used in the purchase of investments of $123.7 million.
During the six months ended June 30, 2023, net cash provided by investing activities of $130.1 million was related to cash provided by investment maturities of $296.3 million and cash provided by investment sales of $5.6 million, partially offset by cash used in purchases of investments of $170.5 million and cash used in the purchase of property and equipment of $1.3 million.
Financing Activities
During the six months ended June 30, 2024, cash provided by financing activities of $110.3 million was related to $105.3 million in net proceeds from the issuance of common stock through our May 2024 registered offering, $1.0 million of net proceeds from the issuance of common stock through ATM transactions, $2.3 million of cash provided from the CIRM award, $0.9 million of cash provided by the sale of common stock through our employee stock purchase plan, and $0.8 million of cash provided by the issuance of common stock upon exercise of stock options.
During the six months ended June 30, 2023, cash provided by financing activities of $91.3 million was related to $87.9 million in net proceeds from the issuance of common stock through ATM transactions, $1.7 million of cash provided by the sale of common stock through our employee stock purchase plan, and $1.6 million of cash provided by the issuance of common stock upon exercise of stock options.
Material Cash Commitments and Requirements
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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 and other current liabilities.
Our product candidates are still in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain. Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration and license arrangements. If, and when, we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. 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.
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, 2024, 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 Note 6 to our condensed consolidated financial statements included elsewhere in this report.
Our operating lease obligations primarily consist of lease payments on our research, lab and office facilities in South San Francisco, California, as well as lease payments on our cell manufacturing facility in Newark, California. For additional information regarding our lease obligations, see Note 7 to our condensed consolidated financial statements included elsewhere in this report.
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, 2024, the Company had non-cancellable purchase commitments of $0.7 million.
On October 6, 2020, we announced we entered into a strategic five-year collaboration agreement with MD Anderson for the preclinical and clinical investigation of allogeneic CAR T cell product candidates. We and MD Anderson are collaborating on the design and conduct of preclinical and clinical studies with oversight from a joint steering committee. Under the terms of the agreement, we have committed up to $15.0 million of funding for the duration of the agreement. Payment of this funding is contingent on mutual agreement to study orders in order for any study to be included under the alliance. We made an upfront payment of $3.0 million to MD Anderson in the year ended December 31, 2020 and made an additional upfront payment of $3.0 million to MD Anderson in October 2023. We are obligated to make further payments to MD Anderson each year upon the anniversary of the agreement effective date through the duration of the agreement term. The agreement may be terminated by either party for material breach by the other party. Individual studies may be terminated for, among other things, material breach, health and safety concerns or where the institutional review board, the review board at the clinical site with oversight of the clinical study, requests termination of any study. Where any legal or regulatory authorization is finally withdrawn or terminated, the relevant study will also terminate automatically.
On January 3, 2024, we entered into the Foresight Agreement with Foresight Diagnostics. We agreed to fund approximately $26.2 million in MRD assay development costs, milestone payments for regulatory submissions and assay utilization to process clinical samples. For additional information regarding this agreement, see Note 6 to our condensed consolidated financial statements included elsewhere in this report.
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 commenced in September 2022. 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
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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 requires the funding of specific payments, if certain events occur, such as a change of control and the termination of employment without cause.
Critical Accounting Policies 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, stock-based compensation and leases have the most significant impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
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 Results of Operations” included in our Annual Report.
Recent Accounting Pronouncements
There have been no new accounting pronouncements issued or effective that are expected to have a material impact on our unaudited condensed consolidated financial statements.