Atara Biotherapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview Atara Biotherapeutics is a pioneer in T-cell immunotherapy, leveraging its novel allogeneic EBV T-cell platform to develop transformative therapies for patients with severe diseases, including solid tumors, hematologic cancers and autoimmune disease. With our lead program in Phase 3 clinical development, Atara is the most advanced allogeneic T-cell immunotherapy company and intends to rapidly deliver off-the-shelf treatments to patients with high unmet medical need. Our platform leverages the unique biology of EBV T cells and has the capability to treat a wide range of EBV-associated diseases or other severe diseases through incorporation of engineered chimeric antigen receptors (CARs) or T-cell receptors (TCRs). Atara is applying this one platform to create a robust pipeline. Our strategic priorities are: • Tab-cel ® : Atara’s most advanced T-cell immunotherapy, tab-cel ® (tabelecleucel), currently in Phase 3 development for patients with Epstein-Barr virus (EBV) associated post-transplant lymphoproliferative disease (EBV+ PTLD) who have failed rituximab or rituximab plus chemotherapy, as well as other EBV-associated hematologic malignancies and solid tumors; • ATA188 : T-cell immunotherapy targeting EBV antigens believed to be important for the potential treatment of multiple sclerosis; • CAR T Programs : o ATA2271 : Autologous CAR T immunotherapy targeting solid tumors expressing the tumor antigen mesothelin; o ATA3271 : Allogeneic CAR T immunotherapy targeting mesothelin; and o ATA3219 : Allogeneic CAR T targeting CD19 and being developed as a potential best-in-class product, based on a next generation 1XX co-stimulatory domain and the innate advantages of EBV T cells as the foundation for an allogeneic CAR T platform. Our T-cell immunotherapy platform includes the capability to progress both allogeneic and autologous programs and is potentially applicable to a broad array of targets and diseases. Our off-the-shelf, allogeneic T-cell platform allows for rapid delivery of a T-cell immunotherapy product manufactured in advance of patient need and stored in inventory, with each manufactured lot of cells providing therapy for numerous potential patients. This differs from autologous treatments, in which each patient’s own cells must be extracted, genetically modified outside the body and then delivered back to the patient, and requires a complex logistics network. For our allogeneic programs, we select the appropriate set of cells for use based on a patient’s unique immune profile. In addition, our manufacturing facility is capable of producing multiple types of therapies and Atara MatchMe™, our proprietary T-cell order management platform, is being developed to select and deliver the most appropriate treatments to the healthcare teams caring for patients. We have entered into research collaborations with leading academic institutions such as Memorial Sloan Kettering Cancer Center (MSK), the Council of the Queensland Institute of Medical Research (QIMR Berghofer) and H. Lee Moffitt Cancer Center and Research Institute (Moffitt) to acquire rights to novel and proprietary technologies and programs. We recognize that our clinical studies may not be available to all patients and we have established expanded access and compassionate use programs in instances where there is a significant patient need. 15 Pipeline Tab-cel ® Atara’s most advanced T-cell immunotherapy, tab-cel ® , is in Phase 3 development for the treatment of patients with EBV+ PTLD who have failed rituximab or rituximab plus chemotherapy. Based on our market research, we estimate there were several hundred EBV+ PTLD patients who failed rituximab or rituximab plus chemotherapy in the U.S. in 2019. Tab-cel ® is also under development for other EBV+ diseases with significant unmet medical need through a planned Phase 2 multi-cohort study. While clinical study operations and the opening of additional Phase 3 study sites in the United States, Canada and Europe have been impacted by the spread of COVID-19, most sites are currently open for patient enrollment, and we believe we remain on track to initiate a biologics license application (BLA) submission for patients with EBV+ PTLD by the end of 2020. We continue to advance development of tab-cel ® in Phase 3 for patients with EBV+ PTLD, for which the Company has obtained Breakthrough Therapy Designation (BTD) in the U.S. and PRIority MEdicines (PRIME) designation in the European Union (EU). We plan to conduct an interim analysis for the Phase 3 study in the third quarter of 2020 and to discuss the totality of tab-cel ® data with the U.S. Food and Drug Administration ( FDA) in a pre-BLA meeting prior to initiating the BLA submission. We remain in active discussions with the Pediatric Committee (PDCO) of the European Medicines Agency (EMA) regarding a Pediatric Investigation Plan (PIP). Following discussion with the PRIME team and after EMA approval of the PIP, we plan to submit a tab-cel ® EU marketing authorization application for patients with EBV+ PTLD in 2021. In 2019 , after discussion and alignment with regulators, we combined MATCH and ALLELE into a single study (which we now refer to as the ALLELE study) that now consists of a hematopoietic cell transplants (HCT) cohort for EBV+ PTLD patients who have failed rituximab, and a single solid organ transplant (SOT) cohort for EBV+ PTLD patients who have failed rituximab with both chemotherapy and non-chemotherapy prior treatment experience. Additionally, we expect to expand the ALLELE study geographically to include clinical sites outside the U.S. We have submitted clinical trial applications (CTAs) to several European countries to enable opening European clinical sites in 2020, and our CTAs in the United Kingdom, France, Germany, Spain, Austria and Belgium have been approved. We continue to pursue development of tab-cel ® in earlier lines of therapy, including in our planned Phase 2 multi-cohort study. We expect to initiate enrollment in the second half of 2020 for a Phase 2 multi-cohort study of tab-cel ® with the goal of expanding the potential label in PTLD and closely related diseases. We intend to focus on extending further into immunodeficiency-associated lymphoproliferative diseases (IA-LPDs) as the next step in the tab-cel ® life cycle plan given the commonality of their EBV-driven mechanism of disease in immunocompromised patients, high unmet medical need and positive clinical data to date with tab-cel ® . The multi-cohort study will evaluate both treatment-naïve and previously treated patients in six patient populations, including two cohorts with the potential to address front-line EBV+PTLD patients with significant unmet need as well as two cohorts with the potential to address EBV+ LPDs arising out of primary or acquired immune deficiencies, including EBV+ acquired immunodeficiency-associated lymphoproliferative disease (EBV+ AID-LPD) and EBV+ primary immunodeficiency-associated lymphoproliferative disease (EBV+ PID-LPD). Our Phase 1b study of tab-cel ® in combination with Merck’s anti-PD-1 (programmed death receptor-1) therapy, KEYTRUDA ® (pembrolizumab), in patients with platinum-resistant or recurrent EBV-associated nasopharyngeal carcinoma (NPC) achieved its safety endpoints and stable disease in a subset of patients. These data will be presented at an appropriate forum in the future. Based on a strategic prioritization to expand tab-cel ® business potential through the significant opportunity in IA-LPDs, we will now focus our tab-cel ® efforts on the initiation of the multi-cohort Phase 2 study and the planned BLA initiation in EBV+ PTLD. At this time, we will not initiate the Phase 2 portion of the NPC study in combination with pembrolizumab. We intend to generate additional translational data in NPC to further inform our strategy on this patient population. ATA188 Atara is also developing ATA188, a T-cell immunotherapy targeting EBV antigens believed to be important for the potential treatment of multiple sclerosis (MS). In the fourth quarter of 2017, we initiated an open label, single arm, multi-center, multi-national Phase 1 study with allogeneic ATA188 for patients with progressive MS (PMS). The primary objective of this Phase 1 study is to assess the safety of ATA188 in patients followed for at least one year after the first dose. Key secondary endpoints in the study include measures of clinical improvement, using recognized scales for MS symptoms, function and disability including Expanded Disability Status Scale (EDSS) Fatigue Severity Score, MS Impact Scale-29 (physical), Timed 25-Foot Walk (T25FW), 9-Hole Peg Test, 12-Item MS Walking Scale (MSWS-12) and Visual Acuity. Enrollment for the fourth and final Phase 1 dose escalation cohort was completed in the third quarter of 2019 and we presented initial efficacy and updated safety results from this study in September 2019 at the 35 th Congress of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS). These results were based on data as of July 29, 2019, and showed that across four planned dose cohorts, ATA188 was well tolerated in PMS patients, with no evidence of cytokine release syndrome, graft versus host disease or dose-limiting toxicities. 16 Safety and sustained disability improvement 12-month data for cohorts 1-3, and six-month data for cohort 4, were presented as a late-breaking e-poster presentation at the 2020 European Academy of Neurology Virtual Congress (EAN) held in May 2020. All patients in cohorts 1-3 showing sustained disability improvement (SDI) at six months maintained improvement at 12 months , and there was a higher proportion of patients showing SDI with increasing dose . SDI is defined as clinically significant improvement in EDSS or T25FW observed at two consecutive time points. While these data will need to be confirmed in a double-blind, placebo-controlled, randomized study, they indicate the potential for the first treatment option in progressive MS to halt or reverse the progression of disease. We believe these results align with the body of evidence supporting the important role of EBV-infected B cells in the chronic autoimmune pathology of MS . ATA188 was well-tolerated in patients with progressive forms of MS and n o dose-limiting toxicities or fatal adverse events were reported. ATA188 treatment showed no clinically meaningful effect on cytokine levels and no dose-related safety trends were identified . Rhinorrhea (runny nose) was the only treatment-related event that occurred in more than one subject. We are re-treating patients with cohort 3 dose in the open-label extension (OLE) of the Phase 1a study and expect to present preliminary OLE data in an appropriate forum in the second half of 2020. Additionally, we expect to present 12-month clinical results for cohort 4 in an appropriate forum in the second half of 2020 . Following a six-month assessment of patients in cohort 3 of this study, we selected this cohort 3 dose to initiate the randomized, double-blind, placebo-controlled trial (RCT) evaluating the efficacy and safety of ATA188 in patients with progressive forms of MS. The study design allows for addition of the cohort 4 dose, if desired, based on the 12-month data for cohort 4 that will be available in the third quarter of 2020. This study enrolled its first patient in June 2020. In addition to measuring change in disability measures compared to baseline, especially SDI over time, the study will also include multiple measures of patients’ function as well as various biomarkers. ATA2271/ATA3271 Atara’s next-generation CAR T immunotherapy programs include ATA2271 targeting mesothelin, which is a tumor antigen expressed on a number of solid tumors including mesothelioma, ovarian cancer, pancreatic cancer, non-small cell lung cancer and other tumors over-expressing mesothelin . ATA2271 is designed to improve efficacy persistence, and durability of response versus CD28/CD3z-based CARs by using a novel 1XX CAR co-stimulatory signaling domain and cell intrinsic checkpoint inhibition technology with a PD-1 dominant negative receptor (DNR). Data from investigational new drug (IND) enabling studies for ATA2271 were presented at the American Association for Cancer Research (AACR) Virtual Meeting II in June 2020. These data support the first application of the combination of 1XX co-stimulatory domain and cell intrinsic checkpoint inhibition technology with a PD-1 DNR that are associated with less cell exhaustion, improvements in functional persistence, serial cell killing and in vivo efficacy, which was maintained through multiple tumor re-challenges when compared with first-generation CD28/CD3z-based mesothelin CAR. Our ATA2271 collaborators at MSK recently submitted an IND application to the FDA for patients with advanced mesothelioma. We are also developing and have initiated IND-enabling studies for ATA3271, an off-the-shelf, allogeneic CAR T immunotherapy targeting mesothelin using a novel combination of 1XX CAR co-stimulatory signing domain and cell intrinsic checkpoint inhibition technology with a PD-1 DNR through our EBV T-cell platform. ATA3219 We are also developing ATA3219, an off-the-shelf, allogeneic CD19 CAR T immunotherapy targeting B-cell malignancies as a potential best-in-class therapy, using our next-generation 1XX CAR co-stimulatory domain and EBV T-cell platform. In February 2020, an academic off-the-shelf, allogeneic CD19 CAR T clinical study using an allogeneic EBV T-cell construct and CD28/CD3z co-stimulatory domain for patients with relapsed/refractory B-cell malignancies was presented at the 2020 Transplantation and Cellular Therapy (TCT) Meetings. Findings from this study provided initial clinical proof-of-principle that an EBV T-cell platform has the potential to generate off-the-shelf, allogeneic CAR T immunotherapies with high response rates, durable responses and low risk of toxicity that can be rapidly delivered to patients. We have initiated IND-enabling studies for ATA3219 and anticipate filing an IND in 2021. 17 Additional Programs and Platform Expansion Activities In addition to the prioritized programs described above, we have a number of preclinical programs. For example, in August 2018, we entered into a strategic collaboration with Moffitt. As part of this relationship, we agreed to collaborate with Moffitt to develop multi-targeted CAR T immunotherapies designed to address cancers with diverse cell types that often become resistant to treatment, such as acute myeloid leukemia (AML) (ATA2321) and B-cell malignancies (ATA2431), and to make certain milestone and royalty payments associated with the collaboration targets. In addition, the collaboration includes the use of novel CAR T intracellular co-stimulatory domains that may improve CAR T proliferation when responding to an appropriate antigen and enhance CAR T persistence by reducing T-cell exhaustion. We believe our platform will have utility beyond the current set of targets to which it has been directed. We continue to evaluate additional product candidates, including those derived from collaborations with our partners . We expect to further research and develop additional cellular therapies, which may include T-cell programs targeted against other antigens as well as engineered T-cell immunotherapies such as CAR T-cell programs. We believe that viral antigens are well suited to adoptive immunotherapy given that people with normal immune systems are able to mount robust responses to these viral targets, but immunocompromised patients and some cancer patients are not. We also continue to evaluate opportunities to license or acquire additional product candidates or technologies to enhance our existing platform. Manufacturing Our manufacturing facility in Thousand Oaks, California has the flexibility to manufacture multiple T-cell and CAR T immunotherapies while integrating research and process science functions to enable increased collaboration for rapid product development. Our research and development and process and analytical development labs are currently supporting preclinical development activities. Our facility is designed to global regulatory standards, and the required facility commissioning and qualification activities to support clinical manufacturing are complete. We are in the process of completing our facility’s commercial production qualification activities for tab-cel ® while building inventory according to our commercial product supply strategy. We continue to scale our EBV T-cell manufacturing platform to improve product yields from a single donor leukapheresis and have generated data confirming the use of stirred-tank perfusion bioreactors to improve yield and cell growth productivity. We believe our scale-up technology can potentially be a key enabler to deliver biologic-like cost of goods manufactured and could be leveraged across our portfolio, including our CAR T programs. In addition to our manufacturing facility, we also work with Cognate BioServices, Inc. (Cognate) pursuant to a Commercial Manufacturing Services Agreement (the Manufacturing Agreement) that we entered into in December 2019. Pursuant to the Manufacturing Agreement, Cognate provides manufacturing services for certain of our product candidates. The initial term of the Manufacturing Agreement runs until December 31, 2021 and is renewable with Cognate’s approval for an additional one-year period. We may terminate the Manufacturing Agreement for convenience on six months’ written notice to Cognate, or immediately if Cognate is unable to perform the services under the Manufacturing Agreement or fails to obtain or maintain certain necessary approvals. The Manufacturing Agreement includes standard mutual termination rights for uncured breach or insolvency, or a force majeure event preventing the performance of services for at least 90 days. COVID-19 Business Update We continue to closely monitor the impact of the ongoing COVID-19 pandemic on our business and operations and have taken steps to ensure the health and safety of our employees, staff, clinical site staff and patients and to maintain business continuity. Based on guidance issued by federal, state and local authorities, we have temporarily transitioned most of our employees and staff to a remote, work- from- home model, while maintaining essential in-person manufacturing and laboratory functions in order to advance key research, development and manufacturing priorities. We implemented safety protocols and procedures to support our onsite employees and staff. In addition to implementing measures to protect the health and safety of our employees and staff, our clinical study and operational teams are working closely with clinical sites to ensure the safety of site staff and patients as well as preserve data integrity and access to treatment as appropriate. Where needed, remote study visits, leveraged tele-medicine, home health care, and other methods have been established to ensure continuity of care for patients while preserving key endpoint data. 18 T o date, t he COVID-19 pandemic has not materially impacted our or our partners’ clinical, research and development, regulatory and manufacturing operations or timelines . W e have experienced some t ransient delays in clinical trial site initiation and patient enrollment in certain of our clinical trials as a result of the evolving impact of the ongoing COVID-19 pandemic. For example, due to the COVID-19 pandemic, in April 2020 we temporarily paused the screening and enrollment of patients in our RCT for ATA188. We were able to resume such activities and enrolled the first patient in the study in June 2020. Our Phase 3 clinical trial of tab-cel ® in patients with EBV+ PTLD has not been adversely impacted by the ongoing COVID-19 pandemic. The full extent to which the COVID-19 pandemic may impact our business and operations is subject to future developments which are uncertain and difficult to predict. Further quarantines, shelter-in-place or similar restrictions and other actions taken or imposed by foreign, federal, state and local governments could adversely impact our or our partners’ clinical, research and development, regulatory and manufacturing operations or timelines. We continue to monitor the impact of the COVID-19 pandemic on our business and operations and will seek to adjust our activities as appropriate. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition and operations, see the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q. Financial Overview We have a limited operating history. Since our inception in 2012, we have devoted substantially all of our resources to identify, acquire and develop our product candidates, including conducting preclinical and clinical studies, acquiring or manufacturing materials for clinical studies, constructing our manufacturing facility and providing general and administrative support for these operations. Our net losses were $151.0 million and $140.6 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, we had an accumulated deficit of $968.9 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. As of June 30, 2020, our cash, cash equivalents and short-term investments totaled $347.7 million, which we intend to use to fund our operations. In the second quarter of 2020, we completed an underwritten public offering of shares of common stock and pre-funded warrants and received aggregate net proceeds of $189.3 million. Revenues We have never generated revenues and have incurred losses since inception. We do not expect to receive any revenues from any product candidates that we develop until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties. Research and Development Expenses The largest component of our total operating expenses since inception has been our investment in research and development activities, including the preclinical and clinical development of our product candidates. Research and development expenses consist primarily of compensation and benefits for research and development employees, including stock-based compensation; expenses incurred under agreements with contract research organizations and investigative sites that conduct preclinical and clinical studies; the costs of acquiring and manufacturing clinical study materials and other supplies; payments under licensing and research and development agreements; other outside services and consulting costs; and facilities, information technology and overhead expenses. Research and development costs are expensed as incurred. We plan to continue investment in the development of our product candidates. Our current planned research and development activities include the following: • continuing to initiate sites and enroll patients in our Phase 3 clinical study of tab-cel ® for the treatment of patients with EBV+ PTLD after HCT and SOT who have failed rituximab; • process development, testing and manufacturing of drug supply to support clinical studies and IND-enabling studies; • continuing development of ATA188 in progressive MS; • continuing to develop product candidates based on our next-generation CAR T programs; 19 • continuing to develop our product candidates in additional indications, including tab-cel ® for EBV+ cancers; • continuing to develop other pre-clinical product candidates; and • leveraging our relationships and experience to in-license or acquire additional product candidates or technologies. In addition, we believe it is important to invest in the development of new product candidates to continue to build the value of our product candidate pipeline and our business. We plan to continue to advance our most promising early product candidates into preclinical development with the objective to advance these early-stage programs to human clinical studies over the next several years. Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs, and timing of clinical studies and development of our product candidates will depend on a variety of factors, including: • the availability of qualified drug supply for use in our ongoing Phase 3 or other clinical studies; • the scope, rate of progress, and expenses of our ongoing clinical studies, potential additional clinical studies and other research and development activities; • the potential review or reanalysis of our clinical study results; • future clinical study results; • uncertainties in clinical study enrollment rates or discontinuation rates of patients, including any potential impact of the COVID-19 pandemic; • potential additional safety monitoring or other studies requested by regulatory agencies; • changing medical practice patterns related to the indications we are investigating; • significant and changing government regulation; • disruptions caused by man-made or natural disasters or public health pandemics or epidemics, including, for example, the recent outbreak of COVID-19; and • the timing and receipt of any regulatory approvals, as well as potential post-market requirements. The process of conducting the necessary clinical research to obtain approval from the FDA and other regulators is costly and time consuming and the successful development of our product candidates is highly uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “1A. Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. General and Administrative Expenses General and administrative expenses consist primarily of compensation and benefits for legal, human resources, finance, commercial and other general and administrative employees, including stock-based compensation; professional services costs, including legal, patent, human resources, audit and accounting services; other outside services and consulting costs, including those related to pre-commercial activities; and information technology and facilities costs. Interest and Other Income, net Interest and other income, net consists primarily of interest earned on our cash, cash equivalents and short-term investments. 20 Critical Accounting Policies and Significant Judgments and Estimates Except for the adoption of ASU No. 2016-13, as amended, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , and ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , and ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, none of which had a material impact to us as disclosed in Note 2 to our condensed consolidated financial statements, there have been no significant changes to our critical accounting policies and significant judgments and estimates during the six months ended June 30, 2020 from those disclosed in our management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 27, 2020. Results of Operations Comparison of the Three and Six Months Ended June 30, 2020 and 2019 Research and development expenses Research and development expenses consisted of the following costs, by program, in the periods presented: Three Months Ended Six Months Ended June 30, Increase June 30, Increase 2020 2019 (Decrease) 2020 2019 (Decrease) (in thousands) (in thousands) Tab-cel ® expenses $ 14,905 $ 11,252 $ 3,653 $ 29,703 $ 22,891 $ 6,812 ATA188, CAR T and other program expenses 6,097 9,102 (3,005 ) 10,212 15,208 (4,996 ) Employee and overhead expenses 40,558 31,897 8,661 79,304 62,820 16,484 Total research and development expenses $ 61,560 $ 52,251 $ 9,309 $ 119,219 $ 100,919 $ 18,300 Tab-cel ® expenses were $14.9 million and $29.7 million in the three and six months ended June 30, 2020, respectively, as compared to $11.3 million and $22.9 million in the comparative 2019 periods. The increases were primarily due to increased production activity, as well as process performance qualification activities at our manufacturing facility. ATA188, CAR T and other program expenses were $6.1 million and $10.2 million in the three and six months ended June 30, 2020, respectively, as compared to $9.1 million and $15.2 million in the comparative 2019 periods. The decreases were primarily related to lower clinical study, manufacturing and other outside services costs for programs that are no longer in active development . Employee and overhead expenses were $40.6 million and $79.3 million in the three and six months ended June 30, 2020, respectively, as compared to $31.9 million and $62.8 million in the comparative 2019 periods. The increases were primarily due to higher compensation-related costs from increased headcount and higher facility-related costs in support of our continuing expansion of research and development activities. Relative to the 2019 comparative period, for the three months ended June 30, 2020, payroll and related costs increased by $7.1 million, facility-related costs increased by $1.6 million and outside services costs remained consistent. Relative to the 2019 comparative period, for the six months ended June 30, 2020, payroll and related costs increased by $13.3 million, facility-related costs increased by $2.9 million and outside services costs remained consistent. Total research and development expenses for the three and six months ended June 30, 2020 have not been significantly impacted as a result of the COVID-19 pandemic. General and administrative expenses Three Months Ended Six Months Ended June 30, Increase June 30, Increase 2020 2019 (Decrease) 2020 2019 (Decrease) (in thousands) (in thousands) General and administrative expenses $ 16,392 $ 23,284 $ (6,892 ) $ 33,430 $ 42,507 $ (9,077 ) General and administrative expenses decreased to $16.4 million and $33.4 million in the three and six months ended June 30, 2020, respectively, as compared to $23.3 million and $42.5 million in the comparative 2019 periods. The decreases in 2020 were primarily due to decreases in outside services costs and lower non-cash stock-based compensation expenses. Total general and administrative expenses for the three and six months ended June 30, 2020 have not been significantly impacted as a result of the COVID-19 pandemic. 21 Liquidity and Capital Resources Sources of Liquidity Since our inception in 2012, we have funded our operations primarily through the issuance of common and preferred stock and pre-funded warrants to purchase common stock. In the second quarter of 2020, we completed an underwritten public offering of 14,958,039 shares, inclusive of the exercise of the full option granted to the underwriters, of common stock at a public offering price of $11.32 per share and pre-funded warrants to purchase 2,866,961 shares of common stock at a public offering price of $11.3199 per warrant. We received net proceeds of approximately $189.3 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. In February 2019, we entered into a sales agreement (the 2019 ATM Facility) with Cowen and Company, LLC (Cowen), which provides for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $100.0 million through Cowen, as our sales agent. The issuance and sale of these shares by us pursuant to the 2019 ATM Facility are deemed “at the market” offerings defined in Rule 415 under the Securities Act of 1933, as amended (the Securities Act), and are registered under the Securities Act. We pay a commission of up to 3.0% of gross sales proceeds of any common stock sold under the 2019 ATM Facility. In February 2020, we entered into a new sales agreement (the “2020 ATM Facility”) with Cowen, which provides for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $100.0 million through Cowen, as our sales agent. The 2020 ATM Facility is separate from and does not replace the 2019 ATM Facility in any way. The issuance and sale of these shares by us pursuant to the 2020 ATM Facility are deemed “at the market” offerings and are registered under the Securities Act of 1933, as amended. We will pay a commission of up to 3.0% of gross sales proceeds of any common stock sold under the 2020 ATM Facility. During the three months ended June 30, 2020, we did not sell any common stock under the ATM facilities. During the six months ended June 30, 2020, we sold an aggregate of 1,528,216 shares of common stock under the 2019 ATM Facility, at an average price of $15.50 per share for net proceeds of $23.0 million, after deducting commissions and other offering expenses payable by us. On January 3, 2020, we received net proceeds of approximately $1.2 million from sales of shares of our common stock under the 2019 ATM Facility that occurred during December 2019. As of June 30, 2020, $25.9 million and $100.0 million of common stock remained available to be sold under the 2019 ATM Facility and 2020 ATM Facility, respectively, subject to certain conditions as specified in the agreements. We have incurred losses and negative cash flows from operations in each year since inception. As of June 30, 2020, we had an accumulated deficit of $968.9 million. We do not expect to receive any revenues from any product candidates that we develop until we obtain regulatory approval and commercialize our products. As such, we anticipate that we will continue to incur losses in the foreseeable future. Additionally, as a result of the COVID-19 outbreak, we have experienced, and may experience in the future, disruptions that could severely impact our business, preclinical studies and clinical trials. We expect that our operating expenses will continue to increase. As a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We may borrow funds on terms that may include restrictive covenants, including covenants that restrict the operation of our business, liens on assets, high effective interest rates and repayment provisions that reduce cash resources and limit future access to capital markets. In addition, we expect to continue to opportunistically seek access to additional funds through additional public or private equity offerings or debt financings including by utilizing our ATM facilities, through potential collaborations, partnering or other strategic arrangements, or a combination of the foregoing. However, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a consequence, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. We may face similar difficulties in obtaining funding through debt financing or other arrangements. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses or other rights on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders. 22 Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our cash, cash equivalents and short-term investments are held in bank and custodial accounts and consist of money market funds, U.S. Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities . We expect that existing cash, cash equivalents and short-term investments as of June 30 , 2020 will be sufficient to fund our planned operations into 202 2 . Our cash, cash equivalents and short-term investments balances as of the dates indicated were as follows: June 30, December 31, 2020 2019 (in thousands) Cash and cash equivalents $ 74,511 $ 74,317 Short-term investments 273,201 184,792 Total cash, cash equivalents and short-term investments $ 347,712 $ 259,109 Cash Flows Comparison of the Six Months Ended June 30, 2020 and 2019 The following table details the primary sources and uses of cash for each of the periods set forth below: Six Months Ended June 30, 2020 2019 (in thousands) Net cash (used in) provided by: Operating activities $ (123,680 ) $ (124,789 ) Investing activities (91,398 ) 117,849 Financing activities 215,272 5,401 Net increase (decrease) in cash, cash equivalents and restricted cash $ 194 $ (1,539 ) Operating activities Net cash used in operating activities was $123.7 million in the 2020 period as compared to $124.8 million in the 2019 period. The decrease of $1.1 million was primarily due to decreased working capital usage and a decrease in accretion of investment discounts, partially offset by a $10.4 million increase in net loss. Investing activities Net cash used in investing activities in the 2020 period consisted of $228.2 million used to purchase available-for-sale securities and $3.4 million in purchases of property and equipment, partially offset by $140.2 million received from maturities and sales of available-for-sale securities. Net cash provided by investing activities in the 2019 period consisted primarily of $136.9 million received from maturities and sales of available-for-sale securities, partially offset by $17.6 million used to purchase available-for-sale securities and $1.5 million in purchases of property and equipment. Financing activities Net cash provided by financing activities in the 2020 period consisted primarily of $189.6 million of net proceeds received from the underwritten public offering of common stock and pre-funded warrants, $24.2 million of net proceeds received from the 2019 ATM Facility and $3.2 million of net proceeds from employee stock award transactions, partially offset by $1.4 million of taxes paid related to the net share settlement of RSUs. Net cash provided by financing activities in the 2019 period consisted primarily of $7.6 million net proceeds from the 2019 ATM Facility and $4.7 million of net proceeds from employee stock award transactions, partially offset by $6.7 million of taxes paid related to the net share settlement of RSUs. 23 Operating Capital Requirements and Plan of Operations To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the accumulated losses to increase as we continue the development of and seek regulatory approvals for our product candidates and begin to commercialize any approved products. We are subject to all of the risks inherent in the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need to raise substantial additional funding in connection with our continuing and expected expansion of our operations. We expect that our existing cash, cash equivalents and short-term investments will be sufficient to fund our planned operations into 2022. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. In addition, we expect to continue to opportunistically seek access to additional funds through additional public or private equity offerings or debt financings, through potential collaborations, partnering or other strategic arrangements, or a combination of the foregoing. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: • the timing, costs and results of our ongoing and planned clinical and preclinical studies for our product candidates, including any potential impact of the COVID-19 pandemic; • our success in establishing and scaling commercial manufacturing capabilities; • the number and characteristics of product candidates that we pursue; • the outcome, timing and costs of seeking regulatory approvals; • subject to receipt of regulatory approval, costs associated with the commercialization of our product candidates and the amount of revenues received from commercial sales of our product candidates; • the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish; • the amount and timing of any payments we may be required to make in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or patent applications or other intellectual property rights; • the extent to which we in-license or acquire other products and technologies; and • the timing of capital expenditures, including the qualification of our manufacturing facility. Until we are able to generate a sufficient amount of product revenue and generate positive net cash flows from operations, which we may never do, meeting our long-term capital requirements is in large part reliant on access to public and private equity and debt capital markets, augmented by cash generated from operations and interest income earned on the investment of our cash balances. We expect to continue to seek access to the equity and debt capital markets to support our development efforts and operations. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses or other rights on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders. As a result of economic conditions, general global economic uncertainty, political change and other factors, including the ongoing COVID-19 pandemic, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic uncertainty or other factors, we will be forced to delay, limit, reduce or terminate preclinical studies, clinical studies or other development activities for one or more of our product candidates. Contractual Obligations and Commitments We lease our corporate headquarters in South San Francisco, California under a non-cancellable lease agreement for approximately 13,670 square feet of office space. The lease expires in May 2021. 24 In February 2017, we entered into a lease agreement for approximately 90,580 square feet of office, lab and cellular therapy manufacturing space in Thousand Oaks, California. The initial 15-year term of this lease commenced in February 2018, and t he contractual obligations during the initial term are $16.4 million in aggregate. We have the option to extend this lease for two additional periods of ten and nine years , respectively, after the initial term. In connection with this lease, we were required to issue a letter of credit in the amount of $1.2 million to the landlord, which is recorded as long-term restricted cash in our condensed consolidated balance sheet. In November 2018, we entered into a lease agreement for approximately 51,160 square feet of office space in Thousand Oaks, California. The initial term of this lease expires in February 2026. The contractual obligations during the initial term are $8.5 million in aggregate. We have the option to extend the lease for an additional period of five years after the initial term. In May 2019, we entered into a new lease agreement for our approximately 8,800 square feet of office and lab space in Aurora, Colorado. The term of this lease expires in April 2024. The contractual obligations during the lease term are $1.1 million in aggregate. Our contractual obligations primarily consist of our obligations under non-cancellable operating and finance leases and contracts we enter into in the normal course of business with clinical research organizations for clinical studies, with contract manufacturing organizations for clinical supplies, and with other vendors for preclinical studies and supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, with the exception of one of our contract manufacturing agreements which we may terminate for convenience upon six months’ written notice. There have been no material changes to our contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. Off-Balance Sheet Arrangements We did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC, during the periods presented. Item 3. Quantitative and Qualitative Disclosures about Market Risk During the six months ended June 30, 2020, there were no material changes to our interest rate risk disclosures, market risk disclosures and foreign currency exchange rate risk disclosures reported in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 27, 2020.