Item 7. Management’s Discussion and Analysis
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those set forth in the Item 1A. “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by these forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”
We maintain our books and records in pounds sterling, our results are subsequently translated to U.S. dollars and we prepare our consolidated financial statements in accordance with U.S. GAAP. All references in this Annual Report to “$” are to U.S. dollars and all references to “£” are to pounds sterling. Our Consolidated Balance Sheets as of December 31, 2023 and 2022 have been translated from pounds sterling into U.S. dollars at the rate of £1.00 to $1.2730 and £1.00 to $1.2090, respectively. Our Consolidated Statements of Operations and Comprehensive Loss and Cash Flows for the years ended December 31, 2023, 2022 and 2021 have been translated from pounds sterling to U.S. dollars at the rate of £1.00 to $1.2433, £1.00 to $1.2374 and £1.00 to $1.3755, respectively. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date.
Overview
We are a biopharmaceutical company developing next-generation programmed T cell therapies for the treatment of cancer and autoimmune diseases. Using our broad suite of proprietary and modular T cell programming technologies, we are engineering precisely targeted, controlled and highly active T cell therapies that are designed to better recognize cancer cells, break down their defense mechanisms and attack and kill these cells. We believe our programmed T cell therapies have the potential to be best-in-class and offer cancer patients substantial benefits over the existing standard of care, including the potential for cure in some patients.
Since our inception, we have incurred significant operating losses. For the years ended December 31, 2023, 2022, and 2021, we incurred net losses of $208.4 million, $148.8 million, and $142.1 million, respectively. As of December 31, 2023, we had an accumulated deficit of $878.6 million.
Based on our current clinical development plans, we believe our existing cash and cash equivalents of $239.6 million at December 31, 2023, together with the proceeds received in February 2024 from our private placement transaction with BioNTech and our underwritten registered offering of ADSs, as described below, we will be able to fund our current and planned operating expenses and capital expenditure requirements through at least the next twelve months from the date of this Annual Report. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses, which we have based on assumptions that may prove to be wrong and could prove to be significantly higher than we currently anticipate, could vary materially and adversely as a result of a number of factors. Management does not know whether additional financing will be on terms favorable or acceptable to us when needed, if at all. If adequate additional funds are not available when required, or if we are unsuccessful in entering into partnership agreements for further development of our product candidates, management may need to curtail its development efforts and planned operations.
Recent Developments
Obe-cel updates:
Obecabtagene autoleucel (obe-cel) in relapsed / refractory (r/r) adult ALL – FELIX Study
• Obe-cel BLA for r/r B-ALL submitted to the FDA in November 2023; PDUFA target action date of November 16, 2024. An MAA to the EMA was just submitted and an MAA submission to the MHRA in the UK is planned for the second half of 2024.
• Pooled analysis of the FELIX Phase 1b/2 study presented at ASH in December 2023 demonstrated prolonged EFS and low overall immunotoxicity across all cohorts in r/r B-ALL, and particularly in patients with low leukemic burden at lymphodepletion. Additionally, data from a pooled analysis from the ALLCAR19 study and FELIX Phase 1b in r/r B-ALL showed durable remissions with obe-cel as a stand-alone therapy in a subset of patients after a median follow up of longer than three years. Further long-term data from the FELIX study is anticipated at medical conferences in 2024.
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Obe-cel in B-cell mediated autoimmune diseases
• The Phase 1 dose confirmation study in refractory SLE patients has the first site open for enrollment; initial clinical data expected in late 2024.
Pipeline clinical trials, in collaboration with UCL, updates and anticipated milestones:
• AUTO8 in Multiple Myeloma – Phase 1 MCARTY Study
◦ AUTO8 is a next-generation product candidate for multiple myeloma, which includes two CARs for the multiple myeloma targets, BCMA and CD19. Initial data from the MCARTY Phase 1 study in multiple myeloma presented at ASH in December 2023 showed AUTO8 was well tolerated, with responses observed in all patients. Further updates from the MCARTY study are anticipated during 2024.
• AUTO6NG in Neuroblastoma – Phase 1 MAGNETO Study
◦ AUTO6NG contains a CAR that targets GD2 alongside additional programming modules to enhance the activity and persistence. A Phase 1 clinical study in children with r/r neuroblastoma was opened for enrollment in the fourth quarter of 2023.
On February 6, 2024, we, through our wholly owned subsidiaries, Autolus Limited and Autolus Holdings (UK) Limited entered into a License and Option Agreement (the “License Agreement”) with BioNTech SE (“BioNTech”) pursuant to which we granted to BioNTech an exclusive, worldwide, sublicensable license (the “License”) to certain binders and to exploit products that express in vivo such binders (collectively, the “Binder Licensed Products”).
In addition to the License, under the License Agreement we granted to BioNTech several time-limited options (the “Options”) to acquire additional rights to specified clinical-stage product candidates, binders and technologies, described in more detail below. In the event that all Options are fully exercised, we would be eligible to receive future maximum aggregate payments of up to $582.0 million pursuant to the License Agreement. This maximum amount includes the potential milestone payments for the Binder Licensed Products described below, all option exercise fees and potential milestone payments for licenses to optioned products and technologies, and additional payments that BioNTech may pay to us for an increased revenue interest with respect to obe-cel as described below.
License and Options
In consideration for the License and the Options, BioNTech has made an initial payment to us of $10.0 million. We are eligible to receive milestone payments of up to $32 million in the aggregate upon the achievement of specified clinical development and regulatory milestones for each Binder Licensed Product that achieves such milestones. We are also eligible to receive a low single-digit royalty on net sales of Binder Licensed Products, subject to customary reductions, which reductions are subject to specified limits. The royalty will be increased if BioNTech, its affiliates or sublicensees commercialize a Binder Licensed Product in an indication and country in which we or our affiliates or licensees also commercialize a product containing the same binders. Under the License Agreement, BioNTech is solely responsible for, and has sole decision-making authority with respect to, at its own expense, the exploitation of Binder Licensed Products.
Under the terms of the License Agreement, we have agreed to grant BioNTech the following time-limited Options:
• an option to obtain exclusive rights to co-fund development costs of our development-stage programs AUTO1/22 and AUTO6NG, in return for agreed upon economic terms, including an option exercise fee, milestone payments and a profit-sharing arrangement for each such product candidate, with additional options to co-promote or co-commercialize such product candidate;
• an option to obtain an exclusive worldwide license to exploit products that express certain additional binders in vivo or, with respect to certain binders, in an antibody drug conjugate (the “Binder Option”);
• an option to obtain a co-exclusive worldwide license to exploit products that express in vivo our modules for activity enhancement, with a non-exclusive right, in certain agreed instances, to exploit products that include our modules for activity enhancement but do not express in vivo such modules (the “Activity Enhancement Option”); and
• an option to obtain a non-exclusive worldwide license to exploit products that contain our safety switches (the “Safety Switch Option” and, together with the Binder Option and the Activity Enhancement Option, the “Technology Options”).
The option exercise fee for each Technology Option is a low seven-digit amount. Each of the Activity Enhancement Option and the Safety Switch Option must be exercised with respect to a given biological target or combination of targets. There is a cap on the total option exercise fee if multiple options are exercised with respect to a given target.
There is also a cap on milestone payments across all agreements entered into as the result of BioNTech exercising one or more of the Technology Options and a cap on the royalty rate payable on any given product for which multiple Options are exercised.
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Obe-cel Product Revenue Interest
Under the License Agreement, BioNTech has also agreed to financially support the expansion of the clinical development program for, and planned commercialization of obe-cel. In exchange for our grant of rights to future revenues from the sales of obe-cel products, BioNTech made an upfront payment to us of $40 million. We will pay BioNTech a low single-digit percentage of annual net sales of obe-cel products, which may be increased up to a mid-single digit percentage in exchange for milestone payments of up to $100 million in the aggregate on achievement of certain regulatory events for specific new indications upon BioNTech's election.
Manufacturing and Commercial Agreement
Under the terms of the License Agreement, we have granted BioNTech the option to negotiate a joint manufacturing and commercial services agreement pursuant to which we and they may access and leverage each other’s manufacturing and commercial capabilities, in addition to our commercial site network and infrastructure, with respect to certain of each parties’ CAR T products, including BioNTech’s product candidate BNT211 (the “Manufacturing and Commercial Agreement”).
Securities Purchase Agreement, Registration Rights Agreement and Letter Agreement
Concurrently with the execution of the License Agreement, we and BioNTech entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which we issued and sold 33.3 million ADSs to BioNTech at $6.00 per ADS for aggregate gross proceeds of $200.0 million.
In the event that we and BioNTech enter into the Manufacturing and Commercial Agreement described above within 18 months of the initial closing under the Purchase Agreement, BioNTech will purchase additional ADSs, not to exceed 15.0 million ADSs, for an aggregate purchase price of up to $20 million. The total number of ADSs that may be issued to BioNTech is subject to additional limitations and restrictions. BioNTech also has the right to purchase equity securities sold by us in bona fide financing transactions in amounts that are based on BioNTech maintaining specified ownership thresholds following such financing transactions.
Operational Updates
In March 2024, following the most recent GMP inspection by the MHRA in February 2024, The Nucleus manufacturing facility in Stevenage, UK obtained a Manufacturer's Importation Authorization (MIA), together with the accompanying GMP certificate. This authorization enables us to manufacture products for global commercial and clinical supply at The Nucleus, effective as of March 18, 2024.
Internal Control Over Financial Reporting
In connection with the audit of our financial statements for the year ended December 31, 2023, our management identified a material weakness in our internal control over financial reporting. The material weakness related to the historic misinterpretation and application of ASC Topic 740 - Income Taxes , resulting in our UK small and medium enterprise (SME) tax credits being incorrectly presented in income tax benefit (expense). Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, in the Consolidated Financial Statements in Part II, Item 8 of this report for additional information.
We have commenced measures to remediate the material weakness; however, there can be no assurance that these measures will significantly improve or fully remediate the material weakness. There is also no assurance that we have identified all of our material weaknesses or that we will not in the future have additional material weaknesses. See “Risk Factors— We have identified a material weakness in our internal control over financial reporting. If our remediation of the material weakness is not effective or if we fail to develop and maintain effective internal controls over financial reporting, our ability to produce timely and accurate financial information or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could be impaired, which could have a material adverse effect on our business and the trading price of our ADSs.”
Financial Operations Overview
Grant Income
Grant income consists of proceeds from government research grants used to perform specific research and development activities. We recognize grant income over the period in which we recognize the related costs covered under the terms and conditions of the grant. We have received grants from the UK government, which are repayable under certain circumstances, including breach or noncompliance with the terms of the grant. For grants with refund provisions, we review the grant to determine the likelihood of repayment. If the likelihood of repayment of the grant is determined to be remote, then the grant is recognized as grant income. We have concluded that the likelihood of any repayment events included in our current grants is remote.
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License Revenue
We account for our revenue pursuant to the provisions of Accounting Standards Codification (“ASC”) Topic 606 , Revenue from Contracts with Customers. We have no products approved for commercial sale and have not generated any revenue from commercial product sales. The total revenue to date has been generated principally from license agreements. During the year ended December 31, 2023, we entered into various license agreements which included non-refundable upfront license fees, options for future commercial licenses, payments based upon achievement of clinical development and regulatory objectives, payments based upon achievement of certain levels of product sales, and royalties on licensed product sales .
In determining the appropriate amount of revenue to be recognized in relation to each license agreement, we perform the following steps: (i) identify the promised goods or services in the contract; (ii) determine whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measure of the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations based on estimated selling prices; and (v) recognize of revenue when (or as) we satisfy each performance obligation.
License Fees and Multiple Element Arrangements
If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, upfront fees allocated to the license at such time as the license is transferred to the licensee and the licensee is able to use, and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligations to determine whether the combined performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
Appropriate methods of measuring progress include output methods and input methods. In determining the appropriate method for measuring progress, we consider the nature of service that we promise to transfer to the customer. When we decide on a method of measurement, we will apply that single method of measuring progress for each performance obligation satisfied over time and will apply that method consistently to similar performance obligations and in similar circumstances.
Customer Options
If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options that are not determined to be material rights are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. We evaluate the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. We allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on any identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised.
Contingent Research Milestone Payments
ASC Topic 606 constrains the amount of variable consideration included in the transaction price in that either all, or a portion, of an amount of variable consideration should be included in the transaction price. The variable consideration amount should be included only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The assessment of whether variable consideration should be constrained is largely a qualitative one that has two elements: the likelihood of a change in estimate, and the magnitude thereof. Variable consideration is not constrained if the potential reversal of cumulative revenue recognized is not significant, for example.
If the consideration in a contract includes a variable amount, we will estimate the amount of consideration in exchange for transfer of promised goods or services. The consideration also can vary if our entitlement to the consideration is contingent on the occurrence or non-occurrence of a future event. We consider contingent research milestone payments to fall under the scope of variable consideration, which should be estimated for revenue recognition purposes at the inception of the contract and reassessed ongoing at the end of each reporting period.
We assess whether contingent research milestones should be considered variable consideration that should be constrained and thus not part of the transaction price. This includes an assessment of the probability that all or some of the milestone revenue could be reversed when the uncertainty around whether or not the achievement of each milestone is resolved, and the amount of reversal could be significant.
U.S. GAAP provides factors to consider when assessing whether variable consideration should be constrained. All of the factors should be considered, and no factor is determinate. We consider all relevant factors.
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Royalty Revenue
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Research and Development Expenses
Research and development expenses consist of costs incurred in connection with the research and development of our product candidates, which are partially offset by research and development tax credits, including tax credits arising from the UK small and medium enterprise (SME) regime and research and development expenditure credit (RDEC) regime provided by HMRC. We expense research and development costs as incurred. These expenses include:
• expenses incurred under agreements with CROs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
• manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials;
• employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for employees engaged in research and development functions;
• expenses incurred for outsourced professional scientific development services;
• costs for laboratory materials and supplies used to support our research activities;
• allocated facilities costs, depreciation and other expenses, which include rent and utilities; and
• upfront, milestone and management fees for maintaining licenses under our third-party licensing agreements.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.
Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants and CROs in connection with our preclinical development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee research and development as well as for managing our preclinical development, process development, manufacturing and clinical development activities.
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. As a result, we expect that our research and development expenses will increase substantially over the next few years as we increase personnel costs, initiate and conduct additional clinical trials and prepare regulatory filings related to our product candidates. We also expect to incur additional expenses related to milestone, royalty payments and maintenance fees payable to third parties with whom we have entered into license agreements to acquire the rights related to our product candidates.
The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from sales of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with development and commercialization activities, including the uncertainty of:
• the scope, progress, outcome and costs of our clinical trials and other research and development activities, including establishing an appropriate safety profile with IND-directed studies;
• successful patient enrollment in, and the initiation and completion of, clinical trials;
• the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
• establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
• development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial manufacturing;
• obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
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• significant and changing government regulation;
• launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
• maintaining a continued acceptable safety profile of the product candidates following approval; and
• significant competition and rapidly changing technologies within the biopharmaceutical industry.
We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the EMA, the FDA, or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. Commercialization of our product candidates will take several years and millions of dollars in development costs.
UK Research and Development Tax Credits
Research and development expenditure is presented net of reimbursements from reimbursable tax and expenditure credits from the UK government. As a company that carries out extensive research and development activities, we benefit from the SME regime and, to the extent that our projects are grant funded, the RDEC regime .
The benefits from UK research and development tax credits are recognized in the statements of operations and comprehensive loss as a reduction of research and development expenses and represents the sum of the research and development tax credits recoverable in the UK.
The SME program has been particularly beneficial to us, as under such program the trading losses that arise from our qualifying R&D activities can be surrendered for a cash rebate of up to 33.35% of qualifying expenditure incurred prior to April 1, 2023 and decreasing to 18.6% after April 1, 2023. Additionally, the UK Government enacted further changes to the SME regime on March 4, 2024 which include the introduction of a new rate for R&D intensive companies of 27% (which we may qualify for) and comes into effect for expenditures incurred after April 1, 2024. Qualifying expenditures largely comprise employment costs for research staff, consumables, outsourced contract research organization costs and utilities costs incurred as part of research projects for which we do not receive income. A large proportion of costs in relation to our pipeline research, clinical trials management and manufacturing development activities, all of which are being carried out by our subsidiary Autolus Limited, are eligible for inclusion within these tax credit cash rebate claims.
Under the RDEC program, tax credits for qualifying R&D expenditure incurred prior to April 1, 2023 are granted at a headline rate of 13% and can generate cash rebates of up to 10.5% of qualifying R&D expenditure. The headline rate of RDEC increased to 20% on April 1, 2023 and can generate cash rebates of up to 15% on qualifying R&D expenditure incurred from this date.
Amendments to the current SME and RDEC programs that are contained in the Finance Bill currently proceeding through the UK Parliament will take effect from periods on or after April 1, 2024 and will (i) (unless limited exceptions apply) introduce restrictions on the tax relief that can be claimed for expenditure incurred on sub-contracted R&D activities or externally provided workers, where such sub-contracted activities are not carried out in the UK or such workers are not subject to UK payroll taxes, and (ii) merge the SME and RDEC programs into a single scheme which would generate net cash benefit of up to 15% of the qualifying expenditure for profit making companies and up to 16.2% for loss making companies.
We currently meet the conditions of the SME regime, but we also can make claims under the RDEC regime to the extent that our projects are grant funded. In addition, we may meet the conditions of the R&D intensive scheme and may be able to make claims under merged SME R&D intensive regime. We may not be able to continue in the future to qualify as a small or medium-sized enterprise under the SME program, based on size criteria concerning employee headcount, turnover and gross assets. If we cease to qualify under the SME regime, we may make a claim under the RDEC regime for periods ending December 31, 2024, or the merged R&D regime from period ending December 31, 2025. It should be noted, however, that the types of qualifying expenditure in respect of which we may make claims under the RDEC regime are more restricted than under the SME regime (for example, it may be the case that certain subcontracted costs in respect of which claims may be made under the SME regime do not qualify for relief under the RDEC regime).
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, related benefits, travel and share-based compensation expense for personnel in executive, finance, legal and other administrative functions. General and administrative expenses also include allocated facility-related costs, patent filing and prosecution costs and professional fees for marketing, insurance, legal, consulting, accounting and audit services.
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We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the planned development of our product candidates. Additionally, if we believe a regulatory approval of one of our product candidates appears likely, we would anticipate an increase in salaries and related benefits as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.
We have experienced, and expect to continue to experience, increased expense with being a public company, including increased accounting, audit, legal, regulatory and compliance costs associated with maintaining compliance with Nasdaq listing rules and SEC requirements, director and officer insurance premiums, as well as higher investor and public relations costs. Additionally, should we fail to maintain our status as a foreign private issuer, we would expect to incur increased expenses to remain compliant with applicable SEC and Nasdaq requirements.
Loss on disposal of property and equipment
Loss on disposal of property and equipment primarily consists of losses arising from the disposal of all categories of property and equipment.
Impairment of operating lease right-of-use assets and related property and equipment
Impairment of operating lease right-of-use assets and related property and equipment consists primarily of impairment losses arising from the impairment of leased properties and leasehold improvements that are currently not be utilized by us.
Other Income (Expense), net
Other income (expense), net consists primarily of foreign currency transaction gains and losses, sublease income and gains or losses arising from the termination of leases.
Interest Income
Interest income consists primarily of interest received from banks and money market funds on our cash and cash equivalents balances. We invest funds in a variety of short-term interest-bearing instruments.
Interest Expense
Interest expense consists primarily of accrued interest expense arising from amortization of the liability related to future royalties and sales milestones, pursuant to our Collaboration Agreement with Blackstone, using the effective interest rate method. On a quarterly basis, we assess the expected present value of the future Blackstone Development Payments under the Blackstone Collaboration Agreement which may be received by us and future royalties and sales milestone payments to Blackstone which may be paid by us. To the extent the amount or timing of such receipts or payments is materially different than our previous estimates we record a cumulative catch-up adjustment to the liability related to future royalties and sales milestones. The adjustment to the carrying amount is recognized as an adjustment to interest expense in the period in which the change in estimate occurred.
Income Tax Benefit (Expense)
We are subject to corporate taxation in the United Kingdom, United States, Germany and Switzerland. Due to the nature of our business, we have generated losses since inception. Our income tax benefit (expense) recognized represents the sum of income tax payable or receivable in the United Kingdom and in the United States.
Un-surrendered UK losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of United Kingdom taxable profits. After accounting for tax credits receivable, we had accumulated tax losses for carry forward in the UK of $418.1 million at December 31, 2023 and $320.8 million at December 31, 2022. No deferred tax assets are recognized on our UK losses and tax credit carryforwards because there is currently no indication that we will make sufficient taxable profits to utilize these tax losses and tax credit carryforwards. We carry a $3.1 million deferred tax asset balance related to the U.S. entity at December 31, 2023. We have recorded a valuation allowance against the net deferred tax asset where the recoverability due to future taxable profits is unknown. On April 1, 2023 the main rate of the UK corporation tax was increased to 25% for companies with profits in excess of £250,000, or the small profits rate of 19% for companies with profits of £50,000 or less (with marginal relief from the main rate available to companies with profits between £50,000 and £250,000).
In the event we generate profits in the future, we may benefit from the UK “patent box” regime that allows profits attributable to revenues from patents or patented products to be taxed at an effective rate of 10%.
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Results of Operations
Comparison of Years Ended December 31, 2023 and 2022
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022 (in thousands):
Year Ended December 31, Change (in thousands)
Change (in percentage)
2023 2022
(As Restated)
Grant income $ — $ 166 $ (166) (100) %
License revenue 1,698 6,194 (4,496) (73) %
Operating expenses:
Research and development (130,481) (117,354) (13,127) 11 %
General and administrative (46,745) (31,899) (14,846) 47 %
Loss on disposal of leasehold improvements (3,791) (515) (3,276) 636 %
Impairment of operating lease right-of-use assets and related property and equipment
(382) — (382) 100 %
Total operating expenses, net (179,701) (143,408) (36,293) 25 %
Other income (expense), net
2,861 2,038 823 40 %
Interest income 13,505 1,708 11,797 691 %
Interest expense (45,067) (8,905) (36,162) 406 %
Total other expense, net (28,701) (5,159) (23,542) 456 %
Net loss before income tax (208,402) (148,567) (59,835) 40 %
Income tax benefit 19 (272) 291 (107) %
Net loss attributable to ordinary shareholders $ (208,383) $ (148,839) $ (59,544) 40 %
Grant Income
There was no grant income recognized for the year ended December 31, 2023 as compared to the $0.2 million recognized for the year ended December 31, 2022. The decrease in grant income of $0.2 million was due to a corresponding decrease in reimbursable expenditures.
License Revenue
License revenue decreased by $4.5 million for the year ended December 31, 2023. During the year ended December 31, 2023, we recognized license revenue of $1.7 million primarily relating to the execution of the Option and License Agreement with Cabaletta Bio Inc., and a non-refundable license fee and license revenue from an investee of Syncona Portfolio Limited, which is a holder of more than 10% of our share capital. During the year ended December 31, 2022, license revenue of $6.2 million primarily related to ModernaTX Inc. (“Moderna”) exercising its option to license certain of our intellectual property, a nd our entry into a license agreement with Bristol Myers Squibb which included recognition of a nonrefundable upfront payment.
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Research and Development Expenses
The following tables provide additional detail on our research and development expenses (in thousands):
Year Ended December 31, Change (in thousands)
Change (in percentage)
2023 2022
(As Restated)
Direct research and development expenses
B cell malignancies (Obe-cel, AUTO1/22 & AUTO3)
$ 22,855
$ 42,597
$ (19,742) (46) %
Other projects (AUTO4, AUTO5, AUTO6, AUTO7 & AUTO8)
3,098 2,920 178 6 %
Total direct research and development expense
25,953 45,517 (19,564) (43) %
Research and development expense and unallocated costs:
Personnel related (including share-based compensation)
63,542 53,762 9,780 18 %
Indirect research and development expense*
40,986 18,075 22,911 127 %
Total research and development expenses
$ 130,481 $ 117,354 $ 13,127 11 %
* Indirect research and development expense includes UK research and development tax credits
Research and development expenses increased by $13.1 million to $130.5 million for the year ended December 31, 2023 from $117.4 million for the year ended December 31, 2022 primarily due to:
• an increase of $10.8 million in salaries and other employment related costs including share-based compensation expense, which was mainly driven by an increase in the number of employees engaged in research and development activities;
• an increase of $8.2 million in facilities costs related to our new manufacturing facility, The Nucleus, as well as increases in costs related to maintaining our current leased properties;
• an increase of $5.5 million related to the development of our information technology infrastructure and support for information systems related to our new manufacturing facility; and
• a decrease of $5.1 million in UK R&D tax credits (increase in R&D expense) due to a decrease in qualifying research and development expenditures and the reduction in effective tax rate related to the UK research and development tax credit regime under the scheme for SMEs; offset by:
• a decrease of $10.2 million in clinical costs and manufacturing costs primarily relating to obe-cel;
• a decrease of $4.6 million in legal fees and professional consulting fees in relation to our research and development activities;
• a decrease of $1.2 million in depreciation and amortization related to property and equipment; and
• a decrease of $0.5 million related to a decrease in material transportation costs.
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General and Administrative Expenses
General and administrative expenses increased by $14.8 million to $46.7 million for the year ended December 31, 2023 from $31.9 million for the year ended December 31, 2022 primarily due to:
• an increase of $8.3 million in salaries and other employment related costs including share-based compensation expenses, which was mainly driven by an increase in the number of employees engaged in general and administrative activities;
• an increase of $3.6 million in commercial readiness costs due to increased commercial readiness activities being undertaken;
• an increase of $1.0 million in legal fees and professional consulting fees in relation to our general and administrative activities;
• an increase of $1.0 million related to information technology infrastructure and support for information systems related to the conduct of corporate and commercial operations;
• an increase of $0.6 million in facility costs due to the increase in space utilized for general and administrative activities and related to general office expenses; and
• an increase of $0.3 million in depreciation and amortization related to property and equipment and intangible assets.
Loss on Disposal of Property and Equipment
For the year ended December 31, 2023, we recognized a loss on disposal of property and equipment of $3.8 million related to fixed assets no longer being utilized in a manufacturing facility that we exited. We incurred a loss on disposal of leasehold improvements of $0.5 million related to those leasehold improvements which were no longer being utilized at one of our Cell Therapy Catapult Limited leased facilities in Stevenage for the year ended December 31, 2022.
Impairment of Operating Lease Right-of-use Assets and Related Property and Equipment
For the year ended December 31, 2023, we recognized an impairment loss on operating lease right-of-use assets and related property and equipment of $0.4 million related to a leased property in Stevenage. There was no similar impairment recognized for the year ended December 31, 2022.
Other Income (Expense), Net
Other income, net, increased to $2.9 million for the year ended December 31, 2023 from $2.0 million for the year ended December 31, 2022. During the year ended December 31, 2023, we recognized a net foreign exchange gain of $2.6 million and sublease income of $0.3 million. This compares to the income of $2.0 million for the year ended December 31, 2022, which included a net foreign exchange gain of $1.7 million, sublease income of $0.2 million and other income of $0.1 million.
Interest Income
Interest income increased to $13.5 million for the year ended December 31, 2023, as compared to $1.7 million for the year ended December 31, 2022. The increase in interest income of $11.8 million primarily relates to an increase in yield and higher account balances associated with our cash and cash equivalents during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Interest Expense
Interest expense increased to $45.1 million for the year ended December 31, 2023 as compared to $8.9 million for the year ended December 31, 2022. Interest expense increased by $36.2 million primarily due to an increase in the balance of the liability for future royalties and sales milestones, net at December 31, 2022 and a cumulative catch-up adjustment associated with our Collaboration Agreement with Blackstone.
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Comparison of Years Ended December 31, 2022 and 2021
The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (in thousands):
Year Ended December 31, Change (in thousands)
Change (in percentage)
2022
(As Restated)
2021
(As Restated)
Grant income $ 166 $ 823 $ (657) (80) %
License revenue 6,194 1,507 4,687 311 %
Operating expenses:
Research and development (117,354) (110,839) (6,515) 6 %
General and administrative (31,899) (31,865) (34) — %
Loss on disposal of leasehold improvements (515) (676) 161 (24) %
Total operating expenses, net (143,408) (141,050) (2,358) 2 %
Other income (expense):
Other income (expense), net 2,038 (145) 2,183 1506 %
Interest income 1,708 262 1,446 552 %
Interest expense (8,905) (1,105) (7,800) 706 %
Total other expense, net
(5,159) (988) (4,171) 422 %
Net loss before income tax (148,567) (142,038) (6,529) 5 %
Income tax benefit (272) (58) (214) 369 %
Net loss attributable to ordinary shareholders $ (148,839) $ (142,096) $ (6,743) 5 %
Grant Income
Grant income decreased to $0.2 million for the year ended December 31, 2022 from $0.8 million for the year ended December 31, 2021 . The decrease in grant income of $0.6 million was due to a corresponding decrease in reimbursable expenditures.
License Revenue
License revenue increased to $6.2 million for the year ended December 31, 2022, primarily due to a third party, Moderna Therapeutics, exercising its option to license certain of our intellectual property, which triggered an option exercise fee, and our entry into a license agreement with Bristol Myers Squibb which included recognition of a nonrefundable upfront payment. During the year ended December 31, 2021, we recognized $1.5 million of license revenue relating to the grant of the license to Moderna.
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Research and Development Expenses
The following table summarizes our research and development expenses incurred by program (in thousands):
Year Ended December 31, Change (in thousands)
Change (in percentage)
2022
(As Restated)
2021
(As Restated)
Direct research and development expenses
B cell malignancies (Obe-cel, AUTO1/22 & AUTO3)
$ 42,597 $ 27,135 $ 15,462 57 %
Other projects (AUTO4, AUTO5, AUTO6, AUTO7 & AUTO8)
2,920 4,244 (1,324) (31) %
Total direct research and development expense
$ 45,517 $ 31,379 $ 14,138 45 %
Research and development expense and unallocated costs:
Personnel related (including share-based compensation)
53,762 54,228 (466) (1) %
Indirect research and development expense
18,075 25,232 (7,157) (28) %
Total research and development expenses
$ 117,354 $ 110,839 $ 6,515 6 %
* Indirect research and development expense includes UK research and development tax credits
Research and development expenses increased by $6.5 million to $117.3 million for the year ended December 31, 2022 from $110.8 million for the year ended December 31, 2021 primarily due to:
• an increase of $11.6 million in clinical costs and manufacturing costs primarily relating to obe-cel;
• an increase of $0.4 million in legal fees and professional consulting fees in relation to our research and development activities;
• an increase of $0.2 million related to the development of our information technology infrastructure and support for information systems related to the conduct of clinical trials and manufacturing operations; and
• an increase of $0.2 million in cell logistics costs; offset by:
• a decrease of $3.7 million in facilities costs related to the termination and closure of our US manufacturing facility in 2021 and a shift in our overall manufacturing strategy;
• a decrease of $0.9 million in depreciation and amortization related to property and equipment and intangible assets;
• in increase of $0.7 million in UK R&D tax credits (decrease in R&D expense) due to an increase in qualifying research and development expenditures relating to increase in clinical activities; and
• a decrease of $0.6 million in salaries and other employment costs including share-based compensation expenses, which is mainly due to lower exchange rates used upon consolidation for the year ended December 31, 2022 compared to the year ended December 31, 2021, offset by an increase in employee headcount engaged in research and development activities.
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General and Administrative Expenses
General and administrative expenses remained consistent at $31.9 million for the year ended December 31, 2022 and 2021, respectively primarily due to:
• an increase of $1.4 million, in salaries and other employment costs including share-based compensation expenses, is mainly driven by an increase in the average number of employees engaged in general and administrative activities;
• an increase of $0.3 million primarily related to information technology costs; and
• a net increase of $0.1 million in legal fees and professional consulting fees in relation to our general and administrative activities, which is offset against lower cost for director and officer insurance; offset by;
• a decrease of $1.0 million of commercial preparation costs due to the timing of related activities;
• a decrease of $0.4 million in facilities costs related to the termination of certain lease agreements in the prior year; and
• a decrease of $0.4 million in depreciation and amortization related to property and equipment and intangible assets.
Loss on Disposal of Property and Equipment
We incurred a loss on disposal of leasehold improvements of $0.5 million related to those leasehold improvements which are no longer being utilized at one of our Cell Therapy Catapult Limited leased facilities in Stevenage for the year ended December 31, 2022. For the year ended December 31, 2021, we incurred a loss on disposal of leasehold improvements of $0.7 million related to the leasehold improvements no longer being utilized in the facility in White City, London.
Other Income (Expense), Net
Other income (expense), net, increased to an income of $2.0 million for the year ended December 31, 2022 from an expense of $0.1 million for the year ended December 31, 2021. During the year ended December 31, 2022, we recognized a net foreign exchange gain of $1.7 million, sublease income of $0.2 million and other income of $0.1 million. This compares to an expense of $0.1 million for the year ended December 31, 2021 which included a foreign exchange loss of $2.2 million offset by a gain on lease terminations of $2.0 million and other income of $0.1 million.
Interest Income
Interest income increased to $1.7 million for the year ended December 31, 2022, as compared to $0.3 million for the year ended December 31, 2021. The increase in interest income of $1.4 million primarily relates to the increase in interest rates on our interest-bearing bank accounts and short-term investments during the year ended December 31, 2022 as compared to the prior year.
Interest Expense
Interest expense increased to $8.9 million for the year ended December 31, 2022 as compared to $1.1 million for the year ended December 31, 2021. Interest expense is primarily related to the liability for future royalties and sales milestones, net which arose upon the execution of our strategic collaboration and financing agreement with Blackstone in November 2021. The increase in interest expense for the year ended December 31, 2022 is primarily driven by the full year of the liability related to the Blackstone collaboration in 2022 compared to a partial year liability accrued in 2021.
Liquidity and Capital Resources
Since our inception, we have not generated any commercial product revenue and have incurred operating losses and negative cash flows from our operations. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through preclinical and clinical development, seek regulatory approval and pursue commercialization of any approved product candidates. We expect that our research and development and general and administrative expenses may increase in connection with our planned research, clinical development and potential commercialization activities. As a result, we will need significant additional capital to fund our operations until such time as we can generate significant revenue from product sales.
We do not currently have any approved products and have never generated any commercial revenue from product sales. We have funded our operations to date primarily with proceeds from government grants, sales of our equity securities through public offerings and pursuant to our at-the market equity facility, through UK research and development tax credits and receipts from the UK SME and RDEC schemes, out-licensing arrangements and strategic collaboration and financing agreements. From our inception in 2014 through December 31, 2023, we have raised $1.1 billion from these capital sources.
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As of December 31, 2023 , we had cash and cash equivalents on hand of $239.6 million. In February 2024, we received aggregate gross proceeds of $250 million from BioNTech, consisting of $50 million in upfront payments under the License and Option Agreement and $200 million from the sale of ADSs to BioNTech in a private placement. In addition, in February 2024, we received gross proceeds of $350 million from an underwritten offering of our ADSs.
Cash Flows
The following table summarizes our cash flows for each of the periods presented (in thousands):
Year Ended December 31,
2023 2022 2021
Net cash used in operating activities $ (145,587) $ (112,308) $ (117,861)
Net cash used in investing activities (10,986) (10,841) (8,857)
Net cash (used in) provided by financing activities
(883) 223,610 284,063
Effect of exchange rate changes on cash, cash equivalents and restricted cash
15,030 (28,376) (754)
Net (decrease) increase in cash, cash equivalents and restricted cash $ (142,426) $ 72,085 $ 156,591
Net Cash Used in Operating Activities
During the year ended December 31, 2023, operating activities used $145.6 million of cash, resulting from our net loss of $208.4 million, and net cash used resulting from changes in our operating assets and liabilities of $0.3 million, partially offset by non-cash charges of $62.5 million. The non-cash charges related to interest expense accrued and cumulative catch-up adjustment of $45.0 million, share-based compensation of $11.2 million, depreciation and amortization of $6.6 million, non-cash operating lease expense of $4.1 million, loss on disposal of leasehold improvements of $3.8 million, impairment of operating lease right-of-use assets and related property and equipment of $0.4 million and loss on termination of operating lease of $0.1 million which is offset by foreign exchange differences of $7.6 million and a deferred income tax movement of $1.0 million. Net cash used in operating activities resulting from changes in our operating assets and liabilities for the year ended December 31, 2023 consisted primarily of a decrease in a $13.6 million in operating lease liabilities, a decrease in accrued expenses and other liabilities of $1.0 million, and a decrease in accounts payable of $0.5 million, offset by a $12.4 million increase in prepaid expenses and other current and non-current assets and a decrease in long-term deposits of $0.9 million.
During the year ended December 31, 2022, operating activities used $112.3 million of cash, resulting from our net loss of $148.8 million, and net cash used resulting from changes in our operating assets and liabilities of $0.5 million, and by non-cash charges of $36.0 million. The non-cash charges related to share-based compensation charges of $12.0 million, interest expense accrued and cumulative catch-up adjustment of $8.9 million, depreciation and amortization of $7.4 million, foreign exchange differences of $4.0 million, non-cash operating lease expense of $3.5 million and loss on disposal of leasehold improvements of $0.5 million which is offset by a deferred tax movement of $0.3 million. Net cash used in operating activities resulting from changes in our operating assets and liabilities for the year ended December 31, 2022 consisted primarily of an increase in accrued expenses and other liabilities of $16.0 million, offset by a $10.8 million increase in prepaid expenses and other current and non-current assets and a decrease of $4.7 million in operating lease liabilities.
During the year ended December 31, 2021, operating activities used $117.9 million of cash, resulting from our net loss of $142.1 million, offset by net cash used resulting from changes in our operating assets and liabilities of $0.4 million and by non-cash charges of $23.8 million. The non-cash charges primarily related to share-based compensation charges of $9.9 million, depreciation and amortization of $8.5 million, non-cash operating lease expense of $3.7 million, interest expense accrued and cumulative catch-up of $1.1 million and loss on disposal of leasehold improvements of $0.7 million which is offset by a deferred tax movement of $0.1 million. Net cash used resulting from changes in our operating assets and liabilities for the year ended December 31, 2021, consisted primarily of a $6.1 million decrease in prepaid expenses and other assets and current and non-current and $0.6 million decrease in long term deposits, offset by a decrease of $3.9 million in accounts payable and accrued expenses and other liabilities and a decrease in operating lease liabilities of $2.4 million.
Net Cash Used in Investing Activities
During the years ended December 31, 2023, 2022, and 2021, we used $11.0 million, $10.8 million and $8.9 million, respectively, of cash in investing activities which consisted primarily of purchases of property and equipment.
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Net Cash (Used in) Provided by Financing Activities
During the year ended December 31, 2023, net cash used in financing activities was $0.9 million which pertains to primarily to payments of equity issuance costs.
During the year ended December 31, 2022, net cash provided by financing activities was $223.6 million, consisting of net cash proceeds from our December underwritten public offering of $153.5 million, and $70.0 million from two development milestone payments in accordance with our collaboration and strategic financing with Blackstone. We also received cash proceeds of $0.1 million from the exercise of share options.
During the year ended December 31, 2021, net cash provided by financing activities was $284.1 million, consisting primarily of net cash proceeds of $147.6 million from our November 2021 private placement and strategic financing with Blackstone and $106.9 million from our February 2021 follow-on equity capital raise. We also raised net cash proceeds of $29.6 million through sales pursuant to our Open Market Sales Agreement with Jefferies LLC.
Cash Denomination
The following table reflects unrestricted cash denominations in U.S. dollars, U.K. pounds sterling and Euros as of (in thousands):
December 31,
2023 2022
Total cash and cash equivalents
$ 239,566 $ 382,436
U.S. dollars $ 105,771 $ 199,809
Pound sterling
£ 104,803 £ 151,174
Euro*
€ 343 € 175
* Euro amounts disclosed include immaterial account balances of Swiss francs.
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. Our expenses will increase as we:
• seek regulatory approvals for any product candidates that successfully complete preclinical and clinical trials;
• establish a sales, marketing and distribution infrastructure in anticipation of commercializing of any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly;
• hire additional clinical, medical, and development personnel;
• expand our infrastructure and facilities to accommodate our growing employee base; and
• maintain, expand and protect our intellectual property portfolio.
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, clinical costs, external research and development services, laboratory and related supplies, legal and other regulatory expenses, and administrative and overhead costs. Our future funding requirements will be heavily determined by the resources needed to support development and commercialization of our product candidates.
Based on our current clinical development and commercialization plans, we believe our existing cash and cash equivalents of $239.6 million at December 31, 2023, together with the aggregate gross proceeds received in February 2024 of $600 million from the BioNTech collaboration and private placement and our underwritten offering, will enable us to fund our current and planned operating expenses and capital expenditure requirements for at least twelve months from the issuance of our annual report. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. If we receive regulatory approval for our other product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. We may also require additional capital to pursue in-licenses or acquisitions of other product candidates.
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Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
• the scope, progress, outcome and costs of our clinical trials and other research and development activities;
• the costs, timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
• the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
• the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
• the costs and timing of hiring new employees to support our continued growth;
• the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and
• the extent to which we in-license or acquire additional product candidates or technologies.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of public or private equity offerings, reimbursable UK research and development tax credits and receipts from the UK SME and RDEC schemes, out-licensing arrangements, or strategic collaboration agreements. To the extent that we raise additional capital through the sale of equity, the ownership interest of existing shareholders may be diluted. If we raise additional funds through other third-party funding, collaborations agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations
Operating Lease, Purchase, and Other Obligations
Operating Leases
As of December 31, 2023, we had operating lease obligations of $53.0 million under non-cancellable leases for laboratory and office property in the United Kingdom and United States. Further details of our operating leases are provided in Note 18 to our consolidated financial statements included in this Annual Report as well as Part I, Item 2 of this Annual Report.
Purchase Obligations
We enter into contracts in the normal course of business with CROs and other third parties for clinical trials and preclinical research studies and testing. These contracts are generally cancellable by us upon prior notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancellable obligations of our service providers, up to the date of cancellation.
As of December 31, 2023, our unconditional purchase obligations for capital expenditures totaled $4.3 million and included signed orders for capital equipment and capital expenditure for construction and related expenditure relating to our properties in the UK and the United States, of which we expect to incur $0.4 million within one year, and $3.9 million within one to four years.
As of December 31, 2023, our unconditional purchase obligations for reagents and disposables totaled $0.6 million, which we expect to incur within one year.
We have contingent payment obligations that we may incur upon achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we may be required to make under our license agreements with UCLB, Noile-Immune Biotech, our advisory arrangements with Evercore and goetzpartners; however, the timing and likelihood of such payments is not currently known. Further details to our commitments are provided in Note 19 to our consolidated financial statements included in this Annual Report.
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Financing obligations
Blackstone Collaboration Agreement
Pursuant to the Blackstone Collaboration Agreement, entered into on November 6, 2021, Blackstone agreed to pay us up to $150 million to support the c ontinued development of our CD19 CAR T cell investigational therapy product candidate, obecabtagene autoleucel (obe-cel), as well as next generation product therapies of obe-cel in B-cell malignancies. These payments include (i) an upfront payment of $50 million and (ii) up to $100 million payable based on the achievement of certain specified clinical, manufacturing and regulatory milestones (each such payment, a “Blackstone Development Payment” and collectively, the “Blackstone Development Payments”). In exchange for the Blackstone Development Payments, we agreed to make payments to Blackstone (the “Revenue Share Payments”) equal to a mid-single digit royalty, subject to the Aggregate Cap (as defined in the Blackstone Collaboration Agreement) on payments under the Blackstone Collaboration Agreement, based on net sales anywhere in the world of (i) Collaboration Products in B-cell malignancies, (ii) subject to certain conditions set forth in the Blackstone Collaboration Agreement, its CD19 and CD22 CAR T cell investigational therapy product candidate known as AUTO3 in B-cell malignancies, and (iii) certain Collaboration Products to the extent developed or commercialized in indications other than a B-cell malignancy (“Obe-cel Franchise Products”). We are also obligated to make payments (the “Sales Milestone Payments”), subject to the Aggregate Cap, if certain cumulative net sales levels are achieved.
In November 2021, the upfront payment of $50 million was paid by Blackstone upon execution of the Blackstone Collaboration Agreement. In December 2022, two Blackstone Development Payments were paid by Blackstone of $35 million each as a result of (i) the joint steering committee’s review of Autolus’ interim analysis of pivotal FELIX Phase 2 clinical trial of obe-cel in relapsed/refractory (r/r) adult Acute Lymphoblastic Leukemia (ALL) and (ii) achievement of a pre-agreed manufacturing milestone as a result of completion of planned activities demonstrating the performance and qualification of the obe-cel manufacturing process. The remaining $30 million will be payable to us on the achievement on certain specified regulatory milestones. We consider the achievement of the specified regulatory milestone as probable when actually achieved. Further details of the Blackstone Collaboration Agreement are provided in Note 11 to our consolidated financial statements included in this Annual Report.
BioNTech Collaboration Agreement
Obe-cel Revenue Interest
Under the BioNTech License Agreement, BioNTech has also agreed to financially support the expansion of the clinical development program for, and planned commercialization of obe-cel. In exchange for our grant of rights to future revenues from the sales of obe-cel, BioNTech made an upfront payment to us of $40 million. In addition, BioNTech made an upfront payment of $10 million in consideration for licenses and options granted under the agreement. We will pay BioNTech a low single-digit percentage of annual net sales of obe-cel, which may be increased up to a mid-single digit percentage in exchange for milestone payments of up to $100 million in the aggregate on achievement of certain regulatory events for specific new indications upon BioNTech's election.
JOBS Act
The Jumpstart Our Business Startups Act, or the JOBS Act, provides that, among other things, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. As of December 31, 2023, we ceased to be an emerging growth company and, as a result, are no longer able to take advantage of reduced disclosure and other obligations that are available to emerging growth companies.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
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Lease Term—Impact on Right-of-Use Assets and Lease Liabilities
In September 2021, we entered into an arrangement for lease with the landlord, Forge Life Sciences Nominee, an affiliate of the Reef Group, for the design, construction and lease of our new 70,000 square foot commercial manufacturing facility referred to as The Nucleus, in Stevenage, United Kingdom. Under this arrangement, the landlord leased the facility to us on agreed terms, upon satisfaction of certain conditions and completion of construction. Beginning in November 2022, the landlord handed over various portions of the facility to us; on July 31, 2023, the landlord confirmed practical completion of The Nucleus. We were required to pay a pro-rated license fee for each portion of the facility which we were granted access until execution of the lease agreement. As the landlord provided us with access to portions of the facility, the definition of a lease in accordance with ASC 842 was met. The lease term can materially impact the value of the right of use assets and lease liabilities recorded on our balance sheet as required under ASC 842.
On September 19, 2023, we entered into a 20-year lease agreement with Forge Life Sciences Nominee for The Nucleus. We calculated the lease term for The Nucleus by taking into account the noncancellable period specified in the agreement together with the periods a license fee was payable by us to the landlord for portions of The Nucleus handed over to us.
Accrued interest expense and liability related to future royalties and sales milestones, net and cumulative catch-up adjustments
We accounted for the Blackstone Collaboration Agreement as a liability. The liability related to future royalties and sales m ilestones, net and the related accrued interest expense are measured based on our current estimates of the timing and amount of expected future royalty and milestone payments expected to be paid and the Blackstone Development Payments expected to be received over the estimated term of the agreement.
The liability is amortized using the effective interest rate method, resulting in recognition of non-cash interest expense over the estimated term of the agreement. Each reporting period we assess the estimated probability, timing and amount of the future expected royalty, sales milestone payments and the Blackstone Development Payment over the estimated term. If there are changes to the estimates, we recognize the impact to the liability’s amortization schedule and the related accrued interest expense using the catch-up method.
Our estimate of the probability, timing and amount of expected future royalties and sales milestones to be paid by us and the expected Blackstone development payment to be paid to us, considers significant unobservable inputs. These inputs include regulatory approval, the estimated patient population, estimated selling price, estimated sales, estimated peak sales and sales ramp, timing of the expected launch and its impact on the royalties as well as the overall probability of a success. Additionally, the transaction costs associated with the liability will be amortized to accrued interest expense over the estimated term of the agreements.
The carrying amount of the Blackstone Collaboration Agreement liability is based on our estimate of the future royalties and sales milestones to be paid to Blackstone by us and the expected Blackstone Development payment to be received over the life of the arrangement as discounted using the initial effective interest rate. The excess estimated present value of future royalty and sales milestone payments and the future Blackstone Development Payment received over the carrying amount is recognized as a cumulative catch-up adjustment within interest expense using the effective interest rate method.
Income Taxes and Deferred Tax
We account for income taxes under the asset and liability method which includes the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements. Under this approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus deferred taxes.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. No deferred tax assets are recognized on our losses carried forward and other attributes because there is currently no indication that we will make sufficient profits to utilize these attributes.
We are subject to corporate income taxes in the United Kingdom, the United States, Germany and Switzerland. The calculation of our tax provision involves the application of tax law in multiple jurisdictions and requires judgement and estimates.
We evaluate the realizability of our deferred tax assets at each reporting date, and we establish a valuation allowance when it is more likely than not that all or a portion of our deferred tax assets will not be realized.
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Tab le o f co ntents
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where there is sufficient negative evidence indicating that our deferred tax assets are not more likely than not realizable, we establish a valuation allowance.
We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more likely than not sustainable, based solely on their technical merits, upon examination, and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position as the largest amount that we believe is more likely than not realizable. Differences between the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred tax assets.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate accruals for research and development expenses. This process involves reviewing and identifying services which have been performed by third parties on our behalf and determining the value of these services. In addition, we make estimates of costs incurred to date but not yet invoiced, in relation to external clinical research organizations and clinical site costs. We analyze the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs, when evaluating the adequacy of the accrued liabilities for research and development. We make judgments and estimates in determining the accrued balance in any accounting period.
Recent Accounting Pronouncements Not Yet Adopted
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial statements included in in this Annual Report.