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Item 2. Management’s Discussion and Analysis

2020-08-13 compared with 2020-05-15 · 199 added, 107 removed, 223 unchanged (58% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q.

including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

As a result of many important factors, including those set forth in Part II.

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We are currently conducting a Phase 1/2a clinical trial of PBCAR0191 in adult patients with relapsed or refractory, or R/R, non-Hodgkin lymphoma, or NHL, or R/R B-cell precursor acute lymphoblastic leukemia, or B-ALL.

PBCAR0191 is our first gene-edited allogeneic chimeric antigen receptor, or CAR, T cell therapy candidate targeting CD19 and is being developed in collaboration with Les Laboratoires Servier, or Servier.

We have received orphan drug designation, or ODD, for PBCAR0191 from the U.S.

Food and Drug Administration, or FDA, for the treatment of ALL.

Food and Drug Administration, or FDA, for the treatment of acute lymphoblastic leukemia, or ALL.

The NHL cohort will include patients with mantle cell lymphoma (“MCL”), an aggressive subtype of NHL, for which we have received ODD from the FDA.

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In the NHL cohort, four of six patients demonstrated an objective tumor response by Lugano criteria at day 28, for an overall objective response rate of 67%, including three partial responses and one complete response.

In the ALL cohort, one of three patients achieved a complete response at day 28 following treatment with PBCAR0191.

In the B-ALL cohort, one of three patients achieved a complete response at day 28 following treatment with PBCAR0191.

As of December 2019, dosing of patients at Dose Level 3 (3x10 6 cells/kg) was underway.

Based on the data observed at DL1 and DL2, we filed a protocol amendment for this trial with the FDA in December 2019.

The amended trial design is intended to specifically address key clinical questions.

These include assessing the impact of higher total doses of cells on clinical activity and/or the impact of modified lymphodepletion on the ability to achieve durable clinical benefit with as sociated CAR T cell expansion and persistence.

Following feedback from the FDA in late January 2020, the protocol amendment is now being implemented and we are actively advancing the cell dose and lymphodepletion regimen in order to maximize therapeutic benefit.

Following feedback from the FDA in January 2020, the protocol amendment is now being implemented and we are actively assessing key clinical questions including the impact of higher total doses of cells, repeat dose of cells, and/or the impact of modified lymphodepletion on the ability to achieve durable clinical benefit.

The PBCAR0191 clinical trial continues to progress, and no dose limiting toxicities or serious adverse events have been observed to date.

We expect to present updated interim clinical data from both the NHL and B-ALL cohorts of this trial during 2020.

In January 2020, the FDA accepted our IND application for our third allogeneic CAR T cell therapy product candidate, PBCAR269A, for which we expect to commence a Phase 1/2a clinical trial in 2020.

PBCAR269A is wholly owned by us and is designed to target the validated tumor cell surface target BCMA.

It will be investigated in subjects with R/R multiple myeloma and we have received orphan drug designation from the FDA for this indication.

Also in January 2020, we announced that we expect to advance a program targeting the rare genetic disease primary hyperoxaluria type 1, or PH1 as our lead wholly owned in vivo gene correction program.

Due to the impacts of COVID-19 and its effect on site activation and patient enrollment on all studies, including PBCAR0191, we expect to present updated interim clinical data from both the NHL and B-ALL cohorts of this trial no earlier than the fourth quarter of 2020.

In January 2020, we announced that we expect to advance a program targeting the rare genetic disease primary hyperoxaluria type 1, or PH1 as our lead wholly owned in vivo gene correction program.

PH1 affects approximately 1-3 people per million in the United States and is caused by loss of function mutations in the AGXT gene, leading to the accumulation of calcium oxalate crystals in the kidneys.

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We therefore believe that a one-time administration of an ARCUS nuclease targeting HAO1 may be a viable strategy for a durable treatment of PH1 patients.

In preclinical studies we have demonstrated in a mouse model of PH1 that administration of an ARCUS nuclease targeting HAO1 resulted in approximately 70% reduction in urine calcium oxalate levels.

In preclinical murine studies of PH1 we have demonstrated that administration of an ARCUS nuclease targeting HAO1 resulted in approximately 70% reduction in urine calcium oxalate levels.

We have also demonstrated that ARCUS efficiently knocked out the HAO1 gene in non-human primates.

We plan to select a clinical candidate for this program during 2020.

In April 2020, we commenced patient dosing in a Phase 1/2a clinical trial with our se cond allogeneic CAR T cell therapy product candidate, PBCAR20A .

In April 2020, we commenced patient dosing in a Phase 1/2a clinical trial with our second allogeneic CAR T cell therapy product candidate, PBCAR20A .

PBCAR20A is wholly owned by us and targets the validated tumor cell surface target CD20.

It is being investigated in two cohorts of patients.

It is bein g investigated in two cohorts of patients.

The first cohort will enroll patients with R/R NHL, and the second will enroll patients with R/R chronic lymphocytic leukemia, or CLL, or R/R small lymphocytic lymphoma, or SLL.

A subset of the NHL patients will have the diagnosis of MCL and we have received orphan drug designation for PBCAR20A from t he FDA for the treatment of this disease.

Based on the safety profile observed to date with PBCAR0191, the FDA has agreed to allow us to commence dosing with PBCAR20A directly at what was originally designed to be Dose Level 2 (1x10 6 cells/kg), with the s ubsequent dose level expected to be 3x10 6 cells/kg .

A subset of the NHL patients will h ave the diagnosis of MCL and we have received orphan drug designation for PBCAR20A from the FDA for the treatment of this disease.

Based on the safety profile observed to date with PBCAR0191, the FDA agreed to allow us to commence dosing with PBCAR20A dir ectly at what was originally designed to be Dose Level 2 (1x10 6 cells/kg), with the subsequent dose level expected to be 3x10 6 cells/kg .

In June 2020, we commenced patient dosing in a Phase 1/2a clinical trial with our third allogenic CAR T cell therapy product candidate, PBCAR269A.

PBCAR269A is wholly owned by us and is designed to target the validated tumor cell surface target BCMA.

It will be investigated in subjects with R/R multiple myeloma and we have received orphan drug designation from the FDA for this indication.

The starting dose of PBCAR269A is 6x10 5 cells/kg.

Subsequent cohorts will be treated with escalating doses to a maximum dose of 6x10 6 cells/kg.

In July 2020, we announced we will regain full clinical development and commercialization rights and all data we generated for the in vivo chronic hepatitis B virus (HBV) program developed under our 2018 collaboration agreement with Gilead Sciences, effective September 4, 2020.

We are exploring partnership or alternative opportunities to enable the continued development of ARCUS-based HBV therapies, the progression toward the submission of an IND for this product candidate and the reassessment of the timing of such IND submission.

Since our formation in 2006, we have devoted substantially all of our resources to developing ARCUS, conducting research and development activities, recruiting skilled personnel, developing manufacturing processes, establishing our intellectual property portfolio and providing general and administrative support for these operations.

We have financed our operations primarily with proceeds from the sale of our convertible preferred stock and upfront payments from licensing arrangements.

As of March 31, 2020, we have generated approximately $476.4 million from third parties through a combination of financings including through our IPO, preferred stock and convertible note financings, an upfront payment under the Servier Agreement and additional funding from other strategic alliances and grants.

As of June 30, 2020, we have generated approximately $480.0 million from third parties through a combination of financings including through our IPO, preferred stock and convertible note financings, an upfront payment under the Servier Agreement and additional funding from other strategic alliances and grants.

Since our inception, we have incurred significant operating losses and have not generated any revenue from the sale of products.

Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties.

Our net losses were $26.8 million and $31.8 million for the three months ended March 31, 2020 and March 31, 2019, respectively.

As of March 31, 2020, we had an accumulated deficit of $203.9 million.

Our net losses were $59.5 million and $51.2 million for the six months ended June 30, 2020 and June 30, 2019, respectively.

As of June 30, 2020, we had an accumulated deficit of $236.6 million.

We expect our operating expenses to increase substantially in connection with the expansion of our product development programs and capabilities.

Further, we expect collaboration revenue will decrease in connection with the termination of the Gilead Agreement (as defined below).

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one of our product candidates or the product candidates of our collaborators for which we may receive milestone payments or royalties.

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Centers for Disease Control and Prevention (“CDC”) and the State of North Carolina to protect the health and safety of its employees and the community.

In particular, the Company has implemented a work-from-home policy and has restricted on-site activities to certain manufacturing functions and limited laboratory and support activities only.

The Company is working closely with its clinical sites, physician partners and the patient community to monitor the potential impact of the evolving COVID-19 pandemic.

The Company remains committed to its clinical programs and development plans.

As of now, the Company has not experienced delays to its ongoing or planned clinical trials;

however, this could rapidly change.

Disruptions caused by the COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials and the incurrence of unforeseen costs as a result of preclinical study or clinical trial delays.

As a result, we expect that the COVID-19 pandemic may impact our business, including our preclinical studies and clinical trials.

At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses.

The impact of COVID-19 on our preclinical studies and clinical trials will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the

pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions , the ultimate impact of COVID-19 on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease .

See “Risk Factors— The outbreak of COVID-19, or other pandemic, epidemic or out break of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials .

” in Part II, Item 1.A.

of thi s Quarterly Report on Form 10-Q .

In particular, the Company has implemented a work-from-home policy and has restricted on-site activities, including certain manufacturing functions and limited laboratory and support activities.

We are working closely with our clinical sites, physician partners and the patient community to monitor and manage the impact of the evolving COVID-19 pandemic.

We remain committed to our clinical programs and developm ent plans, however, disruptions, competing resource demands and safety concerns caused by the COVID-19 pandemic have caused, and are likely to continue to cause delays in our clinical trial site activation and impact our ability to enroll patients.

We may also experience other difficulties, disruptions or delays in conducting preclinical studies or initiating, enrolling, conducting or completing our planned and ongoing clinical trials, and we may incur other unforeseen costs as a result.

We expect that the COVID-19 pandemic may continue to impact our business, including our preclinical studies and clinical trials.

At this time, there is still significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses.

The impa ct of COVID-19 on our preclinical studies and any further impact to our clinical trials will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact of COVID-19 on financial markets and the global economy, and the effectiveness o f actions taken in the United States and other countries to contain and treat the disease.

The Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020, which provides for, among other things, the deferral of the deposit and payment of certain taxes.

Pursuant to the CARES Act, the Company has elected to defer payment of the employer's share of social security taxes.

See “Risk Factors—The outbreak of COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.” in Part II, Item 1.A.

of this Quarterly Report on Form 10-Q.

Collaborations

In September 2018, we and Gilead entered into a collaboration and license agreement, which we refer to as the Gilead Agreement, to develop genome editing tools using ARCUS to target viral DNA associated with the Hepatitis B virus.

Pursuant to the terms of the agreement, Gilead received an exclusive license to exploit the resulting synthetic nucleases and products that use them to treat the Hepatitis B virus in humans, and we are entitled to receive up to approximately $40.0 million in research funding over an initial three year term and milestone payments of up to an aggregate of $445.0 million, consisting of up to $105.0 million in development milestone payments and up to $340.0 million in commercial milestone payments.

We are also entitled to receive tiered royalties ranging from the high single digit percentages to the mid-teen percentages on worldwide net sales of the products developed through the term of the agreement, subject to customary potential reductions.

On July 6, 2020, Gilead Sciences (“Gilead”) notified us of its termination of the collaboration and license agreement dated September 10, 2018, subsequently amended by Amendment No.

1 dated March 10, 2020 or (the “Gilead Agreement”), to develop genome editing tools using ARCUS to target viral DNA associated with the hepatitis B virus.

Pursuant to the termination notice, the Gilead Agreement will terminate effective September 4, 2020.

Upon termination, as discussed above, we will regain full rights and all data we generated for the in vivo chronic hepatitis B program developed under the Gilead Agreement.

In February 2016, we entered into the Servier Agreement, pursuant to which we have agreed to develop allogeneic CAR T cell therapies for up to six unique antigen targets.

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We also have the right to participate in the development and commercialization of any licensed products resulting from the collaboration through a 50/50 co-development and co-promotion option in the United States, subject to our payment of an option fee, which is exercisable after Servier’s commercial option exercise.

Trustees of the University of Pennsylvania

In January 2018, we entered into a research, collaboration and license agreement with the University of Pennsylvania (“Penn”) to collaborate on the preclinical development for gene editing products involving the delivery of an ARCUS nuclease.

In October 2019, both parties agreed to adjust the activities conducted under the agreement to focus exclusively on the collaboration’s program to edit the PCSK9 gene to reduce levels of LDL-C in the blood, commonly known as “bad cholesterol.” On April 29, 2020, both parties agreed to coordinate a wind-down of all activities in their entirety under the agreement, effective as of June 30, 2020, however, we expect certain portions of the agreement may be extended, subject to ongoing discussions with Penn.

We will not be required to make termination payments to Penn.

Dole Food Company

Through our wholly owned subsidiary, Elo Life Systems, Inc.

(“Elo”), on June 22, 2020, we entered into a Research, Development, and Commercialization Agreement with Dole Food Company, Inc.

(“Dole”) with the aim to co-develop banana varieties resistant to Fusarium oxysporum f.

sp cubense Tropical race 4 (“Foc TR4”), utilizing proprietary computational biology workflows and the ARCUS genome editing platform.

The disease caused by Foc TR4, commonly known as Fusarium wilt, threatens the continued cultivation of the world’s most popular variety of banana called Cavendish, which is of considerable economic significance as this variety is used to produce export bananas for key markets around the globe and Dole is one of the largest producers in the industry.

Fungicides, or other traditional means of disease control have failed as the pandemic continues to spread across vital banana growing economies.

Development of Foc TR4 varieties is critically important to save the banana industry, to protect the livelihoods of millions of banana growers and continue to provide consumers an affordable and nutritious fruit.

Under the terms of the collaboration, Dole will fully fund research and development efforts executed by Elo, and Elo is eligible to receive royalties on any commercialized plant product.

Cargill, Inc.

In 2014, through Elo, we and Cargill, Inc.

(“Cargill”) entered into a collaboration to produce ARCUS-optimized canola varieties with significantly lower levels of saturated fatty acids compared to the current levels in greenhouse studies.

On July 30, 2020, we and Cargill mutually agreed to terminate the collaboration, effective August 31, 2020.

Components of Our Results of Operations

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costs of outside consultants, including their fees and related travel expenses;

costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial material s;

costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

license payments made for intellectual property used in research and development activities;

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Internal and external costs associated with infrastructure resources, other research and development costs, facility related costs and depreciation and amortization that are not identifiable to a specific product candidate are included in the platform development, early-stage research and unallocated expenses category in the table below.

The following table summarizes our research and development expenses by product candidate or development program for the periods presented:

Three Months Ended March 31,

The following table summarizes our research and development expenses by product candidate or development progr am for the periods presented:

Six Months Ended June 30,

Three Months Ended June 30,

(in thousands)

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Research and development activities are central to our business model.

We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we continue our Phase 1/2a clinical trial for our CD19 product candidate and our CD20 product candidate, commence a Phase 1/2a clinical trial for our BCMA product candidate, and continue to discover and develop additional product candidates.

We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we continue our Phase 1/2a clinical trials for our CD19, CD20 and BCMA product candidates, and continue to discover and develop additional product candidates.

We cannot determine with certainty the duration and costs of ongoing and future clinical trials of our CD19, CD20, and BCMA product candidates, or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval.

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A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.

For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

For exa mple, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

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and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs that are not specifically attributable to research activities.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities and development of product candidates.

We expect that our general and administrative expenses will increase in the future as we continue research activities and development of product candidates.

Change in Fair Value of Convertible Notes Payable

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Results of Operations

Comparison of the Three Months Ended March 31, 2020 and March 31, 2019

The following table summarizes our results of operations for the three months ended March 31, 2020 and March 31, 2019, together with the changes in those items in dollars:

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2020 and June 30, 2019

The following table summarizes our results of operations for the three months ended June 30, 2020 and June 30, 2019, together with the changes in those items in dollars:

Three Months Ended June 30,

(in thousands)

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Loss from operations

Other income:

Change in fair value of convertible notes payable

Interest income

Total other income

Revenue for the three months ended June 30, 2020 was $1.1 million, compared to $5.4 million for the three months ended June 30, 2019.

The decrease of $4.3 million in revenue during the three months ended June 30, 2020 was primarily the result of a $1.0 million decrease in collaboration revenue recognized from Servier, a $2.8 decrease in collaboration revenue recognized from Gilead and a decrease of $0.5 million in revenue from various joint development collaborations as agreements to provide services thereunder ended in 2019.

Research and Development Expenses

Three Months Ended June 30,

(in thousands)

Direct research and development expenses by product candidate:

CD19 external development costs

CD20 external development costs

BCMA external development costs

Platform development, early-stage research and unallocated expenses:

Employee-related costs

Laboratory supplies and services

Outsourced research and development

CMOs and research organizations

Laboratory equipment and maintenance

Facility-related costs

Depreciation and amortization

Licensing fees

Other research and development costs

Total research and development expenses

Research and development expenses for the three months ended June 30, 2020 were $25.2 million, compared to $22.8 million for the three months ended June 30, 2019.

The increase of $2.4 million was primarily due to increases in direct research and development expenses related to our CD19, CD20, and BCMA programs of $1.2 million, $1.9 million, and $1.7 million, respectively, due to increases in lab services and CMO and research organization costs as we entered a CD19 Phase 1/2a clinical trial in April 2019, CD20 Phase 1/2a clinical trial in April 2020, and BCMA Phase 1/2a clinical trial in June 2020, offset by a $2.4 million decrease in platform development, early-stage research and unallocated expenses.

Platform development, early-stage research and unallocated expenses decreased primarily due to a $2.4 million decrease in outsourced research and development spending, a $2.4 million decrease in CMOs and research organizations spending, a $1.0 million decrease in laboratory supplies and services and a $1.0 million decrease in other research and development costs, offset by a $2.7 million increase in employee-related costs associated with increased headcount to support our technology platform development and manufacturing capabilities, a $1.0 million increase in depreciation and amortization and a $0.7 million increase in licensing fees in the three months ended June 30, 2020 compared to the same period in 2019.

General and Administrative Expenses

General and administrative expenses were $8.7 million for the three months ended June 30, 2020 compared to $6.5 million for the three months ended June 30, 2019.

The increase of $2.2 million was primarily due to costs required to meet our growing infrastructure needs, including increases of $1.0 million in consulting fees, $0.6 million in employee-related costs due to higher general and administrative headcount, $0.3 million in taxes and insurance costs and $0.3 million in information technology costs.

Change in Fair Value of Convertible Notes Payable

We elected on issuance to account for the 2019 Notes at fair value until their settlement.

For the three months ended June 30, 2020, we did not recognize any income due to changes in fair value of the 2019 Notes, compared to $3.0 million of other income due to changes in fair value of the 2019 Notes recognized for the three months ended June 30, 2019.

The 2019 Notes were settled on the closing of the IPO in April 2019.

Interest Income

Interest income was $0.1 million for the three months ended June 30, 2020 compared to $1.5 million for the three months ended June 30, 2019.

The decrease of $1.4 million of interest income generated on our cash and cash equivalent balances was the result of lower interest rates in three months ended June 30, 2020 compared to the same period in 2019.

Segment Results

Three Months Ended June 30,

(in thousands)

Total segment revenue

Segment operational cash expenditures:

Total segment operational cash expenditures

Segment operating loss:

Total segment operating loss

We evaluate the operating performance of each segment based on segment operating loss.

Segment operating loss is derived by deducting operational cash expenditures, net, from GAAP revenue.

Operational cash expenditures are cash disbursements made that are specifically identifiable to the reportable segment (including specifically identifiable research and development and property, equipment and software expenditures).

The reportable segment operational cash expenditures include cash disbursements for compensation, laboratory supplies, purchases of property, equipment and software and procuring services from CROs, CMOs and research organizations.

We do not allocate general operational expenses or non-cash income statement amounts to our reportable segments.

Therapeutics Segment

Revenue for the three months ended June 30, 2020 was $1.0 million, compared to $4.8 million for the three months ended June 30, 2019.

The decrease of $3.8 million was the result of a $2.8 million decrease in collaboration revenue recognized from Gilead and a $1.0 million decrease in collaboration revenue recognized from Servier .

Segment operational cash expenditures for the three months ended June 30, 2020 were $19.1 million, compared to $18.0 million for the three months ended June 30, 2019.

The increase of $1.1 million was primarily due to an increase in employee headcount, clinical trial research, consultant fees and lab equipment maintenance, offset by decreases in lab supplies, lab services and fixed assets.

Segment operating loss increased $4.9 million to $18.1 million for the three months ended June 30, 2020 compared to $13.2 million for three months ended June 30, 2019 primarily due to the factors discussed above.

Revenue for the three months ended June 30, 2020 was $0.1 million, compared to $0.6 million for the three months ended June 30, 2019.

The decrease of $0.5 million was attributable to a decrease in revenue from various joint development collaborations as agreements to provide services thereunder ended in 2019.

Segment operational cash expenditures for the three months ended June 30, 2020 were $1.6 million, compared to $2.1 million for the three months ended June 30, 2019.

The decrease of $0.5 million was primarily due to a decrease in fixed assets offset by an increase in employee headcount.

Segment operating loss was relatively consistent for three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Comparison of the Six Months Ended June 30, 2020 and June 30, 2019

The following table summarizes our results of operations for the six months ended June 30, 2020 and June 30, 2019, together with the changes in those items in dollars:

Six Months Ended June 30,

(in thousands)

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income (expense), net:

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Total other income (expense), net

Revenue for the three months ended March 31, 2020 was $7.0 million, compared to $5.5 million for the three months ended March 31, 2019.

The increase of $1.5 million in revenue during the three months ended March 31, 2020 was primarily the result of a $1.5 million milestone payment received from an agriculture industry collaboration partner and $0.6 million increase in collaboration revenue recognized from Servier, offset by a decrease of $0.6 million in revenue from two joint development collaborations as agreements to provide services thereunder ended in 2019.

Revenue for the six months ended June 30, 2020 was $8.1 million, compared to $10.9 million for the six months ended June 30, 2019.

The decrease of $2.8 million in revenue during the six months ended June 30, 2020 was primarily the result of a $1.5 million milestone payment received from an agriculture industry collaboration partner, offset by a $2.8 million decrease in collaboration revenue received from Gilead and a decrease of $1.1 million in revenue from various joint development collaborations as agreements to provide services thereunder ended in 2019 and a $0.4 million decrease in collaboration revenue received from Servier.

Research and Development Expenses

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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Total research and development expenses

Research and development expenses for the three months ended March 31, 2020 were $24.9 million, compared to $20.0 million for the three months ended March 31, 2019.

The increase of $4.9 million was primarily due to a $2.3 increase in platform development, early-stage research and unallocated expenses and increases in direct research and development expenses related to our CD19, CD20, and BCMA programs of $0.9 million, $1.2 million, and $0.6 million, respectively due to increases in lab services and CMO and research organization costs as we entered a CD19 Phase 1/2a clinical trial in April 2019, CD20 Phase 1/2a clinical trial in April 2020 and prepared to enter a planned BCMA Phase 1/2a clinical trial in 2020.

Platform development, early-stage research and unallocated expenses increased primarily due to a $4.0 million increase in employee-related costs associated with increased headcount to support our technology platform development and manufacturing capabilities, a $1.1 million increase in depreciation and amortization and a $0.5 million increase in laboratory supplies and services, offset by a $1.8 million decrease in outsourced research and development spending and a $1.5 million decrease in CMOs and research organizations spending in the three months ended March 31, 2020 compared to the same period in 2019.

Research and development expenses for the six months ended June 30, 2020 were $50.1 million, compared to $42.7 million for the six months ended June 30, 2019.

The increase of $7.4 million was primarily due to increases in direct research and development expenses related to our CD19, CD20, and BCMA programs of $1.9 million, $3.0 million, and $2.3 million, respectively, due to increases in lab services and CMO and research organization costs as we entered a CD19 Phase 1/2a clinical trial in April 2019, CD20 Phase 1/2a clinical trial in April 2020, and BCMA Phase 1/2a clinical trial in June 2020, as well as a $0.1 increase in platform development, early-stage research and unallocated expenses.

Platform development, early-stage research and unallocated expenses increased primarily due to a $6.6 million increase in employee-related costs associated with increased headcount to support our technology platform development and manufacturing capabilities, a $2.1 million increase in depreciation and amortization and a $1.2 million increase in licensing fees, offset by a $4.2 million decrease in outsourced research and development spending, a $3.7 million decrease in CMOs and research organizations spending and a $1.9 million decrease in other R&D expenses in the six months ended June 30, 2020, compared to the same period in 2019.

General and Administrative Expenses

General and administrative expenses were $9.6 million for the three months ended March 31, 2020 compared to $5.0 million for the three months ended March 31, 2019.

The increase of $4.6 million was primarily due to an increase of $2.1 million in employee-related costs as we increased our general and administrative headcount.

General and administrative expenses also increased due to costs required to meet our growing infrastructure needs.

Contributing to the increase were $1.5 million in consulting fees, $0.6 million in increased taxes and insurance costs and $0.2 million in information technology costs.

General and administrative expenses were $18.3 million for the six months ended June 30, 2020, compared to $11.5 million for the six months ended June 30, 2019.

The increase of $6.8 million was primarily due to costs required to meet our growing infrastructure needs, including increases of $2.7 million in employee-related costs due to higher general and administrative headcount, $2.6 million in consulting fees, $0.9 million in taxes and insurance costs and $0.4 million in information technology costs.

Change in Fair Value of Convertible Notes Payable

We elected on issuance to account for the 2019 Notes at fair value until their settlement.

For the three months ended March 31, 2019, we recognized $12.7 million of expense due to changes in fair value of the 2019 Notes.

For the six months ended June 30, 2020, we did not recognize any income due to changes in fair value of the 2019 Notes, compared to $9.8 million of expense due to changes in fair value of the 2019 Notes recognized in the six months ended June 30, 2019.

The 2019 Notes were settled on the closing of the IPO in April 2019.

Interest Expense

Interest expense of $0.2 million for the three months ended March 31, 2019 consisted of interest from the 2019 Notes at a rate of 6% per annum.

We did not incur interest expense for the six months ended June 30, 2020.

Interest expense of $0.2 million for the six months ended June 30, 2019 consisted of interest from the 2019 Notes at a rate of 6% per annum.

Interest Income

Interest income was $0.7 million for the three months ended March 31, 2020 compared to $0.6 million for the three months ended March 31, 2019.

The increase of $0.1 million of interest income generated on our cash and cash equivalent balances was the result of higher cash balances in three months ended March 31, 2020 compared to the same period in 2019.

Interest income was $0.8 million for the six months ended June 30, 2020, compared to $2.1 million for the six months ended June 30, 2019.

The decrease of $1.3 million of interest income generated on our cash and cash equivalent balances was the result of lower interest rates in the six months ended June 30, 2020 compared to the same period in 2019.

Segment Results

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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Therapeutics Segment

Revenue for the three months ended March 31, 2020 was $5.5 million, compared to $4.8 million for the three months ended March 31, 2019.

The increase of $0.7 million was primarily the result of a $0.6 million increase in collaboration revenue recognized from Servier .

Segment operational cash expenditures for the three months ended March 31, 2020 were $19.3 million, compared to $16.7 million for the three months ended March 31, 2019.

The increase of $2.6 million was primarily due to an increase in employee headcount, laboratory supplies and clinical trial research offset by decreases in research service provider costs and fixed assets.

Segment operating loss increased $2.0 million to $13.8 million for the three months ended March 31, 2020 compared to $11.8 million for three months ended March 31, 2019 primarily due to the factors discussed above.

Revenue for the three months ended March 31, 2020 was $1.5 million, compared to $0.6 million for the three months ended March 31, 2019.

The increase of $0.9 million was attributable due to a $1.5 million milestone payment received from an agriculture industry collaboration partner offset by a decrease of $0.6 million in revenue from two joint development collaborations as agreements to provide services thereunder ended in 2019.

Segment operational cash expenditures for the three months ended March 31, 2020 were $2.8 million, compared to $2.1 million for the three months ended March 31, 2019.

The increase of $0.7 million was primarily due to an increase in employee headcount and laboratory supplies.

Segment operating loss decreased $0.2 million to $1.3 million for the three months ended March 31, 2020 compared to $1.5 million for the three months ended March 31, 2019 primarily due to the factors discussed above.

Liquidity and C apital R e sources

Revenue for the six months ended June 30, 2020 was $6.5 million, compared to $9.6 million for the six months ended June 30, 2019.

The decrease of $3.1 million was primarily the result of a $2.8 million decrease in collaboration revenue recognized from Gilead due to the termination of the Gilead Agreement and a $0.3 million decrease in collaboration revenue recognized from Servier .

Segment operational cash expenditures for the six months ended June 30, 2020 were $38.4 million, compared to $34.7 million for the six months ended June 30, 2019.

The increase of $3.7 million was primarily due to an increase in employee headcount, CRO costs, clinical trial materials, licensing fees, laboratory supplies and equipment maintenance, consultant fees and rent offset by decreases in research service provider costs, lab services and fixed assets.

Segment operating loss increased $6.9 million to $31.9 million for the six months ended June 30, 2020 compared to $25.0 million for six months ended June 30, 2019 primarily due to the factors discussed

Revenue for the six months ended June 30, 2020 was $1.6 million, compared to $1.2 million for the six months ended June 30, 2019.

The increase of $0.4 million was attributable due to a $1.5 million milestone payment received from an agriculture industry collaboration partner offset by a decrease of $1.1 million in revenue from various joint development collaborations as agreements to provide services thereunder ended in 2019.

Segment operational cash expenditures for the six months ended June 30, 2020 were $4.4 million, compared to $4.2 million for the six months ended June 30, 2019.

The increase of $0.2 million was primarily due to an increase in employee headcount and rent, offset by a decrease in fixed assets.

Segment operating loss decreased $0.2 million to $2.8 million for the six months ended June 30, 2020 compared to $3.0 million for the six months ended June 30, 2019 primarily due to the factors discussed above.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses.

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We have financed our operations primarily with proceeds from our IPO, the sale of our convertible preferred stock and upfront payments from collaboration and licensing arrangements.

At March 31, 2020, we have generated approximately $476.4 million from third parties through a combination of financings including the IPO, and preferred stock and convertible note financings, an upfront payment under the Servier Agreement and other collaboration revenue, and additional funding from other strategic alliances and grants.

In May 2019, we entered into a loan and security agreement with Pacific Western Bank (the “Pacific Western Loan Agreement”) pursuant to which we may request advances on a revolving line of credit of up to an aggregate principal of $50.0 million (the “Revolving Line”).

The maturity date of the Revolving Line is May 15, 2022.

The Revolving Line bears interest at an annual rate equal to the greater of (i) 1.25% below the prime rate then in effect, or (ii) 4.25% at all times when we maintains a daily balance of cash in its demand deposit accounts at Pacific Western Bank of at least $25.0 million, and the greater of (i) 0.25% above the prime rate then in effect;

or (ii) 5.75% at all times when we does not maintain a daily balance of cash in demand deposit accounts at Pacific Western Bank of at least $25.0 million.

The agreement includes customary representations, warranties and covenants (affirmative and negative).

The Pacific Western Loan Agreement was amended (the “PWB Amendment”) in December 2019 to allow the Company to maintain a bank account with a non-affiliated bank in the United Kingdom provided that the account balance does not exceed 1.5 million GBP or its U.S.

dollar equivalent at any time.

As of March 31, 2020, there were no borrowings, and we were in compliance with the financial covenants, under the Pacific Western Loan Agreement.

Our cash and cash equivalents totaled $154.2 million and $116.5 million as of March 31, 2020 and 2019, respectively.

At June 30, 2020, we have generated approximately $480.0 million from third parties through a combination of financings including the IPO, and preferred stock and convertible note financings, an upfront payment under the Servier Agreement and other collaboration revenue, and additional funding from other strategic alliances and grants.

Our cash and cash equivalents totaled $126.9 million and $226.1 million as of June 30, 2020 and 2019, respectively.

The following table summarizes our sources and uses of cash for the periods presented:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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Increase in cash and cash equivalents

Cash F lows for the Three Months Ended March 31, 2020

Cash F lows for the Six Months Ended June 30, 2020

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2020 was $25.9 million, driven primarily by our net loss of $26.8 million as we incurred expenses associated with our CD19, CD20 and BCMA programs, platform development and early-stage research, general and administrative expenses.

Net cash used in operating activities for the six months ended June 30, 2020 was $51.7 million, driven primarily by our net loss of $59.5 million as we incurred expenses associated with our CD19, CD20 and BCMA programs, platform development and early-stage research and general and administrative expenses.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2020 was $1.1 million, which was attributable to purchases of property, equipment and software.

Net cash used in investing activities for the six months ended June 30, 2020 was $2.9 million, which was attributable to purchases for our right-of-use asset build-out as well as for property, equipment and software.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2020 was $0.3 million, driven primarily by proceeds from stock option exercises and the employee stock purchase plan.

Cash Flows for the Three Months Ended March 31, 2019

Net cash provided by financing activities for the six months ended June 30, 2020 was $0.6 million, driven primarily by proceeds from stock option exercises and the employee stock purchase plan.

Cash Flows for the Six Months Ended June 30, 2019

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2019 was $19.9 million, primarily consisting of our net loss of $31.8 million as we incurred expenses associated with our CD19 program, platform development and early-stage research, general and administrative expenses, and recognized a change in fair value to the 2019 Notes.

In addition, we had non-cash charges of $2.7 million for depreciation, stock-based compensation expense, and interest expense.

Net cash used in operating activities was also impacted by $3.5 million in changes in operating assets and liabilities, including $5.6 million from accounts receivable, $0.8 million in accrued expenses, and $0.1 million in other assets, which were partially offset by changes of $1.5 million in accounts payable, $0.9 million in deferred revenue, and $0.6 million in prepaid expenses.

Net cash used in operating activities for the six months ended June 30, 2019 was $36.5 million, primarily consisting of our net loss of $51.2 million as we incurred expenses associated with our CD19 program, platform development and early-stage research, general and administrative expenses, and recognized a change in fair value to the 2019 Notes.

In addition, we had non-cash charges of $6.1 million for depreciation and amortization, share-based compensation expense, interest expense and loss on disposal of assets.

Net cash used in operating activities was also impacted by $1.2 million in changes in operating assets and liabilities, including $3.9 million in deferred revenue and $0.9 million in other assets, which were partially offset by changes of $2.4 million in accrued expenses, $0.6 million in prepaid expenses, $0.3 million in accounts receivable and $0.2 million in accounts payable.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2019 was $5.1 million, which was attributable to purchases of property, equipment and software.

Net cash used in investing activities for the six months ended June 30, 2019 was $13.2 million, which was attributable to purchases of property, equipment and software.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2019 was $38.2 million, consisting of the net proceeds from the issuance of our 2019 Notes of $39.5 million and $0.1 million in proceeds from stock option exercises, partially offset by $1.4 million in payments for offering costs associated with our IPO.

Net cash provided by financing activities for the six months ended June 30, 2019 was $172.7 million, consisting of $130.5 million in proceeds from our IPO, net of issuance costs and the net proceeds from the issuance of our 2019 Notes of $39.5 million.

Debt Obligations

In March 2019, we issued an aggregate principal amount of $39.6 million of 2019 Notes in a private placement transaction.

As of March 31, 2019, the change in fair value of the 2019 Notes was $12.7 million and the accrued interest on the 2019 Notes was $0.2 million.

Upon settlement, the change in fair value of the 2019 Notes was $9.8 million and the accrued interest on the 2019 Notes was $0.2 million.

Pursuant to their terms, the 2019 Notes were settled in 2,921,461 shares of our common stock upon the closing of our IPO at a settlement price of $13.60 per share, which is equal to 85% of the IPO price per share.

Funding Requirements

Our operating expenses increased substantially in the three months ended March 31, 2020 and are expected to increase substantially in the future in connection with the initiation of additional human clinical trials and capital expenditures for MCAT.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2021.

In May 2019, we entered into the Pacific Western Loan Agreement with Pacific Western Bank (“PWB”) as amended by the First Amendment to Loan and Security Amendment, effective September 18, 2019, the Second Amendment to Loan and Security Amendment, effective December 3, 2019 (the “Original Agreement”).

On June 23, 2020, the Company and PWB entered into the Third Amendment to Loan and Security Agreement (the “Amendment”) to the Original Agreement (as amended, the “Pacific Western Loan Agreement”).

The terms of Amendment No.

3 (a) decrease the aggregate principal amount of advances on a revolving line of credit (the “Revolving Line”) from $50.0 million to $30.0 million and (b) extend the maturity date of the Revolving Line to June 23, 2022, provided that, if the Company receives aggregate cash proceeds of at least $125.0 mil lion from the issuance of the Company’s equity securities and/or upfront cash proceeds from strategic partnerships on terms and conditions reasonably satisfactory to PWB, the maturity date shall then instead be June 23, 2023.

Under the terms of Amendment N o.

3, the interest rate increased to a variable annual rate equal to the greater of (a) 2.75% above the Prime Rate (as defined in the Original Agreement), and (b) 6.00%.

The Company must also maintain an aggregate balance of unrestricted cash at Bank (not including amounts in certain specified accounts) equal to or greater than $10 .0 million .

As of June 30, 2020, there were no borrowings, and we were in compliance with the financial covenants, under the Pacific Western Loan Agreement.

Funding R equirements

Our operating expenses increased substantially in the six months ended June 30, 2020 and are expected to increase substantially in the future in connection with the initiation of additional human clinical trials and capital expenditures for MCAT.

We believe that our existing cash, cash equivalents and available credit will enable us to fund our operating expenses and capital expenditure requirements into 2022.

We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.

Because of th e numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical and agricultural products, it is difficult to estimate with certainty the amount of our working capital requirements.

Our future funding requir ements will depend on many factors, including:

the progress, costs and results of our clinical development for our CD19, CD20, and BCMA programs as we initiate and progress clinical trials, including CRO costs;

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical and agricultural products, it is difficult to estimate with certainty the amount of our working capital requirements.

Our future funding requirements will depend on many factors, including:

the progress, costs and results of our clinical development for our CD19, CD20, and BCMA programs as we progress clinical trials, including CRO costs;

the progress, costs and results of our additional research and preclinical development programs;

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of this Quarterly Report on Form 10-Q for a further discussion of the potential impact of the COVID-19 pandemic on our business.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders as common stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, product development and 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 through equity or debt financings 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.

We currently have an effective shelf registration statement on Form S-3 (No.

333-238857) filed with the Securities and Exchange Commission (the “SEC”) on June 1, 2020 (the “Form S-3”) under which we may offer from time to time in one or more offerings any combination of common and preferred stock, debt securities, warrants and units of up to $200.0 million in the aggregate.

As of June 30, 2020, we have not sold any securities under our shelf registration statement.

rights of our shareholders as c ommon stockholder s .

Debt financing and preferred equity financing, if a vailable, may involve agreements that include covenants limiting or restricting our ability to take specifi c actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or m arketing and distrib ution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, product development and 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 through equity or debt financings when n eeded, we may be required to delay, limit, reduce or terminate our product development or future c ommercialization efforts or grant rights to develop and market products or product candidates that w e would otherwise prefer to develop and market ourselves.

Contractual Obligations

There have been no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Other than Amendment No.

3 to the Pacific Western Loan Agreement, effective June 23, 2020 described further under “ —Debt Obligations” above, and an amendment to our operating lease at 20 TW Alexander Drive, Research Triangle Park, North Carolina expiring in August 2027, providing for base rent of $0.5 million per year, subject to an annual upward adjustment of 3.0%, and two months of rent abatement as described further in Note 4 “Commitments and Contingencies” of our notes to condensed consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q, there have been no material changes to our contractual obligations from those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Critical Accounting Policies and Use of Estimates

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Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates” in our Annual Report on Form 10-K.

We have reviewed those critical accounting policies and estimates for the three months ended March 31, 2020, and there have been no significant changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

We have reviewed those critical accounting policies and estimates for the three and six months ended June 30, 2020, and there have been no significant changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis