Cellectis(US:CLLS)2020-03-04 22:47PART I This section provides an overview of Cellectis's key financial data, operational risks, business model, and corporate structure Key Information This section presents selected consolidated financial data and a detailed breakdown of significant risks facing the company Selected Financial Data The company's selected financial data from 2015 to 2019 reveals increasing operating losses and a net loss attributable to shareholders Selected Consolidated Operations Data ($ in thousands) | Indicator | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | Revenues and other income | 33,715 | 21,432 | 22,990 | | Operating income (loss) | (92,650) | (105,091) | (123,552) | | Net income (loss) | (103,683) | (88,333) | (115,212) | | Attributable to shareholders of Cellectis | (99,368) | (78,693) | (102,091) | | Basic and diluted EPS ($) | (2.78) | (1.93) | (2.41) | | Adjusted Net Loss attributable to shareholders | (50,443) | (44,130) | (78,849) | Selected Consolidated Financial Position Data ($ in thousands) | Indicator | As of Dec 31, 2018 | As of Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | 451,889 | 360,907 | | Total assets | 500,840 | 467,469 | | Total shareholders' equity | 450,272 | 355,470 | | Total current liabilities | 46,869 | 62,604 | - The company adopted IFRS 15 (Revenue from Contracts with Customers) retrospectively from January 1, 2018, and IFRS 16 (Leases) using the modified retrospective method from January 1, 2019. Financial statements for periods prior to 2019 were not restated for the adoption of IFRS 163137 Risk Factors The company identifies numerous significant risks across its operations, including limited operating history, development, third-party reliance, and intellectual property - The company has a limited operating history, has incurred significant losses since inception, and anticipates continued losses. As of December 31, 2019, cash and equivalents of $360.9 million are expected to fund Cellectis' operations into 2022 and its subsidiary Calyxt's operations through mid-2021414451 - Development of therapeutic product candidates is in early stages and may be unsuccessful. The company's gene-editing and CAR T-cell technologies are new and unproven, with several candidates in pre-clinical stages and three self-sponsored clinical studies (UCART123, UCART22, UCARTCS1) ongoing4257 - The company faces a complex and uncertain regulatory environment for its novel CAR T-cell therapies in both the U.S. (FDA) and EU (EMA), which could lead to delays, increased costs, or prevent approval7475 - Cellectis relies on third-party CMOs for manufacturing, which is a complex and highly regulated process subject to multiple risks including contamination, equipment failure, and supply disruptions. The company is establishing its own manufacturing facilities in Raleigh, NC, and Paris, France, but has no prior experience in this area100103104 - The company's majority-owned subsidiary, Calyxt, faces significant competition in the plant-based technology market, risks from public perception of gene-edited products, and susceptibility to commodity price changes and adverse weather conditions205234256 - The company's commercial success depends on obtaining and maintaining proprietary rights for its intellectual property. There are risks related to patentability, challenges from third parties, and the potential for technology to be rendered obsolete288293 - As a foreign private issuer, Cellectis is exempt from certain U.S. securities rules and follows French home country practices in some corporate governance matters, which may afford less protection to shareholders than U.S. domestic issuers408410 Information on the Company This section details Cellectis's history, business operations, corporate structure, and regulatory environment History and Development of the Company Cellectis S.A. was incorporated in France in 2000, with increasing capital expenditures for new manufacturing facilities - Capital expenditures rose to $13.0 million in 2019, up from $4.9 million in 2018 and $2.7 million in 2017425 - The company is building two new manufacturing facilities: an 82,000 sq. ft. facility in Raleigh, North Carolina for clinical and commercial UCART product production, and a 14,000 sq. ft. facility in Paris, France for producing starting materials426 Business Overview Cellectis is a clinical-stage biotechnology company developing allogeneic CAR T-cell immunotherapies using its proprietary TALEN® gene-editing technology - Cellectis is a clinical-stage company focused on developing allogeneic (off-the-shelf) CAR T-cell immunotherapies using its proprietary TALEN® gene-editing technology428 - The company's internal pipeline includes UCART123 (for AML), UCART22 (for B-ALL), and UCARTCS1 (for MM), all of which are in Phase 1 clinical trials in the U.S.442445446 - Cellectis has strategic alliances with Allogene and Servier, which include potential milestone payments of up to $3.7 billion and future royalties. Allogene has exclusive rights to 15 targets, while Servier has an exclusive worldwide license for CD19-targeted products433434435 - The company is building its own manufacturing facilities in Raleigh, NC (for UCART products) and Paris, France (for starting materials) to enhance manufacturing autonomy, complementing its existing reliance on CMOs563 - Through its 68.9% ownership in Calyxt, Cellectis is also developing plant-based products using gene-editing. Calyxt commercialized its first product, high oleic soybean oil, in Q1 2019447568 Organizational Structure Cellectis S.A. is a French société anonyme with key subsidiaries including Calyxt, Inc. and Cellectis, Inc Group Structure as of December 31, 2019 | Subsidiary Name | Jurisdiction of Incorporation | Ownership & Voting Interest Held By Cellectis S.A. | | :--- | :--- | :--- | | Calyxt, Inc. | Delaware | 68.9% (held directly) | | Cellectis, Inc. | Delaware | 100% (held directly) | | Cellectis Biologics, Inc. | Delaware | 100% (held indirectly through Cellectis, Inc.) | Property, Plant and Equipment Cellectis leases several key facilities for its operations, including administrative, R&D, and new manufacturing sites - Key leased facilities include administrative and R&D sites in Paris, France (4,679 sq-m) and New York, NY (15,532 sq-ft)760761 - A new 82,000 sq-ft facility is being constructed in Raleigh, NC, for commercial manufacturing of UCART products, with completion expected in 2020 and commissioning in 2021762 - Subsidiary Calyxt, Inc. occupies a 40,000 sq-ft headquarters in Roseville, MN, through a sale-leaseback transaction guaranteed by Cellectis S.A.763 Operating and Financial Review and Prospects This section provides a detailed analysis of Cellectis's financial performance, liquidity, and critical accounting policies Operating Results For 2019, Cellectis reported a widened operating loss of $(123.6) million, driven by increased R&D and cost of revenue Consolidated Operations Data ($ in thousands) | | 2017 | 2018 | 2019 | |:---|---:|---:|---:| | Total revenues and other income | 33,715 | 21,432 | 22,990 | | Cost of revenue | (2,620) | (2,739) | (11,392) | | Research and development expenses | (79,227) | (76,567) | (92,042) | | Selling, general and administrative expenses | (44,750) | (47,248) | (43,017) | | Operating income (loss) | (92,650) | (105,091) | (123,552) | | Financial gain (loss) | (11,032) | 16,758 | 8,340 | | Net income (loss) | (103,683) | (88,333) | (115,212) | | Attributable to shareholders of Cellectis | (99,368) | (78,693) | (102,091) | - Revenues increased by 19.3% in 2019, primarily due to a $7.3 million increase in Calyxt's product sales, which was partially offset by a $4.4 million decrease in collaboration agreement revenues810 - R&D expenses increased by 20.2% to $92.0 million in 2019 from $76.6 million in 2018, mainly due to increased spending on advancing clinical programs817818 - Cost of revenue surged to $11.4 million in 2019 from $2.7 million in 2018, driven by a $9.3 million cost of goods sold related to the commercial launch of Calyxt's products815 Liquidity and Capital Resources As of December 31, 2019, Cellectis had $360.9 million in cash, expected to fund operations into 2022, but additional capital will be needed Historical Cash Flows ($ in thousands) | | 2017 | 2018 | 2019 | |:---|---:|---:|---:| | Net cash flows used in operating activities | (52,327) | (68,137) | (69,142) | | Net cash flows from (used in) investing activities | 1,784 | 35,623 | (35,872) | | Net cash flows from (used in) financing activities | 41,266 | 236,494 | (3,862) | - As of December 31, 2019, the company held $360.9 million in cash, cash equivalents, and current financial assets859 - Management believes current cash resources are sufficient to fund operations into 2022. However, additional capital will be required for further development and commercialization efforts875 Tabular Disclosure of Contractual Obligations As of December 31, 2019, Cellectis had total contractual obligations of $190.7 million, primarily for leases, other agreements, and construction Contractual Obligations as of December 31, 2019 ($ in thousands) | Obligation Type | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Lease agreements | 73,181 | 4,014 | 18,886 | 9,764 | 40,516 | | License agreements | 18,607 | 1,389 | 2,778 | 2,778 | 11,662 | | Manufacturing agreements | 6,218 | 6,218 | — | — | — | | Clinical & R&D agreements | 2,086 | 1,424 | 662 | — | — | | Construction agreements | 39,741 | 39,741 | — | — | — | | Other agreements | 50,896 | 30,851 | 20,045 | — | — | | Total | 190,728 | 83,637 | 42,371 | 12,542 | 52,179 | Directors, Senior Management and Employees This section details the company's leadership, compensation practices, board structure, and employee base Directors and Senior Management The company is led by co-founder Dr. André Choulika, with an experienced senior management team and diverse Board of Directors - Dr. André Choulika, a co-founder and pioneer in nuclease-based genome editing, leads the company as Chairman and CEO885 - The executive team includes Dr. Philippe Duchateau (CSO), Eric Dutang (CFO), and Dr. David Sourdive (Co-founder and EVP, Strategic Initiatives)885 Compensation In 2019, aggregate cash compensation for executive officers and directors was $5.2 million, supplemented by various equity incentive plans - Aggregate cash compensation for executive officers and directors in 2019 was $5.2 million904 - The company has a change of control plan that provides a severance package equal to 24 months of compensation plus a bonus amount for key executives if their employment is terminated within 36 months following a change of control907908909 - Equity incentives are a key part of compensation, with various plans for employee warrants (BSPCE), non-employee warrants (BSA), free shares, and stock options. As of Dec 31, 2019, 9,672,382 stock options were outstanding916936 Board Practices The Board of Directors consists of eight members, with six independent, and follows French governance practices as a foreign private issuer - The Board of Directors consists of eight members, with six qualifying as independent directors947950 - As a foreign private issuer, Cellectis follows French home country practices for certain governance matters, such as not requiring a majority-independent board or a nominations committee, and having different quorum requirements for shareholder meetings952955 - The Board has two primary committees: an Audit and Finance Committee and a Compensation Committee. In line with French law, these committees have an advisory role to the full board957958 Employees As of December 31, 2019, Cellectis had 264 employees, with 171 engaged in research and development activities - The company had 264 employees as of December 31, 2019966 - 171 employees (65% of the workforce) are engaged in research and development activities966 - The employee base is located in France (110 employees) and the United States (154 employees)966 Major Shareholders and Related Party Transactions This section outlines the company's ownership structure and its transactions with related parties, including major shareholders and subsidiary agreements Major Shareholders As of February 29, 2020, major shareholders include FMR LLC, Bpifrance Participations, Pfizer, and Capital International Investors Major Shareholders (as of Feb 29, 2020) | Name of Beneficial Owner | Percentage Ownership | | :--- | :--- | | FMR LLC | 7.50% | | Bpifrance Participations | 6.78% | | Pfizer, Inc. | 6.57% | | Capital International Investors | 5.93% | | Pierre Bastid (Director) | 8.39% | - All directors and executive officers as a group beneficially own 22.39% of the company's ordinary shares972 Related Party Transactions Cellectis has key related-party transactions, including collaborations with Pfizer/Allogene and various agreements with its subsidiary Calyxt - The collaboration with Pfizer, a major shareholder, generated revenues of $19.7 million in 2017 and $7.4 million in 2018. This agreement was subsequently transferred to Allogene977 - Cellectis has a Management Services Agreement with its subsidiary Calyxt, under which it provides administrative, financial, and legal services. In 2019, Calyxt paid Cellectis $1.4 million for these services986988 - A Stockholders Agreement with Calyxt grants Cellectis significant approval rights over Calyxt's major corporate decisions as long as it owns at least 50% of Calyxt's stock, and certain rights (like board nomination) as long as it owns at least 15%989990 - Cellectis has granted Calyxt an exclusive, worldwide license to its intellectual property for use in the agricultural and food product fields, in exchange for royalties on net sales and a share of sublicensing revenue996997 Financial Information This section confirms the inclusion of consolidated financial statements, absence of material legal proceedings, and French dividend distribution rules - The company's consolidated financial statements are included at the end of the Annual Report, starting on page F-11005 - The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business1006 - Under French law, dividends can only be distributed from 'distributable profits' and require shareholder approval. The company has not historically paid dividends and may be restricted from doing so if net assets fall below a certain threshold10071008 The Offer and Listing This section details the trading markets for Cellectis's securities, including Nasdaq Global Market and Euronext Growth - Cellectis ADSs are listed on the Nasdaq Global Market under the symbol "CLLS" since March 24, 20151016 - The company's ordinary shares are listed on the Euronext Growth market of Euronext in Paris under the symbol "ALCLS" since February 7, 20071016 Additional Information This section covers key corporate and legal information, including By-laws, shareholder rights, and U.S. and French tax considerations Memorandum and Articles of Association This subsection summarizes key provisions of the company's By-laws and French corporate law, including director powers and shareholder rights - Under French law, directors are elected for three-year terms. Decisions are made by a majority vote, with the Chairman having a deciding vote in case of a tie10251029 - Shareholders have preferential subscription rights for new cash share issuances, which can only be waived by a two-thirds majority vote at an extraordinary general meeting10771078 - Shares held in registered form for more than two years are granted double voting rights1038 - Several provisions in the By-laws and French law could delay or prevent a change in control, including supermajority or unanimous shareholder approval for mergers and broad board authorization to issue new shares1067 Taxation This subsection details material U.S. and French tax consequences for U.S. holders of ADSs, focusing on PFIC status, dividends, and capital gains - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the 2019 taxable year, but its status is determined annually and is not guaranteed for future years. PFIC status could result in adverse U.S. federal income tax consequences for U.S. holders11021103 - Dividends paid to U.S. holders are generally subject to French withholding tax, but the rate is typically reduced from 28% to 15% under the U.S.-France tax treaty for eligible holders11531154 - The French Financial Transaction Tax (TFT) of 0.3% does not currently apply to the company's securities as its market capitalization was below the €1 billion threshold as of the last determination date, but this could change in the future11431144 - U.S. holders are generally not subject to French tax on capital gains from the sale of ADSs, provided they do not hold more than 25% of the company's dividend rights and are entitled to U.S.-France tax treaty benefits11611163 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency exchange risk and commodity price risk through its subsidiary Calyxt - The company faces significant foreign currency exchange risk due to receiving revenues in U.S. dollars (e.g., from Allogene) while incurring most expenses in Euros. As of Dec 31, 2019, $214.6 million in cash and cash equivalents were denominated in U.S. dollars11741176 - The net foreign exchange result for fiscal year 2019 was a gain of $3.8 million1177 - Through its subsidiary Calyxt, the company is exposed to commodity price risk. A hypothetical 10% increase in commodity futures prices would result in an $880,000 decrease in Calyxt's financial condition1181 - Interest rate risk and inflation risk are not considered to have a material effect on the business11791180 PART II This section details the use of proceeds from equity offerings, internal controls, audit committee expertise, and corporate governance practices Material Modifications to the Rights of Security Holders and Use of Proceeds This section details the use of proceeds from the company's major equity offerings in March 2015 and April/May 2018 - The March 2015 IPO generated net proceeds of approximately $209.6 million, used for developing immuno-oncology candidates, R&D, and general corporate purposes11951196 - A follow-on offering in April/May 2018 raised gross proceeds of approximately $190.5 million ($175 million + $15.5 million)1197 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 20191199 - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 20191199 - The independent auditor, Ernst & Young et Autres, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 20191199 Audit Committee Financial Expert Three members of the audit and finance committee qualify as 'audit committee financial experts' and are independent - The board has identified Pierre Bastid, Laurent Arthaud, and Hervé Hoppenot as audit committee financial experts1201 - All three designated financial experts are independent under SEC and Nasdaq rules1201 Principal Accountant Fees and Services Ernst & Young et Autres served as the independent auditor for 2018 and 2019, with total audit fees of $775 thousand in 2019 Principal Accountant Fees ($ in thousands) | Fee Type | 2018 | 2019 | | :--- | :--- | :--- | | Audit Fees | 847 | 775 | | Audit-Related Fees | — | — | | Tax Fees | — | — | | Other Fees | — | — | | Total | 847 | 775 | - The audit and finance committee has a policy to pre-approve all audit and non-audit services provided by the independent accounting firm1208 Corporate Governance As a French foreign private issuer, Cellectis adheres to French corporate governance practices, differing from some Nasdaq standards - Cellectis follows French home country corporate governance practices, which differ from Nasdaq standards, such as not requiring a majority of directors to be independent1214 - The company's audit committee complies with SEC Rule 10A-3, but its role is advisory, as French law requires shareholder approval for the appointment of statutory auditors1215 - Quorum requirements for shareholder meetings are governed by French law, which specifies different thresholds (20% or 25% depending on the meeting type) than the Nasdaq's 33 1/3% standard1216 PART III This section contains the company's audited consolidated financial statements and an index of all exhibits filed with the annual report Financial Statements This section contains the company's audited consolidated financial statements for 2017-2019, prepared in accordance with IFRS - The consolidated financial statements for the years ended December 31, 2017, 2018, and 2019, along with the independent auditor's report, are provided starting on page F-112271238 Exhibits This section provides an index of all exhibits filed as part of the Annual Report, including key corporate and contractual documents - An index of exhibits filed with the annual report is provided, including key corporate documents and material contracts1229