Adaptimmune(ADAP) - 2019 Q1 - Quarterly Report

Part I Item 1. Financial Statements This section presents Adaptimmune Therapeutics plc's unaudited condensed consolidated financial statements for Q1 2019, detailing financial position, operational results, and cash flows, including the impact of ASC 842 adoption Unaudited Condensed Consolidated Balance Sheets As of March 31, 2019, total assets were $270.4 million, slightly down from year-end 2018, with ASC 842 adoption adding $24.5 million in lease assets; total equity decreased to $219.7 million due to net loss Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $49,917 | $68,379 | | Marketable securities | $118,241 | $136,755 | | Total current assets | $200,301 | $231,095 | | Operating lease right-of-use assets, net | $24,462 | $— | | Total assets | $270,440 | $276,736 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $23,435 | $24,437 | | Operating lease liabilities, non-current | $26,779 | $— | | Total liabilities | $50,785 | $29,851 | | Total stockholders' equity | $219,655 | $246,885 | | Total liabilities and stockholders' equity | $270,440 | $276,736 | Unaudited Condensed Consolidated Statements of Operations For Q1 2019, the company reported no revenue, down from $8.2 million in Q1 2018, leading to an increased net loss of $27.4 million from $21.1 million, primarily due to revenue absence offset by lower operating expenses Statements of Operations Highlights (in thousands) | Account | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Revenue | $— | $8,196 | | Research and development | $(22,019) | $(25,732) | | General and administrative | $(11,773) | $(11,204) | | Total operating expenses | $(33,792) | $(36,936) | | Operating loss | $(33,792) | $(28,740) | | Net loss | $(27,412) | $(21,078) | | Net loss per share - Basic and diluted | $(0.04) | $(0.04) | Unaudited Condensed Consolidated Statements of Cash Flows In Q1 2019, net cash used in operating activities decreased to $36.2 million from $47.3 million due to lower costs, while investing activities provided $17.7 million from marketable securities, and financing activities provided minimal cash Condensed Statements of Cash Flows (in thousands) | Activity | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(36,203) | $(47,279) | | Net cash provided by investing activities | $17,656 | $13,639 | | Net cash provided by financing activities | $36 | $1,534 | | Net decrease in cash and cash equivalents | $(18,086) | $(30,561) | Notes to the Condensed Consolidated Financial Statements Notes detail accounting policies, company focus as a clinical-stage biopharmaceutical firm with an accumulated deficit of $345.9 million, and the adoption of ASC 842 on January 1, 2019, recognizing lease assets and liabilities, with no revenue recognized in Q1 2019 - The company is a clinical-stage biopharmaceutical firm focused on its proprietary SPEAR T-cell platform for treating solid tumors and had an accumulated deficit of $345.9 million as of March 31, 2019[23][24] - On January 1, 2019, the company adopted the new lease accounting standard, ASC 842, using the modified retrospective approach. This resulted in recognizing operating lease ROU assets of $24.5 million and total operating lease liabilities of $29.0 million as of March 31, 2019[28][36][44] - No revenue was recognized in Q1 2019. Following the completion of the NY-ESO and PRAME programs with GSK in 2018, work has not yet started on the newly nominated third target[56] - Share-based compensation expense for Q1 2019 was $3.5 million, a decrease from $4.7 million in Q1 2018[66] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and Q1 2019 results, detailing clinical pipeline progress, GSK collaboration status, manufacturing developments, and liquidity, confirming sufficient funds into Q3 2020 Clinical Pipeline The company advances its SPEAR T-cell pipeline with ongoing Phase 1 trials for ADP-A2M10, ADP-A2M4, and ADP-A2AFP, showing promising ADP-A2M4 responses in synovial sarcoma, and has filed an IND for next-gen ADP-A2M4CD8 for the SURPASS trial - ADP-A2M4: As of April 30, 2019, out of 10 synovial sarcoma patients treated in higher-dose cohorts, 4 achieved a partial response (one unconfirmed). A Phase 2 trial, SPEARHEAD 1, is planned for 2019[76][79] - ADP-A2M4CD8: An IND has been filed for this next-generation SPEAR T-cell, which adds a CD8α homodimer to the ADP-A2M4 construct. The planned trial, "SURPASS", will enroll patients across multiple solid tumor indications[80] - ADP-A2M10: Two Phase 1 trials are ongoing. In the NSCLC trial, a decrease in target lesions was observed in two patients[82] - ADP-A2AFP: The Phase 1 trial in HCC is ongoing, with initial evidence of anti-tumor activity, including tumor necrosis and shrinkage, observed in patients in Cohorts 1 and 2[83] GSK Collaboration Agreement Programs The GSK collaboration evolves, with the NY-ESO program fully transitioned and the PRAME program terminated; GSK has nominated a third target, and its development plan is being finalized - The NY-ESO program (now GSK 3377794) was fully transitioned to GSK, which is now responsible for all future development and commercialization[88] - The PRAME target program was terminated by mutual agreement[89] - GSK has nominated a third target program, with the development plan being finalized. GSK retains the right to nominate a fourth and potentially a fifth target[90] Results of Operations Q1 2019 revenue dropped to zero from $8.2 million due to GSK program conclusion, R&D expenses decreased 14% to $22.0 million, while G&A expenses rose 5% to $11.8 million, resulting in a wider net loss of $27.4 million from $21.1 million Comparison of Operations (in thousands) | Account | Q1 2019 | Q1 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $— | $8,196 | $(8,196) | (100)% | | R&D Expenses | $(22,019) | $(25,732) | $3,713 | (14)% | | G&A Expenses | $(11,773) | $(11,204) | $(569) | 5% | | Net Loss | $(27,412) | $(21,078) | $(6,334) | 30% | - The $8.2 million decrease in revenue is because the NY-ESO transition and PRAME development programs were completed in 2018, and work has not yet begun on the new third target nominated by GSK[111][112] - The $3.7 million net decrease in R&D expenses was mainly due to a $4.5 million drop in subcontracted costs related to the transfer of the NY-ESO program to GSK, partially offset by increased salaries and internal manufacturing activity[115][116] Liquidity and Capital Resources As of March 31, 2019, total liquidity was $168.2 million, comprising cash and marketable securities, deemed sufficient to fund operations into Q3 2020; net cash used in operating activities decreased to $36.2 million due to lower expenses Total Liquidity (Non-GAAP, in thousands) | Component | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $49,917 | $68,379 | | Marketable securities | $118,241 | $136,755 | | Total Liquidity | $168,158 | $205,134 | - The company believes its total liquidity of $168.2 million will be sufficient to fund operations into the third quarter of 2020[124] - Net cash used in operating activities decreased by $11.1 million year-over-year, primarily due to reduced manufacturing and clinical trial costs after the NY-ESO program was transferred to GSK[127] Quantitative and Qualitative Disclosures about Market Risk No material changes occurred in the company's quantitative and qualitative market risk disclosures during Q1 2019 compared to its 2018 Annual Report on Form 10-K - There have been no material changes to the company's market risk disclosures in the three months ended March 31, 2019[136] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2019, with new internal controls implemented for ASC 842 lease accounting, and no other material changes to internal control over financial reporting occurred - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2019[137] - New internal controls were implemented during the quarter to address the adoption of the new lease accounting standard, ASC 842[138] Part II Legal Proceedings As of March 31, 2019, the company was not a party to any material legal proceedings - The company reports no material legal proceedings as of March 31, 2019[140] Risk Factors This section details significant risks including financial, development, regulatory, commercialization, third-party reliance, intellectual property, operational, and market-related challenges facing the company's novel T-cell therapy platform Risks Related to Financial Condition and Capital Requirements The company faces significant financial risks as a clinical-stage entity with no commercial products, a history of net losses, and an accumulated deficit of $345.9 million, requiring substantial additional financing for SPEAR T-cell development and commercialization - The company is a clinical-stage biopharmaceutical company with no products approved for sale and a limited operating history, making future performance difficult to predict[142][143] - The company has incurred net losses every year since inception, with an accumulated deficit of $345.9 million as of March 31, 2019, and expects to continue incurring significant losses[146] - Failure to obtain additional financing could force the company to delay, scale back, or discontinue the development and commercialization of its SPEAR T-cells[151][153] Risks Related to the Development of Our SPEAR T-cells The company's SPEAR T-cell development faces risks from novel gene therapy, including fatal cross-reactivity, regulatory scrutiny, complex patient-specific manufacturing, uncertain clinical trial success with adverse events like CRS, and challenges in developing companion diagnostic assays - The company's SPEAR T-cell therapy is a novel approach that could result in heightened regulatory scrutiny, development delays, and potentially fatal cross-reactivity to other proteins in the body[167][169] - Manufacturing and administering SPEAR T-cells is a complex, patient-specific process with significant risks of failure due to logistical issues, contamination, patient material variability, or equipment failure[206][207][209] - Adverse events are a key risk. Cytokine release syndrome (CRS) has been reported in trials, with some cases being Grade 3 or 4 in severity. Other possibly related adverse events include neurotoxicity, pyrexia, and various cytopenias[186][187][232] - The company may not be able to develop or obtain regulatory approval for the companion diagnostic assays required to screen and select eligible patients for its therapies, which could halt clinical development[202][204][205] Risks Related to Government Regulation The company faces a lengthy, uncertain regulatory approval process for its novel T-cell therapies, with no guarantee of designations like Breakthrough Therapy, and will be subject to extensive ongoing obligations and penalties for non-compliance, while also relying on the continuation of U.K. R&D tax credits - The FDA regulatory approval process for novel T-cell therapies is uncertain and lengthy, and the company has no prior experience submitting a Biologics License Application (BLA)[246][247] - Even if regulatory approval is obtained, the company will be subject to extensive ongoing regulatory requirements, and failure to comply could result in significant penalties, including withdrawal of products from the market[268][269] - The company's financial planning relies on U.K. R&D tax credits, which it may lose if it no longer qualifies as a small or medium-sized enterprise (SME) or if the regime changes[296][297][298] Risks Related to the Commercialization of Our SPEAR T-cells Successful commercialization faces hurdles including limited market opportunities, lack of marketing organization, and uncertainty in obtaining adequate coverage and reimbursement from payors, which is critical given the novel and potentially high cost of the therapy - The company has no marketing and sales organization and no experience in marketing products, which is a significant hurdle for commercialization[305][306] - Market acceptance of the novel T-cell therapy by physicians, patients, and hospitals is not guaranteed, even if approved[311][312] - Obtaining coverage and adequate reimbursement from third-party payors is critical but uncertain and could be a major barrier to profitable sales[315][317] Risks Related to Our Reliance Upon Third Parties The company heavily relies on third parties, including the GSK collaboration for milestone payments, ThermoFisher for Dynabeads® technology, and CMOs for manufacturing, where any failure or termination could severely impact development and financial condition - The company is heavily reliant on its collaboration with GSK for milestone payments and the development of key programs. GSK can terminate the agreement with 60 days' notice[329][330] - The company relies on an exclusive license and supply agreement with ThermoFisher for the Dynabeads® CD3/CD28 technology, critical for its manufacturing process; termination would force a search for an alternative[340][342] - The company depends on a limited number of third-party CMOs for manufacturing and is exposed to risks of their non-performance, inability to scale, or compliance failures[346][347] Risks Related to Our Intellectual Property The company's success depends on obtaining and defending IP, facing risks of costly litigation, patent invalidation, inability to protect trade secrets, third-party infringement claims, and uncertainties from changes in U.S. patent law and foreign IP enforcement - The company may be forced into costly litigation to enforce or defend its IP rights, which could put its patents at risk of being invalidated[379][380] - Protecting proprietary technology and trade secrets is difficult, and confidentiality agreements may not be effective in preventing disclosure[390] - Third parties may claim the company's activities infringe their IP, which could lead to damages, suspension of manufacturing, or expensive and time-consuming litigation[392][393] - Changes in U.S. patent law and Supreme Court rulings have created uncertainty regarding the scope and value of biopharmaceutical patents[403][404] Risks Related to Employee Matters and Managing Growth The company heavily depends on key personnel and attracting skilled employees for managing rapid growth, which imposes significant management responsibilities, and faces new operational risks and costs from its own manufacturing facility due to lack of prior experience - The company is heavily dependent on key personnel, including its co-founders James Noble and Dr. Helen Tayton-Martin, and does not hold key-man insurance[408] - The company must manage significant growth, which will impose added responsibilities on management and require the recruitment and integration of many new employees[411] - Operating its own manufacturing facility at the Navy Yard presents significant risks, as the company has no prior experience and success depends on regulatory approval, reliable production, and cost management[416][417] Other General Risks The company faces general business risks including Brexit uncertainty, IT system failures, currency exchange rate fluctuations, and the potential for classification as a Passive Foreign Investment Company (PFIC), which would have adverse U.S. federal income tax consequences - The uncertainty of Brexit may negatively affect global economic conditions, financial markets, and create new regulatory costs and challenges for the company's operations[427][428] - The company is exposed to currency exchange rate risk, as it operates in both the U.K. and U.S. and its GSK agreement is denominated in pounds sterling[433] - There is a risk the company could be classified as a Passive Foreign Investment Company (PFIC), which would subject U.S. holders of its ADSs to adverse U.S. federal income tax consequences[434][435] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period covered by this report - None[450] Other Information This section indicates no other information to be reported - None[451] Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including Articles of Association, CEO/CFO certifications, and XBRL data files - Lists exhibits filed with the report, including CEO/CFO certifications and XBRL data[452]