Allogene Therapeutics(ALLO) - 2019 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements Unaudited condensed financial statements for June 30, 2019, show a $72.8 million net loss, increased accumulated deficit, and $650.2 million liquidity Condensed Balance Sheets As of June 30, 2019, assets decreased to $734.0 million, liabilities increased, and equity decreased to $655.6 million Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $112,584 | $92,432 | | Total investments | $537,609 | $628,918 | | Total Assets | $733,997 | $773,855 | | Liabilities & Equity | | | | Total current liabilities | $38,000 | $29,459 | | Total Liabilities | $78,362 | $70,691 | | Accumulated deficit | ($284,357) | ($211,528) | | Total Stockholders' Equity | $655,635 | $703,164 | Condensed Statements of Operations and Comprehensive Loss Net losses for the six months ended June 30, 2019, were $72.8 million, significantly lower than 2018 due to a one-time R&D charge Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $31,774 | $122,486 | $55,177 | $122,486 | | General and administrative | $14,187 | $12,526 | $27,245 | $15,123 | | Loss from operations | ($45,961) | ($135,012) | ($82,422) | ($137,609) | | Net loss | ($41,243) | ($134,902) | ($72,829) | ($137,499) | | Net loss per share | ($0.41) | ($43.82) | ($0.74) | ($9.42) | Condensed Statements of Cash Flows For the six months ended June 30, 2019, net cash used in operations was $55.1 million, offset by $77.4 million from investing activities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($55,148) | ($6,042) | | Net cash provided by (used in) investing activities | $77,380 | ($2,634) | | Net cash provided by financing activities | $920 | $152,603 | | Net increase in cash, cash equivalents and restricted cash | $23,152 | $143,927 | Notes to Condensed Financial Statements Notes detail the company's immuno-oncology business, accounting policies, financial instruments, and key license and lease disclosures - The company is a clinical-stage immuno-oncology company focused on allogeneic T cell therapies for cancer, having incurred cumulative net losses of $284.4 million since inception and expecting to raise additional capital to fund future operations[20][22] - The company has a license agreement with Cellectis for its TALEN gene-editing technology, with potential milestone payments of up to $185.0 million per product and tiered royalties in the high single-digit percentages[43][46] - Under an agreement with Servier for anti-CD19 CAR T cell products (including UCART19), Allogene is responsible for 60% of specified development costs and has potential milestone payment obligations up to $381.5 million[52][56][57] - In February 2019, the company entered into a lease for a 118,000 sq. ft. manufacturing facility in Newark, CA, with total undiscounted lease payment commitments of $36.2 million[67] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the immuno-oncology pipeline, decreased R&D expenses from a prior year charge, and $650.2 million in liquidity - The company is advancing its pipeline, with the FDA clearing an IND for ALLO-715 in multiple myeloma in May 2019 and plans to initiate the UNIVERSAL trial in 2019[92] - As of June 30, 2019, the company had $650.2 million in cash, cash equivalents, and investments, which management believes is sufficient to fund operations for at least one year[94][123] Results of Operations Total operating expenses decreased by $55.2 million for the six months ended June 30, 2019, driven by a $67.3 million R&D reduction Comparison of Operating Results (in thousands) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $55,177 | $122,486 | ($67,309) | (55)% | | General and administrative | $27,245 | $15,123 | $12,122 | 80% | | Total operating expenses | $82,422 | $137,609 | ($55,187) | (40)% | | Net Loss | ($72,829) | ($137,499) | $64,670 | (47)% | - The decrease in R&D expenses for the six months ended June 30, 2019, was primarily due to a $109.4 million expense in 2018 for acquired in-process R&D assets from Pfizer, partially offset by a $42.0 million increase in other R&D costs[119] Liquidity, Capital Resources and Plan of Operations As of June 30, 2019, the company held $650.2 million in cash and investments, used $55.1 million in operations, and needs more financing Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Operating activities | ($55,148) | ($6,042) | | Investing activities | $77,380 | ($2,634) | | Financing activities | $920 | $152,603 | - In February 2019, the company entered into a lease for a cell therapy manufacturing facility in Newark, California, with a term of 15 years and 8 months, expected to commence in May 2020[134] Quantitative and Qualitative Disclosures About Market Risk Primary market risks are interest rate fluctuations on the $650.2 million investment portfolio and foreign exchange rate risk - The company is exposed to interest rate risk on its cash and investment portfolio of $650.2 million as of June 30, 2019[144] - Foreign exchange risk exists due to collaboration payments with Servier, with $5.3 million of liabilities denominated in foreign currencies as of June 30, 2019[145] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of the quarter, the company's disclosure controls and procedures were effective[146] - No material changes to the company's internal control over financial reporting were identified during the quarter ended June 30, 2019[147] PART II: OTHER INFORMATION Legal Proceedings The company reports no current legal proceedings that would materially adversely affect its financial condition or operations - Management believes there are currently no pending claims or actions against the company that could have a material adverse effect on its business[149] Risk Factors Extensive risks include limited operating history, reliance on novel technologies and partners, clinical development, manufacturing, and funding needs - The company's allogeneic T cell product candidates represent a novel approach with significant challenges, including manufacturing, managing potential side effects like GvHD, and navigating an uncertain regulatory landscape[155] - The business is heavily reliant on partners for key technologies (Cellectis's TALEN gene-editing) and for the clinical development of lead candidates UCART19 and ALLO-501 (Servier)[158][160] - The company faces substantial financial risk, having incurred significant net losses since inception ($284.4 million accumulated deficit) and anticipating the need for substantial additional financing to complete development and commercialization[153][231] - The company intends to operate its own manufacturing facility but faces risks in completing the build-out, scaling production, and gaining regulatory approval, which could impact clinical trials and commercial viability[201][202] Unregistered Sales of Equity Securities and Use of Proceeds The company details the use of $343.0 million net IPO proceeds from October 2018, unused and held in cash and investments as of June 30, 2019 - The company completed its IPO in October 2018, raising approximately $343.0 million in net proceeds[379][380] - Through June 30, 2019, the company has not used any of the net proceeds from its IPO, which are being held in cash, cash equivalents, and investments[381] Other Items (3, 4, 5, 6) The company reports no defaults on senior securities, no mine safety disclosures, and no other information, with Item 6 listing exhibits - The company reports no defaults upon senior securities, no mine safety disclosures, and no other information for the period[382][383]