Allogene Therapeutics(ALLO) - 2022 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements The company reported a net loss of $83.1 million in Q3 2022, with total assets decreasing and an accumulated deficit of $1.1 billion Condensed Consolidated Balance Sheets Total assets decreased to $887.6 million from $1.04 billion, driven by reduced cash, while liabilities increased and equity declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $74,357 | $173,314 | | Total current assets | $569,061 | $471,323 | | Total assets | $887,572 | $1,038,634 | | Total current liabilities | $48,872 | $48,174 | | Total liabilities | $147,611 | $122,228 | | Total stockholders' equity | $739,961 | $916,406 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss increased to $83.1 million in Q3 2022 and $237.8 million for the nine months, primarily due to higher R&D expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Collaboration revenue | $49 | $49 | $196 | $38,438 | | Research and development | $63,641 | $58,720 | $180,968 | $166,193 | | General and administrative | $18,897 | $18,999 | $58,303 | $54,144 | | Loss from operations | ($82,489) | ($77,670) | ($239,075) | ($181,899) | | Net loss | ($83,148) | ($78,186) | ($237,785) | ($182,137) | | Net loss per share | ($0.58) | ($0.57) | ($1.67) | ($1.35) | Condensed Consolidated Statements of Cash Flows Net cash used in operations increased to $158.4 million for the nine months, while investing activities provided $56.6 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($158,423) | ($139,376) | | Net cash provided by investing activities | $56,562 | $134,405 | | Net cash provided by financing activities | $2,904 | $11,641 | | Net change in cash, cash equivalents and restricted cash | ($98,957) | $6,670 | Notes to Condensed Consolidated Financial Statements Notes detail business, accounting policies, and financial arrangements, including capital sufficiency, collaboration agreements, and a significant milestone payment - The company is an immuno-oncology firm focused on allogeneic T cell therapies and has incurred cumulative net losses of $1.1 billion since inception through September 30, 2022[16][17] - Management expects current cash, cash equivalents, and investments of $637.3 million are sufficient to fund operations for at least one year from the filing date[17][18] - In September 2022, partner Servier discontinued its involvement in the development of CD19 products (UCART19, ALLO-501, ALLO-501A), granting Allogene the option to license these products outside the U.S.[56] - Total stock-based compensation expense was $21.1 million for Q3 2022 and $66.4 million for the first nine months of 2022[105] - Subsequent to the quarter's end, the company initiated the Phase 2 clinical trial of ALLO-501A, which requires an $8.0 million milestone payment to Servier, expected to be recognized in Q4 2022[116] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses clinical progress, financial results, and liquidity, highlighting increased R&D expenses and sufficient cash reserves for the next year Overview Allogene, a clinical-stage CAR T cell therapy company, initiated a Phase 2 trial and faces strategic changes with Servier's CD19 program discontinuation - The company is progressing its pipeline, having initiated the Phase 2 ALPHA2 trial for ALLO-501A in R/R large B cell lymphoma (LBCL) and planning the EXPAND trial to demonstrate the contribution of its lymphodepletion agent, ALLO-647[121][123] - Servier discontinued its involvement in the development of CD19 Products, giving Allogene the right to elect a license for these products outside the United States. This would cease Servier's 40% development cost reimbursement[120] - As of September 30, 2022, the company had an accumulated deficit of $1.1 billion and cash, cash equivalents, and investments of $637.3 million[126] Results of Operations Q3 2022 R&D expenses increased by $4.9 million due to higher personnel and facilities costs, while collaboration revenue significantly decreased Comparison of Operating Results (Three Months Ended Sep 30, in thousands) | Account | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $63,641 | $58,720 | $4,921 | 8% | | General and administrative | $18,897 | $18,999 | ($102) | (1)% | | Loss from operations | ($82,489) | ($77,670) | ($4,819) | 6% | - The $4.9 million increase in Q3 R&D expenses was driven by a $5.9 million rise in personnel costs and a $4.3 million increase in facilities/depreciation, offset by a $5.9 million decrease in external development and manufacturing costs[153] - Collaboration revenue for the nine months ended September 30, 2022, was $0.2 million, a sharp decrease from $38.4 million in the same period of 2021. The 2021 revenue was primarily from the license of intellectual property and delivery of know-how to Allogene Overland in Q1 2021[157] Liquidity and Capital Resources The company holds $637.3 million in cash and investments, sufficient for over a year, with primary commitments tied to license agreements - The company anticipates its cash and investments of $637.3 million as of September 30, 2022, will be sufficient to maintain operations for at least one year from the filing date of this report[161] Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in Operating activities | ($158,423) | ($139,376) | | Net cash provided by Investing activities | $56,562 | $134,405 | | Net cash provided by Financing activities | $2,904 | $11,641 | - Material cash commitments include potential milestone payments under license agreements with Pfizer, Cellectis, Servier, and Notch, as well as obligations under a collaboration with MD Anderson and a solar power agreement[170][172][173] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its $637.3 million cash and investments, and foreign exchange risk from Euro-denominated payments - The company is exposed to interest rate risk on its cash and investment portfolio of $637.3 million[179] - Foreign exchange risk exists due to collaboration payments denominated in Euros with its partner Servier. As of September 30, 2022, the company had $4.3 million of receivables denominated in foreign currency[180] Controls and Procedures Management concluded disclosure controls were effective, while a new SAP system implementation is expected to change internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[181] - The company is implementing a new SAP enterprise resource planning system in phases, which is expected to cause changes to its internal control over financial reporting[182] PART II: OTHER INFORMATION Legal Proceedings The company reports no pending legal claims or actions that would materially adversely affect its financial condition or operations - Management believes there are currently no pending legal proceedings that could have a material adverse effect on the company[185] Risk Factors The company faces significant risks including financial losses, challenges in novel therapy development, reliance on partners, clinical trial failures, and complex manufacturing - Financial Risk: The company has a history of net losses ($1.1B accumulated deficit) and will require substantial additional financing to continue operations and develop its products[190][275] - Clinical & Development Risk: The company's allogeneic T cell product candidates are a novel approach with significant challenges, including the risk of undesirable side effects, and clinical trials may fail to demonstrate safety and efficacy[194][214][221] - Third-Party Reliance Risk: The business is heavily reliant on partners, particularly Cellectis for TALEN gene-editing technology. Servier's discontinuation of its involvement in the CD19 programs introduces uncertainty and potential adverse consequences[204][206] - Manufacturing & Operational Risk: The company may fail to successfully manufacture its product candidates at scale, operate its own facility, or obtain regulatory approval for its manufacturing processes, which could harm clinical trials and commercial viability[246] - Regulatory Risk: The regulatory approval process for novel cell therapies is lengthy, complex, and uncertain. The company may face substantial delays or may not be able to conduct trials on expected timelines[208][228][324] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the current reporting period - There were no unregistered sales of equity securities in the quarter[401] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents and officer certifications