Autolus(AUTL) - 2022 Q2 - Quarterly Report

Introduction and Contents Overview Autolus Therapeutics plc is a NASDAQ-listed public limited company incorporated in England and Wales - Autolus Therapeutics plc is a public limited company incorporated under the laws of England and Wales and is listed on the Nasdaq Global Select Market ("NASDAQ")[8] - The Annual Report and Accounts is comprised of the reports and consolidated financial statements listed and the Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the "SEC") on 10 March 2022[8] Company Information Corporate Details This section provides essential corporate details including directors, registered office, auditors, and legal advisors - The Board of Directors includes John Johnson (Chairman), Christian Itin (Executive Director and CEO), Joseph Anderson, Jay Backstrom, Linda Bain, John Berriman, Cynthia Butitta, Kapil Dhingra, Martin Murphy, and William Young[9] - The Registered Office is located at The MediaWorks, 191 Wood Lane, London W12 7FP, United Kingdom, with Registered Number 11185179[9] - Ernst & Young LLP serves as the Auditors, Barclays Bank as the Bankers, and Cooley (UK) LLP as the Solicitors[9] Strategic Report Strategic Review Note This note presents the strategic report on the Group's affairs for the 12 months ended 31 December 2021 - The strategic report covers the affairs of the Group for the 12 months ended 31 December 2021[11] Principal Activity The company is a biopharmaceutical firm developing next-generation programmed T cell therapies for cancer treatment - Autolus is a biopharmaceutical company developing next generation programmed T cell therapies for the treatment of cancer[12] - The company uses a broad suite of proprietary and modular T cell programming technologies to engineer precisely targeted, controlled and highly active T cell therapies[12] - These therapies are designed to better recognise cancer cells, break down their defence mechanisms and eliminate these cells, with the potential to be best-in-class and offer substantial benefits, including potential for cure[12] Development of the Group The Group re-registered as a public limited company in 2018, followed by a NASDAQ IPO and an accounting date change - Autolus Therapeutics Limited re-registered as a public limited company and was renamed Autolus Therapeutics plc on 18 June 2018[13] - The company completed its initial public offering of American Depositary Shares ("ADS's") on NASDAQ on 22 June 2018[13] - The Company changed its accounting reference date from 30 September to 31 December on 25 April 2019[13] Reporting Requirements and Standards The company adheres to dual reporting requirements, filing a Form 20-F with the SEC and an Annual Report in the UK - To meet US reporting requirements, the Group files periodic reports, including an annual report on Form 20-F with the SEC, prepared in accordance with US GAAP and reported in U.S. Dollars[14] - To meet UK statutory reporting requirements, the Company files this Annual Report and Accounts with Companies House, prepared in accordance with UK-adopted International Financial Reporting Standards (IFRS) and reported in Pounds sterling[15] - Information required for both the 20-F and Annual Report and Accounts is cross-referenced to the 20-F where applicable, with additional UK-specific requirements disclosed separately[15] Financial Review The Group incurred significant operating losses since inception but improved its net loss position in 2021 - Since inception in July 2014, the company has devoted resources to preclinical studies, clinical trials, and business development, without generating revenue from product sales[19] Key Financial Data (2021 vs 2020) | Metric | 2021 (£ million) | 2020 (£ million) | Change (£ million) | | :--- | :--- | :--- | :--- | | Net Losses | (102.3) | (113.1) | 10.8 | | License Revenue | 1.1 | 0.2 | 0.9 | | Research and Development Expenses | (96.1) | (103.6) | 7.5 | | Administrative Expenses | (23.5) | (27.6) | 4.1 | | Other Operating Income | 4.7 | 2.2 | 2.5 | | Other Operating Expense | (2.3) | 0.0 | (2.3) | - As of 31 December 2021, the Group had cash and cash equivalents of £229.7 million and net current assets of £230.6 million[27] - The Board concluded that with existing cash, operations can be funded for at least until 31 May 2023, based on rigorous cash flow forecasts and sensitivity analysis[28][32] Business Update The company restructured its R&D strategy to prioritize the obe-cel program and secured significant financing - In January 2021, the company announced a restructuring of its R&D strategy to prioritize the obe-cel (AUTO1) program and an adjustment of its workforce, involving an overall reduction in headcount of approximately 20%[33] - On 6 November 2021, the Group entered into Strategic Collaboration and Financing Agreement with Blackstone, agreeing to pay up to $150 million to support the continued development of obe-cel, with an initial $50 million upfront payment[35][36] - Concurrently, under the Blackstone Securities Purchase Agreement, the Group sold 17,985,611 ADSs for gross proceeds of $100 million (£72.6 million net) and issued a warrant to Blackstone to purchase up to 3,265,306 ADSs[37][38] Impact of External Factors The Group assessed the impact of COVID-19 and the war in Ukraine, concluding no significant negative financial impact - The Group has not experienced any significant financial impact to date from the COVID-19 pandemic, but acknowledges potential adverse effects on its business, financial condition, and growth prospects[39] - A COVID-19 surveillance testing program was implemented at the UK facility to minimize spread[40] - A detailed impact assessment of the war in Ukraine and sanctions on Russia identified no significant impact on the Group's operations[42] Corporate Governance The Board is committed to corporate governance guided by Section 172 of the Companies Act 2006 - Directors are required to act in good faith to promote the success of the Group for shareholders, considering long-term consequences, employee interests, business relationships, community/environment impact, high business conduct standards, and fairness to all shareholders[43] - The Board engages with shareholders through quarterly earnings calls, Annual General Meetings, and private meetings, taking shareholder opinions into consideration[44] - Autolus' core values—Focus, Respect, Integrity and Breakthrough—inform and support directors' guidance and oversight[45] Environmental Matters The Group is committed to environmental compliance and is introducing a sustainability strategy - The Group complies with all applicable environmental laws and regulations and takes positive steps to reduce its carbon footprint[48] - Climate change has been identified as an emerging risk, and the directors are introducing a sustainability strategy that will include climate change analysis[48] Building a Healthy, High Performing Organisation The company enhanced employee support through various development and well-being initiatives in 2021 - Individual development included extending and enhancing the Autolus webinar programme and increasing online learning[49] - Team development involved launching a Leadership Development & Management programme and investing in resilience coaching[49] - Organisation development included a company-wide resilience and well-being assessment and embedding Autolus values[49] Diversity & Equality Diversity and Inclusion are integral to the Group's growth strategy, promoting equal opportunity and merit-based appointments - Diversity and Inclusion is integral to the Group's growth strategy, aligning with its values of integrity and respect, and enabling employees to contribute unique perspectives[50] - Appointments are made on merit, irrespective of personal characteristics such as race, disability, gender, sexual orientation, religion or age[51] Employment Statistics as of 31 December 2021 | Position | Male | Female | Total | | :--- | :--- | :--- | :--- | | Non-executive Directors of the Group | 7 | 2 | 9 | | Senior managers of the Group | 14 | 6 | 20 | | All employees of the Group | 162 | 142 | 304 | | Total Employees | 183 | 150 | 333 | Anti-bribery Autolus maintains a strict zero-tolerance policy for bribery and corruption - The Group has a zero-tolerance policy for bribery or corruption by any Group personnel or intermediaries[53] - Secure, anonymous means are established for employees to report actual or suspected violations of the Anti-Bribery Policy[53] Principal Risks The Group faces numerous risks including operating losses, funding needs, and challenges in clinical development - The ongoing COVID-19 pandemic and the conflict in Ukraine could materially and adversely affect the business, results of operations, and financial condition[54] - The company has incurred significant losses since inception, expects to continue incurring losses, and may never achieve profitability, necessitating additional funding for product development[54] - Significant challenges include advancing product candidates through clinical development, obtaining regulatory approval, commercialization, manufacturing complexities, intense competition, and securing/maintaining patent protection[54][55] Directors' Report Introduction This section presents the Directors' Report for the 12-month period ended 31 December 2021 - The Directors' Report covers the 12-month period ended 31 December 2021[57] - The report cross-references information from the company's Form 20-F, filed with the SEC, to meet certain Companies Act requirements[58] Directors This section lists the individuals who served as directors during the year ended 31 December 2021 - The directors who served during the year included Christian Martin Itin, Joseph Anderson, Jay Backstrom (appointed), Linda Catharina Bain, John Berriman, Cynthia Marie Butitta, Kapil Dhingra, Martin Patrick Murphy, John Johnson (appointed), and William Young (appointed)[66] Going Concern The Board concluded that existing cash can fund operations until at least 31 May 2023 - As of 31 December 2021, the Group had cash and cash equivalents of £229.7 million and net current assets of £230.6 million[67] - The Board's rigorous assessment of cash flow forecasts, including sensitivity analysis for worst-case scenarios, supports the conclusion that the Group can fund operations until at least 31 May 2023[68][70][72] - Countermeasures such as headcount reductions, cost delay initiatives, and utilization of available capital funding have been identified to manage the Company's cash runway[70] Carbon Emissions The Group reported a significant increase in total carbon emissions in 2021, driven by Scope 2 and 3 emissions - This is the third annual report in which the Group is reporting its carbon emissions footprint[73] Carbon Footprint (KgCO2e) for 2021 vs 2020 | Scope | 2021 KgCO2e | 2021 % Total Emissions | 2020 KgCO2e | 2020 % Total Emissions | | :--- | :--- | :--- | :--- | :--- | | Scope 1 | 9,613 | 1% | 4,531 | 1% | | Scope 2 | 406,637 | 42% | 221,727 | 49% | | Scope 3 | 544,783 | 57% | 223,496 | 50% | | Total | 961,033 | 100% | 449,754 | 100% | - The majority of Scope 3 emissions relate to business travel. The directors are introducing a sustainability strategy to reduce energy consumption and carbon footprint[76][77] Employee Engagement, Culture and Values The company continues to develop a strong internal communications program to enhance employee engagement - A strong internal communications programme, including CEO-led meetings, 'Lunch and Learns,' and all-company meetings, is being developed to support employee engagement[78] - Autolus values and purpose are embedded into talent acquisition, performance management, and development activities[79] - An all-employee recognition programme, ranging from individual to team awards, was launched in March 2021[79] Talent Acquisition: Delivering Capability In 2021, the company completed 125 hires, primarily focusing on manufacturing capacity for the Obe-cel trial - 125 hires were completed in 2021, with a primary focus on manufacturing capacity for the Phase 2 pivotal Obe-cel trial and resourcing the new Nucleus manufacturing facility[80] - Early engagement with candidates was achieved through a direct sourcing strategy, with 4 out of 5 hires identified in-house and an average time to hire of 44 days[81] - Notable leadership hires included Chief Development Officer, Head of Clinical Development, and Head of Cell Process Development[81] Disabled Employees The Group is committed to equal opportunities for disabled persons, providing support and accommodations - Applications for employment by disabled persons are fully considered, bearing in mind their aptitudes[83] - Efforts are made to ensure continued employment, appropriate training, and accommodations for staff who become disabled[83] - The policy ensures that training, career development, and promotion of disabled persons are, as far as possible, identical to that of other employees[83] Engagement with Suppliers, Customers and Others The company is dedicated to engaging with all principal stakeholders, including patients, employees, and suppliers - The Group is committed to engaging with its principal stakeholders: patients and their caregivers, employees, and suppliers[84] - Medical affairs strategy involves discussing the cancer treatment landscape with experts to address unmet medical needs[84] - Relationships with suppliers are maintained as partnerships, with Directors receiving regular updates and approving material changes[84] Auditors A resolution for the re-appointment of Ernst & Young LLP as auditor will be proposed at the next AGM - A resolution for the re-appointment of Ernst & Young LLP as auditor of the Group is to be proposed at the forthcoming Annual General Meeting[86] Statement of Directors Responsibilities Directors are responsible for preparing financial statements in compliance with applicable laws and accounting standards - Directors are responsible for preparing the Strategic Report, Directors' Report, and Group and Parent Company financial statements in accordance with applicable law and regulations[87] - Group financial statements are prepared in accordance with UK-adopted IFRS, and Parent Company financial statements with UK Generally Accepted Accounting Practice (FRS 102)[88] - Responsibilities include selecting consistent accounting policies, making reasonable estimates, assessing going concern, maintaining adequate accounting records, and safeguarding assets[88][89] Directors' Confirmations Each Director confirms awareness of all relevant audit information and has ensured the auditor is also aware - Each Director confirms awareness of all relevant audit information and has taken steps to ensure the Company's auditor is aware of that information[91] - This confirmation is given in accordance with the provisions of section 418 of the Companies Act[91] Directors' Remuneration Report Annual Statement from the Chair of the Compensation Committee The Committee's remuneration programs incentivize talent and link pay to performance and shareholder interests - The Committee's role is to ensure Directors and senior executives are appropriately compensated and incentivized to deliver growth to shareholders in a long-term and sustainable manner[93] - Key program aspects include 'Pay for Performance' with significant performance-based components, shareholding requirements for Executive Directors (200% of salary within five years), and a Recovery Policy for annual bonus and Equity Incentive Plan awards[98] - For financial year 2021, the CEO's annual bonus was based entirely on corporate objectives, with 85% achievement, resulting in a total bonus payout of 51% of his base salary[98] - Major decisions included increasing the annual stipend for the Chair from £42,000 to £50,000, and increasing initial and annual equity awards for non-executive directors[98][100] Remuneration Policy The policy aims to attract and retain high-calibre directors by linking pay to performance and promoting equity ownership - The Remuneration Policy aims to attract, retain, and motivate high-calibre directors, encourage ethical standards, be competitive against US biotech market benchmarks, and promote equity ownership[105] - The Committee's compensation philosophy provides competitive compensation aligned with the 50th percentile of the Company's peer group[107] Executive Director Remuneration Policy Table This table outlines the remuneration policy for executive directors, covering salary, benefits, pensions, and incentives - Base salary is reviewed annually, considering business performance, employee population increases, individual skills/experience, company size/complexity, market competitiveness, and inflation[112] - Benefits include death in service insurance, permanent health insurance, health insurance allowance, housing allowance, and tax advice, with Committee discretion for additional benefits[109] - Executive Directors are eligible for employer contributions to statutory pension requirements or a salary allowance, up to 10% of base salary[113] - Annual bonus opportunity is up to 200% of base salary, based on corporate objectives (financial, operational, strategic), with Committee discretion to alter outcomes[115] - Equity Incentive Plan (EIP) awards (options, SARs, RSUs, performance shares) typically vest over up to four years, with no maximum opportunity but guided by compensation consultants' benchmarking[114] Notes to the Remuneration Policy Table These notes provide additional details on shareholding requirements, recovery provisions, and performance conditions - Executive Directors are required to build and retain a shareholding equivalent to at least 200% of their salary within five years of appointment[117] - Annual bonus and EIP awards are subject to recovery and withholding provisions in cases of material financial misstatement, miscalculation of performance, or serious misconduct[119] - Performance conditions for annual bonuses and EIP awards are challenging and tied to key financial and strategic targets, with flexibility for the Committee to select measures aligned with prevailing strategy[121][123] - Remuneration for executive directors is increasingly long-term and 'at risk,' with an emphasis on performance-related pay linked to business performance and share-based remuneration, differentiating it from other employees[124] Other Remuneration Policies This section details policies for new executive director appointments, service contracts, and termination provisions - Remuneration for new executive director appointments is set based on calibre, experience, responsibilities, prior remuneration, and prevailing market rates, with flexibility for initial lower salaries and planned increases[132][135] - Executive directors' service contracts have an indefinite term, providing for a maximum of up to 3 months' notice, with discretion for the Committee in determining termination payments[136] - Termination without cause or for cause by the participant may result in up to 18 months' salary and a bonus. Termination in connection with a change of control may result in up to 24 months' salary and bonus, with full vesting of equity awards[139] - Executive directors may hold non-executive directorships outside the Company with Board approval, and may retain any fees received at the Board's discretion[143] Employment Terms and Remuneration Scenarios for Executive Directors The CEO's service agreement has a rolling term with a three-month notice period, with remuneration scenarios estimated - The CEO's service agreement has a rolling term, terminable with three months' notice for either party[144] - Upon termination without cause or for cause by the executive director, they are entitled to 12 months' cash severance and a pro-rated bonus, with an additional 6 months' severance if termination occurs around a change of control[144] - Estimated 2022 remuneration scenarios for the CEO include Below Target (fixed pay only), Target (fixed pay + 60% bonus), and Maximum (fixed pay + 90% bonus), excluding equity-based awards[145][146] Non-Executive Director Remuneration Policy Table Non-Executive Directors receive annual cash retainers, committee fees, and equity incentive awards - Non-Executive Directors receive an annual cash retainer, with additional fees for committee chairmanships or memberships, and the role of Lead Independent Director or Chairperson[150] - Non-Executive Directors may receive equity incentive awards (options, SARs, RSUs, performance shares) upon initial appointment and annually, with initial awards vesting over three years and annual awards over 12 months[151] - The Committee acknowledges that awards of stock options to non-executive directors are not in line with UK practice but are deemed necessary to attract and retain high-quality directors from global markets[201] Annual Report on Remuneration This audited section details the Compensation Committee's activities and presents director remuneration for 2021 - The Compensation Committee, comprising independent members, is responsible for evaluating remuneration policy, determining executive director remuneration, and establishing share incentive plans[156][161] - Independent advice on director remuneration is received from Aon plc, with £93,000 in fees charged for 2021[160] Total Remuneration for Directors (2021 vs 2020) | £ thousands | Period | Base salary/fees | Bonus | Other | Total remuneration | | :--- | :--- | :--- | :--- | :--- | :--- | | Christian Itin, Ph.D. | 2021 | 401.7 | 204.1 | 2.7 | 608.5 | | | 2020 | 381.6 | 120.5 | 9.4 | 511.5 | | Non-Executive Directors (Total) | 2021 | 319.2 | — | — | 319.2 | | | 2020 | 261.8 | — | — | 261.8 | | Total | 2021 | 716.4 | 204.1 | 2.7 | 923.2 | | | 2020 | 643.4 | 120.5 | 9.4 | 773.3 | - The CEO's 2021 annual bonus was 85% of target, resulting in a payout of 51% of his base salary, based on corporate objectives related to clinical development, treatment delivery, finance, and pipeline[167] CEO Pay Ratio (2021 vs 2020) | Year | Methodology | 25th Percentile | 50th Percentile | 75th Percentile | | :--- | :--- | :--- | :--- | :--- | | 2020 | Option A | 14.00:1 | 11.64:1 | 7.84:1 | | 2021 | Option A | 14.55:1 | 11.10:1 | 6.91:1 | Relative Importance of Spend on Pay (2021 vs 2020) | Distributions to shareholders | 2021 (£) | 2020 (£) | % Change | | :--- | :--- | :--- | :--- | | Total employee pay expenditure | 37.6m | 50.7m | (25.8)% | Statement of Implementation of Remuneration Policy in 2022 No significant changes are planned for the 2022 remuneration policy implementation - No significant changes in remuneration policy implementation are expected for the 2022 financial year[192] - The CEO's annual salary for 2022 increased by 3.3% to £415,000, with an annual bonus target opportunity of 60% of his base salary[193][194][196] Non-Executive Directors' Annual Retainers for 2022 | Position | Fee | | :--- | :--- | | Chair of the board of directors | £50,000 | | Board member | £30,000 | | Audit Committee Chair | £12,000 | | Audit Committee member | £6,000 | | Compensation Committee Chair | £9,000 | | Compensation Committee member | £4,500 | | Nomination & Corporate Governance Committee Chair | £6,000 | | Nomination & Corporate Governance Committee member | £3,000 | | Research & Development Committee Chair | £12,000 | | Research & Development Committee member | £6,000 | - An annual award of 20,000 fair market value stock options will be made to non-executive directors[201] Shareholder Voting on Remuneration Matters at AGM The Annual Remuneration Report received strong shareholder approval at the June 2021 AGM Shareholder Vote on Annual Remuneration Report (June 2021 AGM) | | For | % For | Against | % Against | Votes Total | % of ISC Voted | Withheld | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Annual Remuneration report (Resolution 2) | 49,042,234 | 99.73% | 134,370 | 0.27% | 49,176,604 | — % | 13,741 | Independent Auditor's Report to the Members of Autolus Therapeutics plc Opinion The auditor provides an unqualified opinion that the financial statements give a true and fair view - The financial statements give a true and fair view of the state of the group's and parent company's affairs as at 31 December 2021 and of the group's loss for the year[206] - Group financial statements are prepared in accordance with UK adopted international accounting standards, and parent company financial statements with FRS 102, United Kingdom Generally Accepted Accounting Practice[206][208] - The financial statements comply with the requirements of the Companies Act 2006[206] Basis for Opinion The audit was conducted in accordance with International Standards on Auditing (UK) and applicable law - The audit was conducted in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law[209] - Sufficient and appropriate audit evidence was obtained to provide a basis for the auditor's opinion[209] Independence The auditor confirms its independence from the Group and states no prohibited non-audit services were provided - The auditor is independent of the Group and Parent Company in accordance with the ethical requirements relevant to the audit in the UK, including the FRC's Ethical Standard[211] - No non-audit services prohibited by the FRC's Ethical Standard were provided[211] Conclusions Relating to Going Concern The auditor concluded the directors' use of the going concern basis is appropriate, with no material uncertainties identified - The directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate[212] - Management's going concern assessment included cash flow forecasts to 31 May 2023, with adverse scenarios considered, such as removal of forecast tax credits and milestone payments[212] - No significant negative impact from the Covid-19 pandemic or the conflict in Russia and Ukraine was identified on the Group's operations for the going concern assessment period[214] - No material uncertainties were identified that may cast significant doubt on the group and parent company's ability to continue as a going concern for the period to 31 May 2023[215] Overview of Our Audit Approach The audit achieved 100% coverage of key financial metrics, with several key audit matters identified - The audit scope included full financial information audits of two components and specific audit procedures on a further component, covering 100% of the Group's adjusted operating costs, license revenue, and total assets[216][219] - Key audit matters identified were Revenue recognition, Research and Development ("R&D") costs and accruals, Blackstone collaboration agreement, Going concern, and Impairment assessment of investment in subsidiaries (Parent Company only)[216] - Audit effort on climate change focused on evaluating management's assessment of climate risk and ensuring appropriate disclosures[222] Key Audit Matters The auditor focused on revenue recognition, R&D costs, the Blackstone agreement, and impairment assessment - Revenue recognition was a key audit matter due to the risk of fraud related to milestones and incorrect recognition in line with IFRS 15[226] - R&D costs and accruals were significant due to numerous arrangements with third parties and the risk of inappropriate accounting treatment for new and amended contracts[228] - The Blackstone collaboration agreement presented complexity in accounting considerations, significance, and subjectivity of estimates for allocating proceeds to debt, equity, and warrant components[228][230] - Impairment assessment of investment in subsidiaries (parent company) was a key matter due to the market value being below the carrying value, triggering an impairment indicator[232] Our Application of Materiality The auditor applied materiality thresholds for planning and evaluating misstatements - Materiality for the Group was determined to be £2.25 million (2% of adjusted operating costs), as the Group is in the development stage with no operating income[235] - Materiality for the Parent Company was £3.7 million (0.5% of total assets), reflecting its purpose to raise funds for Group operations[236] - Performance materiality was set at £1.21 million (50% of planning materiality) due to the rate of business change and prior year audit differences[237] - All uncorrected audit differences exceeding £0.12 million (5% of planning materiality) were reported to the Audit Committee[239] Other Information The auditor reviewed other information in the annual report and found no material inconsistencies or misstatements - The auditor reviewed the Strategic Report, Directors' Report, and Directors' Remuneration Report[240] - No material inconsistencies or apparent material misstatements were identified in the other information[241] Opinions on Other Matters Prescribed by the Companies Act 2006 The auditor confirms the remuneration report was properly prepared and other reports are consistent with financial statements - The audited part of the directors' remuneration report has been properly prepared in accordance with the Companies Act 2006[241] - The information in the strategic report and directors' report is consistent with the financial statements and has been prepared in accordance with applicable legal requirements[242] Matters on Which We Are Required to Report by Exception The auditor found no matters requiring reporting by exception under the Companies Act 2006 - No material misstatements were identified in the strategic report or the directors' report[243] - No exceptions were found regarding adequate accounting records, agreement of financial statements with records, directors' remuneration disclosures, or receipt of required audit information and explanations[244] Responsibilities of Directors This section reiterates the directors' responsibilities for preparing financial statements and assessing going concern - Directors are responsible for the preparation of financial statements, ensuring they give a true and fair view, and for internal control to prevent material misstatement[245] - Directors are responsible for assessing the group and parent company's ability to continue as a going concern and disclosing related matters[245] Auditor's Responsibilities for the Audit of the Financial Statements The auditor's objective is to obtain reasonable assurance that financial statements are free from material misstatement - The auditor's objective is to obtain reasonable assurance that financial statements are free from material misstatement, whether due to fraud or error[246] - Procedures are designed to detect irregularities, including fraud, acknowledging that the risk of not detecting fraud is higher due to deliberate concealment[247] - Primary responsibility for the prevention and detection of fraud rests with both those charged with governance and management[249] Consolidated Income Statement and Other Comprehensive Loss Financial Performance Overview The Group reported a net loss of £102.3 million for 2021, an improvement from £113.1 million in 2020 Consolidated Income Statement Highlights | Metric | 2021 (£'000) | 2020 (£'000) | Change (£'000) | | :--- | :--- | :--- | :--- | | License revenue | 1,079 | 187 | 892 | | General and administrative expenses | (23,545) | (27,576) | 4,031 | | Research and development expenses | (96,105) | (103,634) | 7,529 | | Other operating income | 4,735 | 2,176 | 2,559 | | Other operating expense | (2,256) | — | (2,256) | | Operating Loss | (116,092) | (128,847) | 12,755 | | Finance income | 923 | 416 | 507 | | Finance expense | (3,257) | (3,800) | 543 | | Loss before taxation | (118,426) | (132,231) | 13,805 | | Tax | 16,171 | 19,139 | (2,968) | | Loss for the year | (102,255) | (113,092) | 10,837 | | Basic and diluted net loss per ordinary share | (1.42) | (2.19) | 0.77 | - All activities of the Group are classified as continuing[255] Consolidated Balance Sheet Financial Position Overview Total assets increased to £307.1 million in 2021, driven by a significant increase in cash and cash equivalents Consolidated Balance Sheet Highlights | Metric | 2021 (£'000) | 2020 (£'000) | Change (£'000) | | :--- | :--- | :--- | :--- | | Total assets | 307,128 | 221,498 | 85,630 | | Cash and cash equivalents | 229,702 | 112,177 | 117,525 | | Other receivables | 28,991 | 33,938 | (4,947) | | Property, plant & equipment | 24,853 | 27,279 | (2,426) | | Right-of-use assets | 12,303 | 35,110 | (22,807) | | Lease liability – Non-Current | (12,246) | (37,013) | 24,767 | | Liability related to sales of future royalties and sales milestones, net | (34,604) | — | (34,604) | | Warrant derivative liability | (7,176) | — | (7,176) | | Net assets | 231,881 | 159,805 | 72,076 | | Share capital | 3 | 2 | 1 | | Share premium account | 424,080 | 257,553 | 166,527 | | Retained loss | (164,986) | (62,731) | (102,255) | - Net current assets increased to £230.6 million in 2021 from £122.0 million in 2020[257] Consolidated Statement of Changes in Equity Equity Movements Overview Total equity increased to £231.9 million in 2021, driven by significant equity capital raises Consolidated Statement of Changes in Equity Highlights | Metric | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Balance at 31 December | 231,881 | 159,805 | | Loss for the year | (102,255) | (113,092) | | Issuance of Ordinary Shares from equity capital raises | 174,719 | 57,810 | | Issuance costs equity capital raises | (8,280) | (774) | | Share based payment expense | 7,771 | 15,074 | | Share premium account | 424,080 | 257,553 | | Retained loss | (164,986) | (62,731) | - The foreign currency translation reserve increased by £32k in 2021[260] Consolidated Cash Flow Statement Cash Flow Overview Significant financing activities led to a net increase in cash and cash equivalents of £117.8 million Consolidated Cash Flow Statement Highlights | Metric | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Net cash used in operating activities | (83,784) | (90,682) | | Net cash used in investing activities | (4,937) | (10,501) | | Net cash from financing activities | 206,520 | 55,321 | | Net (decrease)/increase in cash and cash equivalents and restricted cash | 117,799 | (45,862) | | Cash and cash equivalents and restricted cash at end of period | 229,952 | 112,752 | - Proceeds from issue of ordinary share capital amounted to £179.9 million in 2021, and proceeds from liabilities related to sale of future royalties and sales milestones were £37.1 million[263] Notes to the Consolidated Financial Statements 1. General overview Autolus Therapeutics plc is a UK-incorporated public company developing next-generation T cell therapies for cancer - Autolus Therapeutics plc is a public company incorporated, domiciled and registered in England in the United Kingdom[265] - The Company is a biopharmaceutical company developing next generation programmed T cell therapies for the treatment of cancer[266] - It uses a broad suite of proprietary and modular T cell programming technologies to engineer precisely targeted, controlled and highly active T cell therapies[266] 2. Basis of preparation The financial statements are prepared in accordance with UK-adopted IFRS on a historical cost and going concern basis - Consolidated financial statements are prepared in accordance with UK-adopted IFRS and the Companies Act 2006, on a historical cost basis, with British Pound Sterling as the functional and presentation currency[267] - The Group applies a control-based approach for consolidation, including assets, liabilities, income, and expenses of subsidiaries from the date control is obtained[268][269] - Climate change is identified as an emerging risk but does not have a material impact on the recognition and measurement of assets and liabilities as at 31 December 2021[271] - The Board concluded that with existing cash of £229.7 million, operations can be funded until at least 31 May 2023, thus preparing financial statements on a going concern basis[272][278] 3. Critical accounting judgements and key sources of estimation and uncertainty Significant accounting judgments are required for the Blackstone liability, warrant valuation, and R&D accruals - The Blackstone Collaboration Agreement liability and related interest expense are measured based on estimates of timing and amount of future royalty and milestone payments, using significant unobservable inputs (patient population, selling price, peak sales, launch timing, probability of success)[368][369] - The fair value of the warrant derivative liability is estimated using the Black-Scholes option pricing model, with key assumptions including expected volatility, expected term, risk-free interest rate, and expected dividend[370][372] - Share-based payment expense is estimated using the Black-Scholes option pricing model, with similar assumptions on volatility, term, risk-free rate, and dividend yield[373] - Accrued Research and Development Expenses require estimates of services performed by third parties and costs incurred but not yet invoiced, based on clinical trial progress and contracted costs[375] - Deferred Tax and U.K. research and development tax credits involve significant assumptions in methodology and interpretation of tax legislation[376] 4. Segmental reporting The Group operates as a single operating segment as determined by the Chief Executive Officer - The Chief Executive Officer reviews the Group's internal reporting to assess performance and allocate resources[378] - Management has determined there is one operating segment based on these reports[378] 5. License revenue License revenue increased to £1.1 million in 2021, primarily from an agreement with ModernaTX, Inc License Revenue Disaggregation | For the year ended | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Geographical markets: United Kingdom | — | 187 | | Geographical markets: United States | 1,079 | — | | Timing of revenue recognition: Goods and services transferred at a point in time | 1,079 | 187 | | Total License revenue | 1,079 | 187 | - The Company entered into a Research, Option and License Agreement with ModernaTX, Inc. on 22 June 2021, receiving an upfront non-refundable cash payment of £1.1 million ($1.5 million) in October 2021[384][388] - The granting of the research license and initial transfer of know-how were combined as a single performance obligation, recognized at a point-in-time upon delivery[387][388] - Future development milestones and royalties are considered variable consideration and were fully constrained as of 31 December 2021, thus excluded from the transaction price[389] 6. Operating loss The operating loss improved to £116.1 million in 2021, influenced by reduced expenses and increased other income Operating Loss Components | Metric | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | License revenue | (1,079) | (187) | | Research and development expense: Employee benefits expense | 30,930 | 28,806 | | Research and development expense: Clinical trials and expenses | 26,687 | 35,947 | | General and administrative expense: Employee benefits expense | 6,680 | 6,420 | | Other operating income: Grant income | (593) | (1,145) | | Other operating income: Gain on termination of lease | (2,629) | (1,027) | | Other operating income: Termination fee arising from termination of lease | (1,466) | — | | Other operating expense: Loss on disposal property plant and equipment | 2,256 | — | | Total operating loss | 116,092 | 128,847 | - A restructuring program in January 2021 led to a £0.9 million severance charge, presented within Employee benefits expense in general and administrative, and research and development expenses[392] 7. Finance income and Finance expense Finance income increased to £0.9 million while finance expense decreased to £3.3 million in 2021 Finance Income Highlights | For the year ended 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Fair value adjustment on warrant derivative liability | 730 | — | | Interest income from banking institutions | 193 | 416 | | Total finance income | 923 | 416 | Finance Expense Highlights | For the year ended 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Net foreign exchange loss | 748 | 1,427 | | Interest expense on liability related to sale of future royalties and sales milestones | 819 | — | | Interest expense arising on lease liabilities | 1,655 | 2,338 | | Other interest cost | 35 | 35 | | Total finance expense | 3,257 | 3,800 | 8. Auditor's remuneration Total auditor's remuneration was £770,000 in 2021, a slight decrease from £780,000 in 2020 Auditor's Remuneration | For the year ended 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Audit of Group accounts | 472 | 406 | | Audit of subsidiary accounts | 67 | 61 | | Audit-related assurance services | 231 | 313 | | Total auditor's remuneration | 770 | 780 | 9. Employees and Directors The average number of employees decreased to 329 in 2021, with total employee benefit expenses also decreasing Average Monthly Number of Persons Employed | For the year ended 31 December | 2021 | 2020 | | :--- | :--- | :--- | | Office and management | 53 | 50 | | Research and development | 276 | 290 | | Total average monthly number of persons | 329 | 340 | Total Employee Benefits Expense | For the year ended 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Included in general and administrative expenses | 9,490 | 10,514 | | Included in research and development expenses | 35,891 | 40,177 | | Total employee benefits expense | 45,381 | 50,691 | - A £0.9 million severance charge was incurred in January 2021 due to a workforce reduction[401] Compensation of Key Management Personnel | For the year ended 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Short-term benefits | 3,825 | 2,816 | | Post-employment benefits | 55 | 104 | | IFRS 2 Share based payment charge | 3,271 | 5,488 | | Total compensation paid to key management personnel | 7,151 | 8,408 | 10. Tax The Group recognized a total income tax benefit of £16.2 million in 2021, primarily from R&D tax credits Total Income Tax Benefit | For the year ended 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Current year | (14,873) | (16,909) | | Adjustments in respect of prior years | 4 | (779) | | Deferred tax (credit) charge | (1,302) | (1,451) | | Total income tax benefit | (16,171) | (19,139) | - R&D tax credits contributed (£17,466k) to the tax benefit in 2021[410] - The Group has unused tax losses of £205.3 million (2021) available for offset against future profits, but no deferred tax asset has been recognized due to it not being probable that sufficient taxable profit will be available[412] - The UK corporation tax rate will increase to 25% from 1 April 2023[413] 11. Basic and diluted loss per share Basic and diluted net loss per ordinary share improved to (£1.42) in 2021 from (£2.19) in 2020 Basic and Diluted Net Loss Per Ordinary Share | As at 31 December | 2021 | 2020 | | :--- | :--- | :--- | | Loss for the year - basic and diluted (£'000s) | (102,255) | (113,092) | | Weighted average number ordinary shares (000's) as at 31 December | 72,174 | 51,558 | | Basic and diluted net loss per ordinary share | (1.42) | (2.19) | - The increase in weighted average shares outstanding in 2021 was due to shares issued in January At-the-market-offering, public offering, June At-the-market-offering, and the Blackstone Securities Purchase Agreement[415] Potentially Anti-Dilutive Ordinary Shares | As at 31 December | 2021 | 2020 | | :--- | :--- | :--- | | Unvested restricted shares and units | 1,090 | 505 | | Incentive share options | 7,772 | 5,611 | | Warrants | 3,265 | — | | Total potentially anti-dilutive ordinary shares | 12,127 | 6,116 | 12. Intangible assets The carrying amount of intangible assets remained stable at £10.7 million in 2021 Intangible Assets Carrying Amount | £ 000 | Patents & Licences | Software | Total | | :--- | :--- | :--- | :--- | | At 31 December 2020 | 10,640 | 116 | 10,756 | | At 31 December 2021 | 10,615 | 49 | 10,664 | - No amortisation has been charged to date on licences, as the product candidates underpinned by the intellectual property rights are not yet available for commercial use[419] 13. Property, plant and equipment The carrying amount of property, plant and equipment decreased to £24.9 million in 2021 Property, Plant and Equipment Carrying Amount | £ 000 | Office Equipment | Laboratory Equipment | Furniture Fixtures and | Leasehold Improvements | Assets Under Construction | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | At 31 December 2020 | 794 | 10,201 | 510 | 4,937 | 10,837 | 27,279 | | At 31 December 2021 | 678 | 14,836 | 248 | 7,288 | 1,803 | 24,853 | - Depreciation expenses for 2021 were £5,641k, with £201k recognized as general and administrative expense and £5,440k as research and development expenses[421] 14. Other receivables Total other receivables decreased to £29.0 million in 2021, with R&D tax claims being the largest component Other Receivables Breakdown | As at 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Interest Accrued | 7 | 30 | | Prepayments | 7,896 | 7,087 | | Grant Income Accrued | 284 | 303 | | VAT Receivable | 1,363 | 2,286 | | Tax prepayments | 178 | 43 | | R&D Tax Claim Receivable | 17,525 | 18,030 | | Deferred cost | — | 1,469 | | Lease deposit | 1,528 | 4,690 | | Other receivables | 210 | — | | Total other receivables | 28,991 | 33,938 | 15. Trade and other payables Total trade and other payables decreased to £17.8 million in 2021, with accruals being the largest component Trade and Other Payables Breakdown | As at 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Trade creditors | 314 | 1,656 | | Accruals | 17,490 | 20,393 | | Corporate tax | 7 | 4 | | Other payables | 21 | — | | Total trade and other payables | 17,832 | 22,053 | | Non-current: Other long-term payables | 94 | — | | Total other payables term payables | 94 | — | 16. Nature and purpose of each reserve in equity This note defines the purpose of each equity reserve, including share premium, merger, and retained earnings - Share premium represents the difference between the par value of shares and total consideration received for shares issued[426] - Merger reserve represents the excess of investment cost from group reorganisation over share capital and share premium of Autolus Limited[426] - Share based payment reserves reflect the cumulative expense recorded for incentive restrictive shares, units, and options[426] - Foreign currency translation reserve represents cumulative exchange rate differences from consolidating foreign subsidiaries[426] - Retained earnings / (loss) represent cumulative profits not distributed to shareholders, retained for future capital requirements[428] 17. Share capital The Company had 90.9 million ordinary shares outstanding as of 31 December 2021 following significant transactions Authorised and Issued Share Capital as of 31 December 2021 | | Ordinary Shares No. | Deferred shares No. | B Deferred Shares No. | C Deferred shares No. | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | At 31 December 2020 | 52,346,231 | 34,425 | 88,893,548 | 1 | 141,274,205 | | Issue of Ordinary Shares | 38,561,599 | — | — | — | 38,561,599 | | At 31 December 2021 | 90,907,830 | 34,425 | 88,893,548 | 1 | 179,835,804 | - In February 2021, a public offering generated £77.4 million ($106.9 million) in net proceeds[434] - Sales under the Open Market Sale Agreement generated £21.6 million ($29.6 million) in net proceeds during 2021[435] - The Blackstone Securities Purchase Agreement in November 2021 resulted in £72.6 million ($98.0 million) in aggregate net proceeds from the sale of 17,985,611 ADSs[436] 18. Share based payment The Group operates share option plans, with total share-based compensation expense of £7.8 million in 2021 - The Group operates the 2017 Share Option Plan and the 2018 Equity Incentive Plan, granting share options, restricted shares, and restricted share units[439][440] - Awards typically vest over a four-year service period, with 25% vesting on the first anniversary and the balance monthly thereafter, unless specific performance vesting provisions apply[441] - The fair value of share options is estimated using the Black-Scholes option pricing model, with key assumptions including expected option life (5.27 to 6.08 years), risk-free interest rate (0.62% to 1.34%), and expected volatility (80.05% to 82.03%) for 2021[442][443] Share Options Activity | | Number of share options | Weighted average Exercise Price (£) | | :--- | :--- | :--- | | Outstanding as of 31 December 2020 | 5,611,429 | 13.02 | | Granted (2021) | 4,155,375 | 5.17 | | Cancelled or forfeited (2021) | (1,798,280) | 12.45 | | Outstanding as of 31 December 2021 | 7,772,455 | 8.90 | | Exercisable as of 31 December 2021 | 3,001,834 | 12.60 | - As of 31 December 2021, total unrecognized compensation expense was £10.4 million for unvested share options (non-performance) and £5.8 million for performance-based share options[448][449] Total Share-Based Compensation Expense | For the year ended 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Research and development | 4,961 | 11,371 | | General and administrative | 2,810 | 4,093 | | Total share-based compensation | 7,771 | 15,464 | 19. Cash and cash equivalents Cash and cash equivalents significantly increased to £229.7 million as of 31 December 2021 Cash and Cash Equivalents | As of 31 December | 2021 (£'000) | 2020 (£'000) | | :--- | :--- | :--- | | Cash and bank balances | 229,702 | 101,952 | | Fixed short-term deposit | — | 10,225 | | Total | 229,702 | 112,177 | - The carrying amount of cash and cash equivalents approximates their fair value[463] 20. Liability related to sales of future royalties and sales milestones, net The Blackstone Collaboration Agreement is accounted for as a liability with a carrying amount of £34.6 million - The Blackstone Collaboration Agreement provides up to $150 million to support obe-cel development, with an initial $50 million upfront payment[465] - In exchange, the Company agreed to make Revenue Share Payments (mid-single digit royalty) and Sales Milestone Payments based on net sales of Collaboration Products[466] - The agreement is accounted for as a liability at amortized cost due to the Company's significant continuing involvement in generating the royalty stream[474] - The imputed rate of interest on the unamortized portion of the liability was approximately 15.80% as of 31 December 2021[475] Blackstone Collaboration Agreement Liability | As at 31 December | £000's | | :--- | :--- | | Balance as at 31 December 2020 | £ — | | Initial liability related to the sale of future royalties and sales | £33,843 | | Interest expense on liability related to sale of future royalties and sales milestones | £ 819 | | Effects of exchange rate differences | £ (58) | | Balance as at 31 December 2021 | £34,604 | 21. Warrant derivative liability A warrant issued to Blackstone is classified as a derivative liability and measured at fair value - The Company issued Blackstone a warrant to purchase up to 3,265,306 ADSs at an exercise price of $7.35 per ADS, exercisable until 6 November 2026[481] - Due to a cashless exercise provision, the warrant is classified as a derivative liability, as it does not result in a fixed number of shares being issued[482] - The fair value is estimated using the Black-Scholes option pricing model, with an initial fair value of £7.9 million[482][486] - The warrant derivative liability is subsequently measured at fair value through profit and loss, with a carrying amount of £7,176k as of 31 December 2021[486][537] 22. Right-of-use assets and lease liabilities Right-of-use assets and lease liabilities decreased significantly in 2021 due to lease terminations and surrenders Right-of-Use Assets Carrying Amounts | £000 | Plant and Machinery | Other Equipment | Total | | :--- | :--- | :--- | :--- | | As at 31 December 2020 | 35,010 | 100 | 35,110 | | As at 31 December 2021 | 12,117 | 186 | 12,303 | Lease Liabilities Carrying Amounts | As at 31 December | £'000 | | :--- | :--- | | As at 31 December 2020 | 39,639 | | As at 31 December 2021 | 15,541 | | Current | 3,295 | | Non – Current | 12,246 | - The Company terminated its Rockville, Maryland lease, recognizing a £1.5 million termination fee gain and a £2.2 million gain from asset/liability removal[493] - One manufacturing unit in Enfield was surrendered, resulting in a £0.5 million gain, and two other units were sub-leased to third parties[495][505] - Total cash outflows for leases were £4.3 million in 2021, with a weighted-average remaining lease term of 5.80 years[503] 23. Financial instruments The Group is exposed to credit, liquidity, and market risks, with liquidity risk being particularly high - The Group's principal financial assets include other receivables, cash and cash equivalents, and restricted cash. Principal financial liabilities include trade and other payables, lease liabilities, Blackstone Collaboration Agreement liability, other long-term payables, and a warrant derivative liability[508] - Credit risk is managed by placing cash and