Cellectis(CLLS) - 2021 Q4 - Annual Report

PART I Key Information The company details significant risks related to its business, product development, third-party reliance, and financial condition Risk Factors The company faces operational, clinical, regulatory, and financial risks, including a limited history and reliance on novel technology - The company has a limited operating history focused on R&D and has incurred significant operating losses since inception, with an expectation of continued losses for the foreseeable future[25][26][43] - Product candidates are based on novel gene-editing technology, which faces high risks of failure in time-consuming and expensive clinical trials, potential for undesirable side effects, and complex, heavily regulated manufacturing processes[27][46] - The company relies on strategic licensing relationships and third parties for aspects of discovery, development, and manufacturing, which poses risks if these partners fail to perform or devote sufficient resources[28][90] - The majority-owned subsidiary, Calyxt, faces significant risks, including its ability to continue as a going concern, which depends on obtaining additional financing[38][129] - As a foreign private issuer, the company is exempt from certain U.S. securities laws and Nasdaq governance standards, which may afford less protection to shareholders[36][206] Information on the Company The company operates as a clinical-stage biotechnology firm developing immuno-oncology products using proprietary gene-editing technologies History and Development of the Company Founded in 2000, the company has increased capital expenditures for manufacturing facilities to support R&D programs Capital Expenditures (2019-2021) | Year | Capital Expenditures (in millions) | | :--- | :--- | | 2019 | $13.0 | | 2020 | $46.3 | | 2021 | $19.0 | Business Overview The company develops 'off-the-shelf' allogeneic CAR T-cell immunotherapies using its TALEN® gene-editing technology - Cellectis focuses on developing allogeneic (from healthy donors) CAR T-cell therapies, which it believes offer advantages over autologous treatments in market access, cost-effectiveness, and scalable manufacturing[219][222] - The company's core technology is TALEN®, a proprietary gene-editing tool used to create its UCART product candidates that allows for precise gene modifications[222][298] Cellectis Product Pipeline Overview | Product Candidate | Target(s) | Indication | Development Phase | Sponsor/Partner | | :--- | :--- | :--- | :--- | :--- | | Wholly-Owned | | | | | | UCART123 | CD123 | r/r AML | Phase 1 | Cellectis | | UCART22 | CD22 | r/r B-ALL | Phase 1 | Cellectis | | UCARTCS1 | CS1 | r/r MM | Phase 1 | Cellectis | | UCART20x22 | CD20xCD22 | NHL | Pre-clinical | Cellectis | | Partnered | | | | | | ALLO-501 / ALLO-501A | CD19 | r/r NHL | Phase 1/2 | Allogene/Servier | | ALLO-715 | BCMA | r/r MM | Phase 1 | Allogene | | ALLO-605 | BCMA | r/r MM | Phase 1 | Allogene | | ALLO-316 | CD70 | RCC | Phase 1 | Allogene | - Cellectis has established two in-house manufacturing facilities: an ~80,000 sq ft plant in Raleigh, NC for clinical and commercial UCART production, and a ~14,000 sq ft plant in Paris, France for raw and starting materials[317] - Cellectis owns 56.1% of Calyxt (as of Feb 23, 2022), a plant-based synthetic biology company that engineers plant metabolism to produce high-value chemistries[219][319] Organizational Structure The company is a French société anonyme with key subsidiaries in the United States, including Calyxt, Inc Group Structure as of December 31, 2021 | Subsidiary Name | Jurisdiction of Incorporation | Ownership & Voting Interest Held By Cellectis S.A. | | :--- | :--- | :--- | | Calyxt, Inc. | Delaware | 61.8% (held directly) | | Cellectis, Inc. | Delaware | 100% (held directly) | | Cellectis Biologics, Inc. | Delaware | 100% (held indirectly through Cellectis, Inc.) | Property, Plant and Equipment The company leases key administrative, R&D, and manufacturing facilities in Paris, New York, and Raleigh - Cellectis leases an 82,783 sq ft facility in Raleigh, North Carolina, for its clinical and commercial UCART product manufacturing[390] - The company leases a 5,846 sq-meter facility in Paris, which includes its corporate offices, R&D labs, and a manufacturing facility for raw and starting materials[390] Operating and Financial Review and Prospects The company's financial performance reflects reliance on collaboration revenues, rising R&D expenses, and challenges at its subsidiary Calyxt Operating Results The company's operating loss widened in 2021 due to decreased collaboration revenue and increased R&D expenses Consolidated Statement of Operations (2019-2021) | ($ in thousands) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Total revenues and other income | 22,990 | 82,456 | 67,071 | | Cost of revenue | (11,392) | (36,275) | (31,360) | | Research and development expenses | (92,042) | (86,950) | (129,030) | | Selling, general and administrative expenses | (43,017) | (44,201) | (37,869) | | Operating income (loss) | (123,552) | (85,437) | (130,677) | | Net Financial gain (loss) | 8,340 | (12,046) | 5,570 | | Net income (loss) | (115,212) | (97,483) | (125,107) | | Attributable to shareholders of Cellectis | (102,091) | (81,074) | (114,197) | | Attributable to non-controlling interests | (13,121) | (16,409) | (10,910) | - Revenues decreased by 22.5% in 2021, primarily due to a $18.9 million decrease in collaboration agreement revenue[423] - Research and development expenses increased by 48.4% to $129.0 million in 2021, driven by higher personnel and external expenses for the therapeutic segment[428] - Selling, general and administrative expenses decreased by 14.3% to $37.9 million in 2021, mainly due to a $6.4 million decrease in non-cash stock-based compensation expense[430] Liquidity and Capital Resources The company's cash position is expected to fund therapeutic operations into early 2024, though its subsidiary faces going concern risks Cash and Cash Equivalents Position | As of | Amount (in millions) | | :--- | :--- | | Dec 31, 2021 | $186.1 | - Cellectis, excluding its subsidiary Calyxt, anticipates that its cash position will be sufficient to fund its therapeutic operations into early 2024[456] - Calyxt's management has concluded there is substantial doubt regarding its ability to continue as a going concern, as its cash is only sufficient to fund operations into late 2022[459] Summary of Cash Flows (Year Ended Dec 31, 2021) | Cash Flow Activity | Amount (in thousands) | | :--- | :--- | | Net cash used in operating activities | $(104,562) | | Net cash provided by investing activities | $7,279 | | Net cash provided by financing activities | $47,525 | Directors, Senior Management and Employees The company's leadership consists of an experienced board and management team, with a workforce primarily focused on R&D - The aggregate cash compensation paid to current executive officers and directors for the year ended December 31, 2021, was $6.6 million[482] - As of December 31, 2021, Cellectis had 300 employees (excluding Calyxt), with 245 (82%) engaged in research and development activities[511] - The company has a change of control plan for its executive committee members, providing a severance package equal to 24 months of compensation plus a bonus[485][487] - The Board of Directors consists of nine members and one observer, with a majority determined to be independent[500][502] Major Shareholders and Related Party Transactions Ownership is distributed among institutional investors and insiders, with significant related-party agreements involving its subsidiary Calyxt Major Shareholders (as of Feb 14, 2022) | Shareholder | Ownership Percentage | | :--- | :--- | | Baillie Gifford & Co. | 9.53% | | Bpifrance Participations | 8.10% | | ARK Investment Management LLC | 6.47% | | Pfizer, Inc. | 6.13% | - All directors and executive officers as a group beneficially owned approximately 18.38% of the company's ordinary shares as of February 14, 2022[516] - Cellectis has a Stockholders Agreement with Calyxt that grants it significant contractual approval rights as long as it owns at least 50% of Calyxt's common stock[527] Financial Information The company has no history of paying dividends and notes a significant subsequent equity offering by its subsidiary Calyxt - The company has never declared or paid cash dividends and does not intend to do so in the foreseeable future, planning to reinvest any future earnings into growth[198][537] - Subsequent to year-end, subsidiary Calyxt completed an offering resulting in approximately $10.9 million in gross proceeds, which could dilute Cellectis's ownership to below 50%[538][798] Additional Information The company's governance is subject to French corporate law, with potential U.S. tax implications for ADS holders - Under French law and the company's by-laws, shares held in registered form for more than two years are granted double voting rights[549] - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the 2021 tax year, but classification could result in adverse U.S. tax consequences for U.S. holders[203][571] - Dividends paid by the company to U.S. Holders are generally subject to French withholding tax, which may be reduced under the U.S.-France tax treaty[589] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure relates to foreign currency fluctuations between the U.S. dollar and the Euro - The company faces significant foreign currency exchange risk due to a mismatch between U.S. dollar-denominated revenues and Euro-denominated expenses[595][721] - The net foreign exchange result for fiscal year 2021 was a gain of $9.9 million[596] - Commodity price risk related to Calyxt's soybean product line has been eliminated following the wind-down of those operations[599] PART II Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[607] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, and received an unqualified audit opinion[607] Corporate Governance and Other Information The company adheres to a Code of Conduct and follows certain French home country governance practices - The board of directors has identified Pierre Bastid, Laurent Arthaud, and Hervé Hoppenot as independent audit committee financial experts[608] Principal Accountant Fees (2020-2021) | Fee Type ($ in thousands) | 2020 | 2021 | | :--- | :--- | :--- | | Audit Fees | 676 | 838 | | Audit-Related Fees | — | — | | Tax Fees | — | — | | Other Fees | — | — | | Total | 676 | 838 | - As a foreign private issuer, the company follows French home country practices for certain governance matters, such as board committee composition and quorum requirements[616] PART III Financial Statements The audited consolidated financial statements received an unqualified opinion, with a critical audit matter in revenue recognition - The independent auditor, Ernst & Young et Autres, issued an unqualified opinion on the consolidated financial statements, stating they present fairly in accordance with IFRS[628] - A critical audit matter was identified related to revenue recognition from collaboration and license agreements, requiring a high degree of auditor judgment[630][632] Consolidated Financial Position (in thousands) | | As of Dec 31, 2020 | As of Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $469,471 | $382,076 | | Total Liabilities | $160,625 | $145,602 | | Total Shareholders' Equity | $308,846 | $236,474 |