10-Q 1 allo-20190930x10qq319.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________________________
FORM 10-Q
________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38693
________________________________________________________
Allogene Therapeutics, Inc.
(Exact Name of Registrant as Specified in its Charter)
________________________________________________________
Delaware
 
82-3562771
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
210 East Grand Avenue
South San Francisco, California
(Address of principal executive offices)
 
94080
(Zip Code)
Registrant’s telephone number, including area code: (650) 457-2700
 
N/A
 
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
ALLO
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 1, 2019, the registrant had 121,902,101 shares of common stock, $0.001 par value per share, outstanding.
 



Table of Contents

i


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
ALLOGENE THERAPEUTICS, INC.
Condensed Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
 
September 30,
2019
 
December 31,
2018
Assets
 
 
(1)
Current assets:
 
 
 
Cash and cash equivalents
$
160,990

 
$
92,432

Short-term investments
340,254

 
366,952

Prepaid expenses and other current assets
8,513

 
8,598

Total current assets
509,757

 
467,982

Long-term investments
100,702

 
261,966

Operating lease right-of-use asset
31,437

 
33,015

Property and equipment, net
45,943

 
8,595

Intangible assets, net
301

 
754

Restricted cash
4,299

 
1,299

Other long-term assets
3,105

 
244

Total assets
$
695,544

 
$
773,855

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,047

 
$
12,338

Accrued and other current liabilities
25,307

 
17,121

Total current liabilities
33,354

 
29,459

Lease liability, noncurrent
37,689

 
34,456

Other long-term liabilities
4,785

 
6,776

Total liabilities
75,828

 
70,691

Commitments and Contingencies (Notes 6 and 7)


 


Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value: 10,000,000 shares authorized as of September 30, 2019 and December 31, 2018; no shares were issued and outstanding as of September 30, 2019 and December 31, 2018

 

Common stock, $0.001 par value: 200,000,000 shares authorized as of
September 30, 2019 and December 31, 2018; 121,895,479 and
121,482,671 shares issued and outstanding as of September 30, 2019
and December 31, 2018, respectively
122

 
121

Additional paid-in capital
952,820

 
914,265

Accumulated deficit
(335,092
)
 
(211,528
)
Accumulated other comprehensive income
1,866

 
306

Total stockholders’ equity
619,716

 
703,164

Total liabilities and stockholders’ equity
$
695,544

 
$
773,855

The accompanying notes are an integral part of these unaudited condensed financial statements.
(1)
The balance sheet as of December 31, 2018 is derived from the audited financial statements as of that date.

1


ALLOGENE THERAPEUTICS, INC.
Condensed Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating expenses:
 
 
 
 
 
 
 
Research and development
$
39,995

 
$
10,870

 
$
95,172

 
$
133,356

General and administrative
15,016

 
11,317

 
42,261

 
26,440

Total operating expenses
55,011

 
22,187

 
137,433

 
159,796

Loss from operations
(55,011
)
 
(22,187
)
 
(137,433
)
 
(159,796
)
Other income (expense), net:
 
 
 
 
 
 
 
    Change in fair value of convertible note payable

 
(19,415
)
 

 
(19,415
)
    Interest expense

 
(3,358
)
 

 
(3,358
)
    Interest and other income, net
4,309

 
1,463

 
13,693

 
1,573

Loss before income taxes
(50,702
)
 
(43,497
)
 
(123,740
)
 
(180,996
)
Benefit (expense) from income taxes
(33
)
 

 
176

 

Net loss
(50,735
)
 
(43,497
)
 
(123,564
)
 
(180,996
)
Other comprehensive income:
 
 
 
 
 
 
 
Net unrealized gain (loss) on available-for-sale investments, net of tax
(295
)
 
(148
)
 
1,560

 
(148
)
Net comprehensive loss
$
(51,030
)
 
$
(43,645
)
 
$
(122,004
)
 
$
(181,144
)
Net loss per share, basic and diluted
$
(0.50
)
 
$
(10.71
)
 
$
(1.24
)
 
$
(16.38
)
Weighted-average number of shares used in computing net loss per share, basic and diluted
102,186,644

 
4,060,419

 
99,801,001

 
11,048,451

The accompanying notes are an integral part of these unaudited condensed financial statements.

2


ALLOGENE THERAPEUTICS, INC.
Condensed Statements of Stockholders’ Equity (Deficit)
(Unaudited)
(In thousands, except share amounts)


 
Convertible Preferred Stock
 
Subscription Receivable from Preferred Stockholders
 
 
Common Stock
 
Notes
Receivable
from 
Common
Stockholders
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
 
Shares
 
Amount
Balance - June 30, 2019

 
$

 
$

 
 
121,631,278

 
$
122

 
$

 
$
937,709

 
$
(284,357
)
 
$
2,161

 
$
655,635

Issuance of common stock upon exercise of stock options

 

 

 
 
200,868

 

 

 
467

 

 

 
467

Vesting of early exercised common stock

 

 

 
 

 

 

 
710

 

 

 
710

Stock-based compensation

 

 

 
 

 

 

 
12,835

 

 

 
12,835

Employee stock purchase plan

 

 

 
 
63,333

 

 

 
1,099

 

 

 
1,099

Net loss

 

 

 
 

 

 

 

 
(50,735
)
 

 
(50,735
)
Net unrealized (loss) on available-for-sale investments

 

 

 
 

 

 

 

 

 
(295
)
 
(295
)
Balance - September 30, 2019

 
$

 
$

 
 
121,895,479

 
$
122

 
$

 
$
952,820

 
$
(335,092
)
 
$
1,866

 
$
619,716



 
Convertible Preferred Stock
 
Subscription Receivable from Preferred Stockholders
 
 
Common Stock
 
Notes
Receivable
from 
Common
Stockholders
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
 
Shares
 
Amount
Balance - December 31, 2018

 
$

 
$

 
 
121,482,671

 
$
121

 
$

 
$
914,265

 
$
(211,528
)
 
$
306

 
$
703,164

Issuance of common stock upon exercise of stock options

 

 

 
 
304,826

 
1

 

 
703

 

 

 
704

Vesting of early exercised common stock

 

 

 
 

 

 

 
3,880

 

 

 
3,880

Stock-based compensation

 

 

 
 

 

 

 
32,189

 

 

 
32,189

Employee stock purchase plan

 

 

 
 
107,982

 

 

 
1,783

 

 

 
1,783

Net loss

 

 

 
 

 

 

 

 
(123,564
)
 

 
(123,564
)
Net unrealized gain on available-for-sale investments

 

 

 
 

 

 

 

 

 
1,560

 
1,560

Balance - September 30, 2019

 
$

 
$

 
 
121,895,479

 
$
122

 
$

 
$
952,820

 
$
(335,092
)
 
$
1,866

 
$
619,716



The accompanying notes are an integral part of these unaudited condensed financial statements.





















3



ALLOGENE THERAPEUTICS, INC.
Condensed Statements of Stockholders’ Equity (Deficit) - (Continued)
(Unaudited)
(In thousands, except share amounts)

 
Convertible Preferred Stock
 
Subscription Receivable from Preferred Stockholders
 
 
Common Stock
 
Notes
Receivable
from 
Common
Stockholders
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Deficit
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
 
 
Balance - June 30, 2018
11,743,987

 
$
411,052

 
$
(150,000
)
 
 
27,714,743

 
$
28

 
$

 
$
8,054

 
$
(137,522
)
 
$

 
$
(129,440
)
Subscriptions receivable from preferred stockholders

 

 
150,000

 
 

 

 

 

 

 

 

Issuance of common stock for early exercise of stock option

 

 

 
 
3,555,830

 
3

 

 

 

 

 
3

Stock-based compensation

 

 

 
 

 

 

 
4,639

 

 

 
4,639

Net and comprehensive loss

 

 

 
 

 

 

 

 
(43,497
)
 

 
(43,497
)
Net unrealized gain (loss) on available-for-sale investments

 

 

 
 

 

 

 

 

 
(148
)
 
(148
)
Balance - September 30, 2018
11,743,987

 
$
411,052

 
$

 
 
31,270,573

 
$
31

 
$

 
$
12,693

 
$
(181,019
)
 
$
(148
)
 
$
(168,443
)

 
Convertible Preferred Stock
 
Subscription Receivable from Preferred Stockholders
 
 
Common Stock
 
Notes
Receivable
from 
Common
Stockholders
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Deficit
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
 
 
 
Balance - December 31, 2017

 
$

 
$

 
 
26,249,993

 
$
26

 
$
(5
)
 
$

 
$
(23
)
 
$

 
$
(2
)
Issuance of Series A convertible preferred shares at $35.06 per share, net of issuance costs of $635
7,557,990

 
264,365

 

 
 

 

 

 

 

 

 

Issuance of Series A-1 convertible preferred shares at $35.06 per share in connection with asset acquisition
3,187,772

 
111,770

 

 
 

 

 

 

 

 

 

Issuance of Series A-1 convertible preferred shares at $35.06 per share, net of issuance costs of $84
998,225

 
34,917

 

 
 

 

 

 

 

 

 

Proceeds received from common stockholders for issuance of founders' stock at inception

 

 

 
 

 

 
5

 

 

 

 
5

Issuance of common stock for early exercise of stock option

 

 

 
 
5,020,580

 
4

 

 

 

 

 
4

Stock-based compensation

 

 

 
 

 

 

 
12,695

 

 

 
12,695

Net loss

 

 

 
 

 

 

 

 
(180,996
)
 

 
(180,996
)
Net unrealized gain (loss) on available-for-sale investments

 

 

 
 

 

 

 

 

 
(148
)
 
(148
)
Adjustment for fractional shares from forward stock split

 

 

 
 

 
1

 

 
(2
)
 

 

 
(1
)
Balance - September 30, 2018
11,743,987

 
$
411,052

 
$

 
 
31,270,573

 
$
31

 
$

 
$
12,693

 
$
(181,019
)
 
$
(148
)
 
$
(168,443
)
The accompanying notes are an integral part of these unaudited condensed financial statements.

4


ALLOGENE THERAPEUTICS, INC.
Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(123,564
)
 
$
(180,996
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Acquired in process-research and development

 
109,436

Stock-based compensation
32,189

 
12,695

Amortization of other intangible assets acquired
452

 
302

Depreciation and amortization
2,720

 
651

Net amortization/accretion on investment securities
(3,136
)
 
125

Non-cash rent expense
4,827

 
664

Change in fair value of convertible notes payable

 
19,415

Debt issuance costs on convertible notes payable

 
3,358

Deferred income taxes
(176
)
 

Changes in operating assets and liabilities:
 
 
 
Prepaid expenses and other current assets
86

 
(3,132
)
Other long-term assets
(2,863
)
 
(1,468
)
Accounts payable
(3,137
)
 
3,083

Accrued and other current liabilities
7,510

 
12,695

Other long-term liabilities
(1,991
)
 

Net cash (used in) operating activities
(87,083
)
 
(23,172
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(36,679
)
 
(1,913
)
Cash paid for acquisition of assets

 
(2,098
)
Proceeds from maturities of investments
355,765

 

Purchase of investments
(162,931
)
 
(315,399
)
Net cash provided by (used in) investing activities
156,155

 
(319,410
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of convertible preferred stock, net of issuance costs

 
299,282

Proceeds from issuance of convertible notes, net of issuance costs

 
116,842

Proceeds from early exercise of stock options

 
11,375

Payments of deferred offering costs

 
(839
)
Proceeds from issuance of common stock and upon exercise of stock options
703

 

Proceeds from employee stock purchase plan
1,783

 

Net cash provided by financing activities
2,486

 
426,660

Net increase in cash, cash equivalents and restricted cash
71,558

 
84,078

Cash, cash equivalents and restricted cash — beginning of period
93,731

 

Cash, cash equivalents and restricted cash — end of period
$
165,289

 
$
84,078

Non-cash investing and financing activities:
 
 
 
Property and equipment purchase in accounts payable and accrued liabilities
$
6,571

 
$
204

Right-of-use asset obtained in exchange for lease liability
$

 
$
25,322

Series A-1 convertible preferred stock issued in asset acquisition
$

 
$
111,770

Deferred offering costs included in accounts payable and accrued and other current liabilities
$

 
$
1,388

Supplemental disclosure:
 
 
 
Cash paid for amounts included in the measurement of lease liabilities
$
2,182

 
$

Cash received for amounts related to tenant improvement allowances
$
2,934

 
$

The accompanying notes are an integral part of these unaudited condensed financial statements.

5


ALLOGENE THERAPEUTICS, INC.
Notes to Condensed Financial Statements
1.
Description of Business
Allogene Therapeutics, Inc. (the Company or Allogene) was incorporated on November 30, 2017, in the State of Delaware and is headquartered in South San Francisco, California. Allogene is a clinical-stage immuno-oncology company pioneering the development and commercialization of genetically engineered allogeneic T cell therapies for the treatment of cancer. The Company is developing a pipeline of off-the-shelf T cell product candidates that are designed to target and kill cancer cells.
Initial Public Offering
In October 2018, the Company completed an initial public offering (IPO) of its common stock. In connection with its IPO, the Company issued and sold 20,700,000 shares of its common stock, which included 2,700,000 shares of its common stock issued pursuant to the over-allotment option granted to the underwriters, at a price to the public of $18.00 per share. As a result of the IPO, the Company received approximately $343.3 million in net proceeds, after deducting underwriting discounts and commissions of $26.1 million and offering expenses of approximately $3.2 million payable by the Company. At the closing of the IPO, all 11,743,987 shares of outstanding convertible preferred stock were automatically converted into 61,655,922 shares of common stock and our outstanding convertible promissory notes in $120.2 million principal amount were automatically converted into 7,856,176 shares of common stock. Following the IPO, there were no shares of convertible preferred stock or preferred stock outstanding.
Need for Additional Capital
The Company has sustained operating losses and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities. The Company had cash and cash equivalents and investments of $601.9 million as of September 30, 2019. Since inception through September 30, 2019, the Company has incurred cumulative net losses of $335.1 million. Management expects to incur additional losses in the future to fund its operations and conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan.
The Company intends to raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidates. The Company expects that its cash and cash equivalents and investments will be sufficient to fund its operations for a period of at least one year from the date the accompanying unaudited condensed financial statements are filed with the Securities and Exchange Commission (SEC).
Forward Stock Split
On October 1, 2018, the Company filed an amendment to the Company’s amended and restated certificate of incorporation to effect a forward split of shares of the Company’s common stock on a 1-for-5.25 basis (the Forward Stock Split). In connection with the Forward Stock Split, the conversion ratio for the Company’s then-outstanding convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was increased in proportion to the Forward Stock Split. The par value of the common stock was not adjusted as a result of the Forward Stock Split. All references to common stock, options to purchase common stock, early exercised options, share data, per share data, convertible preferred stock (to the extent presented on an as-converted to common stock basis) and related information contained in these condensed financial statements have been retrospectively adjusted to reflect the effect of the Forward Stock Split for all periods presented.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting only of normal recurring

6


adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.

The condensed balance sheet as of September 30, 2019, the condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2019 and 2018, the condensed statements of stockholders’ equity (deficit) as of September 30, 2019 and 2018, the condensed statements of cash flows for the nine months ended September 30, 2019 and 2018, and the financial data and other financial information disclosed in the notes to the condensed financial statements are unaudited. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, or for any other future annual or interim period. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include but are not limited to the fair value of common stock, the fair value of stock options, the fair value of convertible notes payable, income tax uncertainties, and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.
Significant Accounting Policies
There have been no significant changes to the accounting policies during the three and nine months ended September 30, 2019, as compared to the significant accounting policies described in Note 1 of the “Notes to Financial Statements” in the Company’s audited financial statements included in its Annual Report.
Recently Adopted Accounting Pronouncements
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provided amended guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Additionally, under the new guidance, an entity will be required to provide certain disclosures regarding stranded tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance on January 1, 2019. Adoption of the new guidance had no significant impact on the Company’s condensed financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles – Goodwill and other – Internal-Use Software (Subtopic 350-40), which amended its guidance for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact of adopting this amendment to its financial statements.
3.
Fair Value Measurements
The Company measures and reports its cash equivalents, restricted cash, and investments at fair value.
Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1. Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs.
There were no Level 3 assets or liabilities as of September 30, 2019 and as of December 31, 2018.

7


Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of September 30, 2019 and as of December 31, 2018 are presented in the following tables:  
 
September 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
(in thousands)
Financial Assets:
 
 
 
 
 
 
 
Money market funds (1)
$
112,394

 
$

 
$

 
$
112,394

Commercial paper

 

 

 

Corporate bonds

 
191,657

 

 
191,657

U.S. treasury securities
203,633

 

 

 
203,633

U.S. agency securities

 
45,666

 

 
45,666

Total financial assets
$
316,027

 
$
237,323

 
$

 
$
553,350

 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
 
(in thousands)
Financial Assets:
 
 
 
 
 
 
 
Money market funds (1)
$
61,023

 
$

 
$

 
$
61,023

Commercial paper

 
4,917

 

 
4,917

Corporate bonds

 
244,076

 

 
244,076

U.S. treasury securities
342,001

 

 

 
342,001

U.S. agency securities

 
62,115

 

 
62,115

Total financial assets
$
403,024

 
$
311,108

 
$

 
$
714,132

(1)
Included within cash and cash equivalents on the Company’s balance sheets
There were no transfers between Levels 1, 2 or 3 for the period presented.
4.
Financial Instruments
The fair value and amortized cost of cash equivalents and available-for-sale securities by major security type as of September 30, 2019 and as of December 31, 2018 are presented in the following tables:
 
September 30, 2019
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
(in thousands)
Money market funds
$
112,394

 
$

 
$

 
$
112,394

Commercial paper

 

 

 

Corporate bonds
190,467

 
1,195

 
(5
)
 
191,657

U.S. treasury securities
202,893

 
744

 
(4
)
 
203,633

U.S. agency securities
45,433

 
235

 
(2
)
 
45,666

Total cash equivalents and investments
$
551,187

 
$
2,174

 
$
(11
)
 
$
553,350

 
 
 
 
 
 
 
 
Classified as:
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
$
112,394

Short-term investments
 
 
 
 
 
 
340,254

Long-term investments
 
 
 
 
 
 
100,702

Total cash equivalents and investments
 
 
 
 
 
 
$
553,350


8


 
December 31, 2018
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
(in thousands)
Money market funds
$
61,023

 
$

 
$

 
$
61,023

Commercial paper
4,917

 

 

 
4,917

Corporate bonds
244,136

 
220

 
(280
)
 
244,076

U.S. treasury securities
341,696

 
342

 
(37
)
 
342,001

U.S. agency securities
61,937

 
181

 
(3
)
 
62,115

Total cash equivalents and investments
$
713,709

 
$
743

 
$
(320
)
 
$
714,132

 
 
 
 
 
 
 
 
Classified as:
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
$
85,214

Short-term investments
 
 
 
 
 
 
366,952

Long-term investments
 
 
 
 
 
 
261,966

Total cash equivalents and investments
 
 
 
 
 
 
$
714,132

As of September 30, 2019, the remaining contractual maturities of available-for-sale securities were less than 3 years. There have been no significant realized losses on available-for-sale securities for the period presented. Based on the Company’s review of its available-for-sale securities, the Company believes it had no other-than-temporary impairments on these securities as of September 30, 2019, because the Company does not intend to sell these securities nor does the Company believe that it will be required to sell these securities before the recovery of their amortized cost basis. Gross realized gains and gross realized losses were immaterial for the three and nine months ended September 30, 2019.
5.
Balance Sheets Components
Prepaid expenses and Other Current Assets
Prepaid expenses and Other Current Assets consist of the following:
 
September 30,
2019
 
December 31,
2018
 
(In thousands)
Prepaid research and development expenses
$
4,124

 
$
2,356

Accrued interest on investments
2,337

 
3,108

Other prepaid and current assets
1,938

 
758

Prepaid insurance
114

 
2,376

Total prepaid expenses and other current assets
$
8,513

 
$
8,598

Property and Equipment
Property and Equipment consist of the following:

9


 
September 30,
2019
 
December 31,
2018
 
(In thousands)
Leasehold improvements
$
25,233

 
$
15

Laboratory equipment
11,566

 
5,534

Computers equipment and purchased software
3,496

 
1,327

Furniture and fixtures
2,638

 
64

Construction in progress
6,778

 
2,703

Total
49,711

 
9,643

Less: accumulated depreciation
(3,768
)
 
(1,048
)
Total property and equipment, net
$
45,943

 
$
8,595

Accrued Liabilities
Accrued liabilities consist of the following:
 
September 30,
2019
 
December 31,
2018
 
(In thousands)
Accrued research and development expenses
$
9,380

 
$
7,808

Accrued compensation and related benefits
6,672

 
4,111

Accrued property and equipment
4,444

 

Unvested shares liabilities
2,842

 
4,590

Other
1,969

 
612

Total accrued and other current liabilities
$
25,307

 
$
17,121

6.
License Agreements
Asset Contribution Agreement with Pfizer
In April 2018, the Company entered into an Asset Contribution Agreement (the Pfizer Agreement) with Pfizer pursuant to which the Company acquired certain assets, including certain contracts and intellectual property for the development and administration of chimeric antigen receptor (CAR) T cells for the treatment of cancer. The Company is required to make milestone payments upon successful completion of regulatory and sales milestones on a target-by-target basis for the targets including CD19 and B-cell maturation antigen (BCMA), covered by the Pfizer Agreement. The aggregate potential milestone payments upon successful completion of various regulatory milestones in the United States and the European Union are $30.0 million or $60.0 million, depending on the target, with aggregate potential regulatory and development milestones of up to $840.0 million, provided that the Company is not obligated to pay a milestone for regulatory approval in the European Union for an anti-CD19 allogeneic CAR T cell product, to the extent Servier has commercial rights to such territory. The aggregate potential milestone payments upon reaching certain annual net sales thresholds in North America, Europe, Asia, Australia and Oceania (the Territory) for a certain number of targets covered by the Pfizer Agreement are $325.0 million per target. The sales milestones in the foregoing sentence are payable on a country-by-country basis until the last to expire of any Pfizer Royalty Term, as described below, for any product in such country in the Territory. In October 2019, the Territory was expanded to all countries in the world. No milestone or royalty payments were made in the three and nine months ended September 30, 2019 and 2018 respectively.
Pfizer is also eligible to receive, on a product-by-product and country-by-country basis, royalties in single-digit percentages on annual net sales for products covered by the Pfizer Agreement or that use certain Pfizer intellectual property and for which an investigational new drug application (IND) is first filed on or before April 6, 2023. The Company’s royalty obligation with respect to a given product in a given country begins upon the first sale of such product in such country and ends on the later of (i) expiration of the last claim of any applicable patent or (ii) 12 years from the first sale of such product in such country.
Research Collaboration and License Agreement with Cellectis
As part of the Pfizer Agreement, Pfizer assigned to the Company a Research Collaboration and License Agreement (the Original Cellectis Agreement) with Cellectis S.A. (Cellectis). On March 8, 2019, the Company entered into a License Agreement (the Cellectis Agreement) with Cellectis.  In connection with the execution of the Cellectis Agreement, on March 8,

10


2019, the Company and Cellectis also entered into a letter agreement (the Letter Agreement), pursuant to which the Company and Cellectis agreed to terminate the Original Cellectis Agreement.  The Original Cellectis Agreement included a research collaboration to conduct discovery and pre-clinical development activities to generate CAR T cells directed at targets selected by each party, which was completed in June 2018.
Pursuant to the Cellectis Agreement, Cellectis granted to the Company an exclusive, worldwide, royalty-bearing license, on a target-by-target basis, with sublicensing rights under certain conditions, under certain of Cellectis’s intellectual property, including its TALEN and electroporation technology, to make, use, sell, import, and otherwise exploit and commercialize CAR T products directed at certain targets, including BCMA, FLT3, DLL3 and CD70 (the Allogene Targets), for human oncologic therapeutic, diagnostic, prophylactic and prognostic purposes. In addition, certain Cellectis intellectual property rights granted by Cellectis to the Company and to Servier pursuant to the Exclusive License and Collaboration Agreement by and between Servier and Pfizer, dated October 30, 2016, which Pfizer assigned to the Company in April 2018, will survive the termination of the Original Cellectis Agreement.
Pursuant to the Cellectis Agreement, the Company granted Cellectis a non-exclusive, worldwide, royalty-free, perpetual and irrevocable license, with sublicensing rights under certain conditions, under certain of our intellectual property, to make, use, sell, import and otherwise commercialize CAR T products directed at certain targets (the Cellectis Targets).
The Cellectis Agreement provides for development and sales milestone payments by the Company of up to $185.0 million per product that is directed against an Allogene Target, with aggregate potential development and sales milestone payments totaling up to $2.8 billion. The Company is obligated to pay Cellectis $5.0 million for the dosing of the first patient in its Phase 1 clinical trial of ALLO-715. Cellectis is also eligible to receive tiered royalties on annual worldwide net sales of any products that are commercialized by the Company that contain or incorporate, are made using or are claimed or covered by, Cellectis intellectual property licensed to the Company under the Cellectis Agreement (the Allogene Products), at rates in the high single-digit percentages. Such royalties may be reduced, on a licensed product-by-licensed product and country-by-country basis, for generic entry and for payments due under licenses of third party patents. Pursuant to the Cellectis Agreement, and subject to certain exceptions, the Company is required to indemnify Cellectis against all third party claims related to the development, manufacturing, commercialization or use of any Allogene Product or arising out of the Company’s material breach of the representations, warranties or covenants set forth in the Cellectis Agreement, and Cellectis is required, subject to certain exceptions, to indemnify the Company against all third party claims related to the development, manufacturing, commercialization or use of CAR T products directed at Cellectis Targets or arising out of Cellectis’s material breach of the representations, warranties or covenants set forth in the Cellectis Agreement.
The royalties are payable, on a licensed product-by-licensed product and country-by-country basis, until the later of (i) the expiration of the last to expire of the licensed patents covering such product; (ii) the loss of regulatory exclusivity afforded such product in such country, and (iii) the tenth anniversary of the date of the first commercial sale of such product in such country; however, in no event shall such royalties be payable, with respect to a particular licensed product, past the twentieth anniversary of the first commercial sale for such product.
Depending on the Cellectis Target, the Company has a right of first refusal or right of first negotiation to purchase or license from Cellectis rights to develop and commercialize products against such Cellectis Targets.
Under the Cellectis Agreement, the Company has certain diligence obligations to progress the development of CAR T product candidates and to commercialize one CAR T product per Allogene Target in one major market country where the Company has received regulatory approval. If the Company materially breaches any of its diligence obligations and fails to cure within 90 days, then with respect to certain targets, such target will cease to be an Allogene Target and instead will become a Cellectis Target.
Unless earlier terminated in accordance with its terms, the Cellectis Agreement will expire on a product-by-product and country-by-country basis, upon expiration of all royalty payment obligations with respect to such licensed product in such country. The Company has the right to terminate the Cellectis Agreement at will upon 60 days’ prior written notice, either in its entirety or on a target-by-target basis. Either party may terminate the Cellectis Agreement, in its entirety or on a target-by-target basis, upon 90 days’ prior written notice in the event of the other party’s uncured material breach. The Cellectis Agreement may also be terminated by the Company upon written notice at any time in the event that Cellectis becomes bankrupt or insolvent or upon written notice within 60 days of a consummation of a change of control of Cellectis.
All costs the Company incurred in connection with this agreement were recognized as research and development expenses.  For the three and nine months ended September 30, 2019, $5.0 million of costs were incurred related to the achievement of a

11


clinical development milestone under this agreement. For the three and nine months ended September 30, 2018, $0.4 million of costs were incurred associated with research services performed by Cellectis under this agreement. As of September 30, 2019, $5.0 million related to a clinical development milestone payable was recorded in the accrued and other current liabilities in the accompanying condensed balance sheet.
License and Collaboration Agreement with Servier
As part of the Pfizer Agreement, Pfizer assigned to the Company an Exclusive License and Collaboration Agreement (the Servier Agreement), with Les Laboratoires Servier SAS and Institut de Recherches Internationales Servier SAS (collectively, Servier) to develop, manufacture and commercialize certain allogeneic anti-CD19 CAR T cell product candidates, including UCART19, in the United States with the option to obtain the rights over additional anti-CD19 product candidates and for allogeneic CAR T cell product candidates directed against one additional target. In October 2019, the Company agreed to waive its rights to the one additional target.
Under the Servier Agreement, the Company has an exclusive license to develop, manufacture and commercialize UCART19 in the field of anti-tumor adoptive immunotherapy in the United States, with an exclusive option to obtain the same rights for additional product candidates in the United States and, if Servier does not elect to pursue development or commercialization of those product candidates in certain markets outside of the United States pursuant to its license, outside of the United States as well. The Company is not required to make any additional payments to Servier to exercise an option. If the Company opts-in to another product candidate, Servier has the right to obtain rights to such product candidate outside the United States and to share development costs for such product candidate.
Under the Servier Agreement, the Company is required to use commercially reasonable efforts to develop and obtain marketing approval in the United States in the field of anti-tumor adoptive immunotherapy for at least one product directed against CD19, and Servier is required to use commercially reasonable efforts to develop and obtain marketing approval in the European Union, and one other country in a group of specified countries outside of the European Union and the United States, in the field of anti-tumor adoptive immunotherapy for at least one allogeneic adaptive T cell product directed against a certain Company-selected target.
For product candidates that the Company is co-developing with Servier, including UCART19 and ALLO-501, the Company is responsible for 60% of the specified development costs and Servier is responsible for the remaining 40% of the specified development costs under the applicable global research and development plan. Subject to certain restrictions, each party has the right to conduct activities that are specific to its territory outside the global research and development plan at such party’s sole expense. In addition, each party is solely responsible for commercialization activities in its territory at such party’s sole expense.
The Company is required to make milestone payments to Servier upon successful completion of regulatory and sales milestones. The Servier Agreement provides for aggregate potential payments by the Company to Servier of up to $137.5 million upon successful completion of various regulatory milestones, and aggregate potential payments by the Company to Servier of up to $78.0 million upon successful completion of various sales milestones. Similarly, Servier is required to make milestone payments upon successful completion of regulatory and sales milestones for products directed at the Allogene-target covered by the Servier Agreement that achieves such milestones. The total potential payments that Servier is obligated to make to the Company under the Servier Agreement upon successful completion of regulatory and sales milestones are $42 million and €70.5 million ($77.1 million), respectively. The foregoing milestones are subject to certain adjustments if the Company obtains rights for certain products outside of the United States upon Servier’s election not to pursue such rights.
Each party is also eligible to receive tiered royalties on annual net sales in countries within the paying party’s respective territory of any licensed products that are commercialized by such party that are directed at the targets licensed by such party under the Servier Agreement. The royalty rates are in a range from the low tens to the high teen percentages. Such royalties may be reduced for interchangeable drug entry, expiration of patent rights and amounts paid pursuant to licenses of third-party patents. The royalty obligation for each party with respect to a given licensed product in a given country in each party’s respective territory (the Servier Royalty Term) begins upon the first commercial sale of such product in such country and ends after a defined number of years.
Unless earlier terminated in accordance with the Servier Agreement, the Servier Agreement will continue, on a licensed product-by-licensed product and country-by-country basis, until the Servier Royalty Term with respect to the sale of such licensed product in such country expires.

12


For the three and nine months ended September 30, 2019, the Company recorded $1.5 million and $4.5 million of costs incurred under the cost-sharing terms of the Servier Agreement as research and development expenses. For the three and nine months ended September 30, 2018, the Company recorded $4.8 million and $7.5 million of costs as research and development expenses. As of September 30, 2019, amounts due to Servier of $1.2 million were recorded in accrued and other current liabilities in the accompanying condensed balance sheet.

7.
Leases
In August 2018, the Company entered into an operating lease agreement for new office and laboratory space which consists of approximately 68,000 square feet located in South San Francisco, California. The lease term is 127 months beginning August 2018 through February 2029 with an option to extend the term for another seven years which is not reasonably assured of exercise. The Company has the right to make tenant improvements, including the addition of laboratory space, with a lease incentive allowance of $5.0 million. The rent payments began on March 1, 2019 after an abatement period. In connection with the lease, the Company has maintained a letter of credit for the benefit of the landlord in the amount of $1.0 million. In connection with this lease, the Company recognized an operating lease right-of-use asset of $23.6 million as of September 30, 2019 and an aggregate lease liability of $29.8 million in the accompanying condensed balance sheet. The remaining lease term is 9 years and 5 months, and the estimated incremental borrowing rate is 8.0%
In October 2018, the Company entered into an operating lease agreement for new office and laboratory space which consists of 14,943 square feet located in South San Francisco, California. The lease term is 124 months beginning November 2018 through February 2029, with an option to extend the term for another seven years which is not reasonably assured of exercise. The Company has the right to make tenant improvements, including the upgrading of current office and laboratory space with a lease incentive allowance of $0.8 million. Rent payments began in November 2018. In connection with the lease, the Company has maintained a letter of credit for the benefit of the landlord in the amount of $0.2 million. In connection with this lease, the Company recognized an operating lease right-of-use asset of $5.9 million as of September 30, 2019 and an aggregate lease liability of $6.3 million in the accompanying balance sheet. The remaining lease term is 9 years and 5 months, and the estimated incremental borrowing rate is 8.0%.
In December 2018, the Company entered into two operating leases for office space in New York and Los Angeles for 4,358 and 1,293 square feet respectively. The Company recognized operating lease right-of-use assets of $1.8 million and $0.1 million as of September 30, 2019 and aggregate lease liabilities of $1.8 million and $0.2 million respectively for these leases. The lease term for the New York operating lease is 6 years and 7 months, with no option for renewal. The lease term for the Los Angeles operating lease is 3 years with an option to extend the lease term for another two years which is not reasonably certain of exercise. There were no lease incentive allowances for either location. In connection with the New York lease, the Company maintains a letter of credit for the benefit of the landlord in the amount of $0.1 million. The remaining lease terms were 5 years and 9 months and 2 years and 2 months as of September 30, 2019 and the estimated incremental borrowing rates applied were 8.0% and 7.0%, respectively.
In February 2019, the Company entered into a lease agreement for approximately 118,000 square feet of space to develop a cell therapy manufacturing facility in Newark, California. The lease has a term of 188 months and is expected to commence in April 2020. Upon certain conditions, the Company has two ten-year options to extend the lease. Subject to rent abatement for the second through nine months of the lease, the Company will be required to pay $159,150 per month for rent for the first twelve months of the lease term which will increase at a rate of 3.0% per year. The Company will be entitled to a tenant improvement allowance of $2.9 million for costs related to the design and construction of certain Company improvements. In connection with the lease, the Company maintains a letter of credit for the benefit of the landlord in the amount of $3.0 million. The total commitment of undiscounted lease payments for this lease was $36.2 million as at September 30, 2019. The Company had not recognized a right-of-use asset or aggregate lease liability as of September 30, 2019 as the underlying asset was unavailable for use by the Company at any time in the period ended September 30, 2019.
The undiscounted future lease payments under the lease agreements as of September 30, 2019 were as follows:

13


Year ending December 31:
 
(in thousands)
2019 (remaining 3 months)
 
$
1,381

2020
 
5,981

2021
 
7,801

2022
 
7,961

2023
 
8,213

2024 and thereafter
 
63,516

Total undiscounted lease payments
 
94,853

Less: Undiscounted lease payments related to Newark lease
 
(36,231
)
Less: Present value adjustment
 
(17,756
)
Less: Tenant improvement allowance
 
(2,849
)
Total
 
$
38,017

Rent expense for all operating leases was $4.1 million for the nine months ended September 30, 2019. Short-term lease expense was $2.4 million for the nine months ended September 30, 2019. Variable lease payments for operating expenses was $0.3 million for the three months ended September 30, 2019.
8.
Stock-Based Compensation
In June 2018, the Company adopted the 2018 Equity Incentive Plan (2018 Plan). The 2018 Plan provided for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the Company’s board of directors and consultants of the Company under terms and provisions established by the Company’s board of directors. In October 2018, the Board of Directors approved an amendment and restatement of the 2018 Plan, increasing the shares of common stock issuable under the 2018 Plan as well as allowing for an automatic annual increase to the shares issuance under the 2018 Plan to the amount equal to 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. The term of any stock option granted under the 2018 Plan cannot exceed 10 years. The Company generally grants stock-based awards with service conditions only. Options shall not have an exercise price less than 100% of the fair market value of the Company’s common stock on the grant date. Options granted typically vest over a four-year period but may be granted with different vesting terms. Restricted Stock Units granted typically vest annually over a four-year period but may be granted with different vesting terms.
As of September 30, 2019, there were 9,915,688 shares reserved by the Company under the 2018 Plan for the future issuance of equity awards.
Stock Option Activity
The following summarizes option activity under the 2018 Plan:
 
Number
of
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contract
Term
 
 
 
 
 
(In years)
Balance, December 31, 2018
7,235,545

 
$
7.72

 
9.62
Options granted
2,781,316

 
27.50

 
9.55
Options exercised
(304,576
)
 
2.31

 
7.72
Options forfeited
(220,151
)
 
9.03

 
8.91
Balance, September 30, 2019
9,492,134

 
$
13.65

 
9.07
Exercisable, September 30, 2019
4,553,432

 
$
10.03

 
9.00
Vested and expected to vest, September 30, 2019
9,492,134

 
$
13.65

 
9.07
Restricted Stock Unit Activity

14


The following summarizes restricted stock unit activity under the 2018 Plan:
 
Restricted
Stock Units
 
Weighted-
Average Fair
Value at Date
of Grant per
Share
Unvested December 31, 2018

 

Granted
1,795,905

 
$
27.46

Vested
(250
)
 
25.94

Forfeited
(22,500
)
 
27.55

Unvested September 30, 2019
1,773,155

 
$
27.46

Vested and expected to vest, September 30, 2019
1,773,155

 
$
27.46

Total stock-based compensation related to stock options, restricted stock units, employee stock purchase plan and vesting of the founders’ common stock was as follows (in thousands):
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2019
 
2018
 
2019
 
2018
Research and development
$
5,533

 
$
427

 
$
13,012

 
442

General and administrative
7,301

 
4,212

 
19,177

 
12,253

Total stock-based compensation
$
12,834

 
$
4,639

 
$
32,189

 
$
12,695

Early Exercised Options
The Company allows certain of its employees and its directors to exercise options granted under the 2018 Plan prior to vesting. The shares related to early exercised stock options are subject to the Company’s lapsing repurchase right upon termination of employment or service on the Company’s board of directors at the lesser of the original purchase price or fair market value at the time of repurchase. In order to vest, the holders are required to provide continued service to the Company. The proceeds are initially recorded in accrued and other liabilities for the current portion, and other long-term liabilities for the noncurrent portion. The proceeds are reclassified to paid-in capital as the repurchase right lapses. As of September 30, 2019, there was $2.8 million recorded in accrued and other liabilities and $4.6 million recorded in other long-term liabilities related to shares held by employees and directors that were subject to repurchase. The underlying shares are shown as outstanding in the condensed financial statements since the exercise date.
9.
Convertible Notes Payable (2018 Notes)

In September 2018, the Company entered into a note purchase agreement pursuant to which it sold and issued an aggregate of $120.2 million in convertible promissory notes (convertible notes payable or 2018 Notes) and received net cash proceeds of $116.8 million.

The 2018 Notes did not accrue interest. The 2018 Notes were settled in 7,856,176 shares of common stock in connection with the closing of the Company’s IPO (see Note 1) at a settlement price equal to 85% of the IPO price per share.   

On issuance, the Company elected to account for the 2018 Notes at fair value with any changes in fair value being recognized through the statements of operations until the 2018 Notes settled. The fair value of the 2018 Notes was determined to be $120.2 million on issuance and $139.6 million as of September 30, 2018. For the three-months and nine-months ended September 30, 2018, the Company recognized $19.4 million in the accompanying condensed statements of operations as the change in fair value of the 2018 Notes. On issuance, total debt issuance costs of $3.4 million were expensed and recognized as interest expense in the accompanying condensed statements of operations.


15


10.
Related Party Transactions
As of September 30, 2019, Pfizer held 22,032,040 shares of Common Stock and had appointed one member to the Company’s board of directors.
In April 2018, the Company and Pfizer entered into a transition services agreement (the Pfizer TSA) for Pfizer to provide professional services to the Company related to research and development, project management, and other administrative functions. For the three and nine months ended September 30, 2019, the costs incurred under the Pfizer TSA were $0.7 million and $4.9 million, respectively. For the three and nine months ended September 30, 2018, the costs incurred under the Pfizer TSA were $3.8 million and $7.4 million, respectively.
The Company also purchased certain lab supplies from Pfizer in connection with its research and development activities. For the three and nine months ended September 30, 2019, the total lab supplies and services purchased from Pfizer were zero and $1.1 million, respectively. For the three and nine months ended September 30, 2018, the total lab supplies and services purchased from Pfizer were $2.8 million and $6.1 million, respectively.
As of September 30, 2019 and December 31, 2018, the Company had an amount payable to Pfizer of $0.7 million and $5.7 million, respectively, which was recorded in the accrued and other current liabilities on the accompanying condensed balance sheets.
In September 2019, the Company and Pfizer terminated the Pfizer TSA.
Sublease Agreement
In February 2019, the Company subleased 2,180 square feet of its office space in New York, New York, to ByHeart, Inc., formerly known as Second Science, Inc. (ByHeart). ByHeart is a development-stage infant formula company. Two of the Company’s board members have beneficial ownership in ByHeart and one serves on the board of directors of ByHeart. In September 2019, the Company entered into an amendment to the sublease agreement and increased the subleased space to 2,907 square feet. Sublease income for the three and nine months ended September 30, 2019 was $0.1 million and $0.2 million, respectively, and was recognized as other income. Sublease income for the three and nine months ended September 30, 2018 was zero.
Consulting Agreements
In June 2018, the Company entered into a services agreement with Two River Consulting LLC (Two River) a firm affiliated with the Company’s President and Chief Executive Officer, the Company’s Executive Chairman of the board of directors, and a director of the Company to provide various managerial, administrative, accounting and financial services to the Company. The costs incurred for services provided under this agreement were $0.2 million and $0.5 million for the three and nine months ended September 30, 2019, respectively, and $0.3 million and $0.7 million for the three and nine months ended September 30, 2018.
In August 2018, the Company entered into a consulting agreement with Bellco Capital LLC (Bellco). The Company’s executive chairman, Arie Belldegrun, M.D., FACS, is the Chairman and an owner of Bellco. Pursuant to the consulting agreement, Bellco provides certain services for the Company, which are performed by Dr. Belldegrun and include without limitation, providing advice and analysis with respect to the Company’s business, business strategy and potential opportunities in the field of allogeneic CAR T cell therapy and any other aspect of the CAR T cell therapy business as the Company may agree. In consideration for these services, the Company pays Bellco $33,333.33 per month in arrears commencing January 2019 and, in the Company’s discretion, may pay Bellco an annual performance award in an amount up to 60% of the aggregate compensation payable to Bellco in a calendar year. The Company also reimburses Bellco for out of pocket expenses incurred in performing the services. The cost incurred for services provided and out-of-pocket expenses incurred under this consulting agreement were $0.1 million and $0.4 million for the three and nine months ended September 30, 2019, respectively, and $0.1 million and $0.1 million for the three and nine months ended September 30, 2018.
11.
Income Taxes
The Company has a history of losses, and expects to record a loss in 2019. The Company continues to maintain a full valuation allowance against its net deferred tax assets.
12.
Net Loss Per Share

16


The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the period presented due to their anti-dilutive effect:
 
September 30,
 
2019
 
2018
Stock options to purchase common stock
9,492,134

 
6,075,819

Convertible preferred stock

 
61,655,922

Convertible notes payable

 
7,856,176

Restricted stock units subject to vesting
1,773,155

 

Expected shares purchased under Employee Stock Purchase Plan
162,709

 

Founder shares of common stock subject to future vesting
15,144,224

 
21,201,908

Early exercised stock options subject to future vesting
3,306,080

 
5,020,580

Total
29,878,302

 
101,810,405

13.
Subsequent Events

On November 1, 2019, the Company entered into a Collaboration and License Agreement (the Collaboration Agreement) with Notch Therapeutics Inc. (Notch), pursuant to which Notch has granted to Allogene an exclusive, worldwide, royalty-bearing, sublicenseable license under certain of Notch’s intellectual property to develop, make, use, sell, import, and otherwise commercialize therapeutic gene-edited T cell and/or natural killer (NK) cell products from induced pluripotent stem cells directed at certain CAR targets for initial application in non-Hodgkin lymphoma, acute lymphoblastic leukemia and multiple myeloma. In addition, Notch has granted Allogene an option to add certain specified targets to its exclusive license in exchange for an agreed per-target option fee.
The Collaboration Agreement includes a research collaboration to conduct research and pre-clinical development activities to generate engineered cells directed to Allogene’s exclusive targets, which will be conducted in accordance with an agreed research plan and budget under the oversight of a joint development committee. Allogene will reimburse Notch’s costs incurred in accordance with such plan and budget. The term of the research collaboration will expire upon the earlier of (i) the fifth anniversary of the date of the Collaboration Agreement, (ii) at Allogene’s election, following the joint development committee’s determination that for each exclusive target, Notch has met certain success criteria, or (iii) the joint development committee’s determination that the research collaboration cannot be reasonably pursued against any exclusive target due to technical infeasibility or safety issues.
In connection with the execution of the Collaboration Agreement, Allogene made an upfront payment to Notch of $10.0 million. In addition, Allogene made a $5.0 million investment in Notch’s series seed convertible preferred stock, resulting in Allogene having a 25% ownership interest in Notch’s outstanding capital stock on a fully diluted basis immediately following the investment. In connection with this investment, David Chang, M.D., Ph.D., the Company's President, Chief Executive Officer and Board member, was appointed to Notch’s board of directors.
Under the Collaboration Agreement, Notch will be eligible to receive up to $7.25 million upon achieving certain agreed research milestones, up to $4.0 million per exclusive target upon achieving certain pre-clinical development milestones, and up to $283.0 million per exclusive target and cell type (i.e., T cell or NK cell) upon achieving certain clinical, regulatory and commercial milestones. Notch is also entitled to receive tiered royalties in the mid to high single digit range on Allogene’s sales of licensed products, subject to certain reductions, for a term, on a country-by-country and product-by-product basis, commencing on first commercial sale of such product in such country and continuing until the latest of (i) the date upon which there is no valid claim of the licensed patents in such country of sale that covers such product, (ii) the expiration of applicable data or other regulatory exclusivity in such country of sale or (iii) a defined period from the first commercial sale of such product in such country.
The term of the Collaboration Agreement will continue on a product-by-product and country-by-country basis until Allogene’s payment obligations with respect to such product in such country have expired. Following such expiration, Allogene’s license with respect to such product and country shall be perpetual, irrevocable, fully paid up and royalty-free. Allogene may terminate the Collaboration Agreement in whole or on a product-by-product basis upon ninety days’ prior written notice to Notch. Either party may also terminate the Collaboration Agreement with written notice upon material breach by the other party, if such breach has not been cured within a defined period of receiving such notice, or in the event of the other party’s insolvency.

17


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (Annual Report), which was filed with the Securities and Exchange Commission (SEC) on March 8, 2019. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Allogene,” “we,” “us” and “our” refer to Allogene Therapeutics, Inc., and references to “Servier” collectively refer to Les Laboratoires Servier SAS and Institut de Recherches Internationales Servier SAS.
In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a clinical stage immuno-oncology company pioneering the development and commercialization of genetically engineered allogeneic T cell therapies for the treatment of cancer. We are developing a pipeline of off-the-shelf T cell product candidates that are designed to target and kill cancer cells. Our engineered T cells are allogeneic, meaning they are derived from healthy donors for intended use in any patient, rather than from an individual patient for that patient’s use, as in the case of autologous T cells. We believe this key difference will enable us to deliver readily available treatments faster, more reliably, at greater scale, and to more patients.
We have a deep pipeline of allogeneic chimeric antigen receptor (CAR) T cell product candidates targeting multiple promising antigens in a host of hematological malignancies and solid tumors. In collaboration with Servier, we are developing UCART19 and ALLO-501, CAR T cell product candidates targeting CD19. Servier is sponsoring two Phase 1 clinical trials of UCART19 in patients with relapsed/refractory (R/R) B-cell precursor acute lymphoblastic leukemia (ALL), one for adult patients (the CALM trial) and one for pediatric patients (the PALL trial). Servier expects UCART19 to be advanced to potential registrational trials in 2020.

We are sponsoring a Phase 1/2 clinical trial (the ALPHA trial) of ALLO-501 in patients with R/R non-Hodgkin lymphoma (NHL). In January 2019, the U.S. Food and Drug Administration (FDA) cleared our investigational new drug application (IND) and the ALPHA trial is ongoing at multiple clinical trial sites. We expect to report top-line data from the Phase 1 portion of the trial in the first half of 2020. We plan to file a protocol amendment that would permit us to further explore the optimal dose and schedule of ALLO-647, allow re-dosing of certain patients, and expand the enrollment criteria. We also plan to develop a second-generation version of ALLO-501, known as ALLO-501A. We have removed rituximab recognition domains in ALLO-501A, which we believe will potentially facilitate treatment of patients who were recently treated with rituximab.
In May 2019, the FDA cleared our IND to initiate a Phase 1 clinical trial (the UNIVERSAL trial) of ALLO-715, an allogeneic CAR T cell product candidate targeting B-cell maturation antigen (BCMA), in adult patients with R/R multiple myeloma. The UNIVERSAL trial was initiated in the third quarter of 2019. 
Since inception, we have had significant operating losses. Our net losses were $50.7 million and $123.6 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2019, we had an accumulated deficit of $335.1 million. As of September 30, 2019, we had $601.9 million in cash and cash equivalents and investments. We expect to

18


continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase.
Recent Developments
On November 1, 2019, we entered into a Collaboration and License Agreement (the Collaboration Agreement) with Notch Therapeutics Inc. (Notch), pursuant to which Notch has granted to us an exclusive, worldwide, royalty-bearing, sublicenseable license under certain of Notch’s intellectual property to develop, make, use, sell, import, and otherwise commercialize therapeutic gene-edited T cell and/or natural killer (NK) cell products from induced pluripotent stem cells directed at certain CAR targets for initial application in non-Hodgkin lymphoma, acute lymphoblastic leukemia and multiple myeloma. In addition, Notch has granted us an option to add certain specified targets to our exclusive license in exchange for an agreed per-target option fee.
The Collaboration Agreement includes a research collaboration to conduct research and pre-clinical development activities to generate engineered cells directed to our exclusive targets, which will be conducted in accordance with an agreed research plan and budget under the oversight of a joint development committee. In connection with the execution of the Collaboration Agreement, we made an upfront payment to Notch of $10.0 million. In addition, we made a $5.0 million investment in Notch’s series seed convertible preferred stock, resulting in us having a 25% ownership interest in Notch’s outstanding capital stock on a fully diluted basis immediately following the investment. See Note 13 to our condensed financial statements included elsewhere in this report for further description of the Collaboration Agreement.
 

19


Our Research and Development and License Agreements
Research Collaboration and License Agreement with Cellectis
In June 2014, Pfizer entered into a Research Collaboration and License Agreement (the Original Cellectis Agreement) with Cellectis S.A. (Cellectis). In April 2018, Pfizer assigned the agreement to us pursuant to the Pfizer Agreement.
On March 8, 2019, the Company entered into a License Agreement (the Cellectis Agreement) with Cellectis.  In connection with the execution of the Cellectis Agreement, on March 8, 2019, the Company and Cellectis also entered into a letter agreement, pursuant to which the Company and Cellectis agreed to terminate the Original Cellectis Agreement. The Original Cellectis Agreement included a research collaboration to conduct discovery and pre-clinical development activities to generate CAR T cells directed at targets selected by each party, which was completed in June 2018.
The material rights and obligations of the parties under the Cellectis Agreement are otherwise consistent with the material rights and obligations of the parties under the Original Cellectis Agreement. See Note 6 to our condensed financial statements included elsewhere in this report for further description of the Cellectis Agreement.
Exclusive License and Collaboration Agreement with Servier
In October 2015, Pfizer entered into an Exclusive License and Collaboration Agreement (Servier Agreement) with Servier to develop, manufacture and commercialize certain allogeneic anti-CD19 CAR products, including UCART19, in the United States with the option to obtain the rights over additional allogeneic anti-CD19 CAR product candidates and for allogeneic CAR T cell product candidates directed against one additional target. In April 2018, Pfizer assigned the agreement to us pursuant to the Pfizer Agreement. In October 2019, we agreed to waive our rights to the one additional target. See Note 6 to our condensed financial statements included elsewhere in this report for further description of the Servier Agreement.
Transition Services Agreement
In connection with the closing of the Pfizer Agreement, we entered into a Transition Services Agreement (TSA) with Pfizer in April 2018, pursuant to which we obtained from Pfizer certain (i) research and development services, including services relating to testing, studies, and clinical trials, project management services, laboratory equipment and operations services, animal care services, data storage services and regulatory strategy services, and (ii) general and administrative services, including business technology services, compliance services, finance/accounting services, and procurement, manufacturing and supply chain services, with respect to the assets that we purchased from Pfizer. Under the TSA, Pfizer also provided us with certain facilities and facility management services. The services were provided by certain employees of Pfizer as independent contractors of Allogene. We believe that it was helpful for Pfizer to provide such services to us under the TSA to help facilitate the efficient operation of our business after the asset purchase. Pfizer began providing the services in May 2018 and the TSA was terminated in September 2019.
Components of Results of Operations
Operating Expenses
Research and Development
To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses that were incurred for the three and nine months ended September 30, 2019 related mostly to the development of pipeline product candidates UCART19, ALLO-501 and ALLO-715. The most significant research and development expenses relates to the following costs incurred for the development of our product candidates, which include:
expenses incurred under agreements with our collaboration partner and third-party contract organizations, investigative clinical trial sites that conduct research and development activities on our behalf, and consultants;
costs related to production of clinical materials, including fees paid to contract manufacturers;
laboratory and vendor expenses related to the execution of preclinical and clinical trials;
employee-related expenses, which include salaries, benefits and stock-based compensation; and
facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and supplies.
Other significant research and development costs include costs relating to overhead costs.

20


We expense all research and development costs in the periods in which they are incurred. We accrue for costs incurred as the services are being provided by monitoring the status of the project and the invoices received from our external service providers. We adjust our accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the milestone payment obligations are expensed when the milestone results are achieved.
We are required to reimburse Servier for 60% of the costs associated with the development of UCART19, including for the CALM and PALL clinical trials. We accrue for costs incurred by monitoring the status of the CALM and PALL clinical trials and the invoices received from Servier. We adjust our accrual as actual costs become known. Servier is required to reimburse us for 40% of the costs associated with the development of ALLO-501, including for the ALPHA clinical trial. Collaboration expenses and cost reimbursement is recorded on a net basis as a research and development expense in our condensed statements of operations and comprehensive loss.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase over the next several years as the UCART19, ALLO-501 and ALLO-715 clinical programs progress and as we seek to initiate clinical trials of additional product candidates. The cost of advancing our manufacturing process as well as the cost of manufacturing product candidates for clinical trials are included in our research and development expense. We also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates. However, it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates.
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:

per patient trial costs;
biomarker analysis costs;
the cost and timing of manufacturing for the trials;
the number of patients that participate in the trials;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the total number of cells that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring or other studies requested by regulatory agencies;
the duration of patient follow-up; and
the efficacy and safety profile of the product candidates.
In the case of UCART19, we are also dependent on Servier’s ability to manage the CALM and PALL clinical trials. In addition, the probability of success for each product candidate will depend on numerous factors, including competition,

21


manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.
Because our product candidates are still in clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability.
General and Administrative
General and administrative expenses consist primarily of salaries and other staff-related costs, including stock-based compensation for options and restricted stock units granted and modification of shares of common stock issued to our founders to include vesting conditions, for personnel in executive, finance, accounting, legal, investor relations, facilities, business development, information technology and human resources functions. Other significant costs include costs relating to facilities and overhead costs, legal fees relating to corporate and patent matters, insurance, investor relations costs, fees for accounting and consulting services, information technology, and other general and administrative costs. General and administrative costs are expensed as incurred, and we accrue for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from our service providers, and adjusting our accruals as actual costs become known.
We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, potential commercialization of our product candidates and the increased costs of operating as a public company. These increases are anticipated to include increased costs related to the hiring of additional personnel, developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs.

Change in Fair Value of 2018 Notes

We elected on issuance to account for our convertible promissory notes (2018 Notes) at fair value until their settlement. In this reporting period, the change in fair value of the 2018 Notes was recognized through the statement of operations. The 2018 Notes settled on the closing of our IPO in October 2018.

Interest Expense

Interest expense consists of debt issuance costs we incurred to issue the 2018 Notes. The debt issuance costs were expensed on issuance because we elected to record the 2018 Notes at fair value.
Interest and Other Income, Net
Interest and other income, net consists of interest earned on our cash equivalents and investment gains and losses recognized during the period.
Results of Operations
Comparison of the Three Months Ended September 30, 2019 and 2018
The following sets forth our results of operations for the three months ended September 30, 2019 and 2018 (dollars in thousands):

22


 
Three Months Ended September 30,
 
Change
 
2019
 
2018
 
$
 
%
Operating expenses:
 
 
 
 
 
 
 
Research and development
$
39,995

 
$
10,870

 
$
29,125

 
268
 %
General and administrative
15,016

 
11,317

 
3,699

 
33
 %
Total operating expenses
55,011

 
22,187

 
32,824

 
148
 %
Loss from operations
(55,011
)
 
(22,187
)
 
(32,824
)
 
148
 %
Other income (expense), net:
 
 
 
 
 
 
 
    Change in fair value of convertible note payable

 
(19,415
)
 
19,415

 
(100
)%
    Interest expense

 
(3,358
)
 
3,358

 
(100
)%
    Interest and other income, net
4,309

 
1,463

 
2,846

 
195
 %
Loss before income taxes
(50,702
)
 
(43,497
)
 
(7,205
)
 
17
 %
Income tax expense
(33
)
 

 
(33
)
 
 
Net Loss
$
(50,735
)
 
$
(43,497
)
 
$
(7,238
)
 
17
 %
Research and Development Expenses
Research and development expenses were $40.0 million and $10.9 million for the three months ended September 30, 2019 and 2018, respectively. The increase of $29.1 million was driven primarily by increased external costs relating to the advancement of our pipeline candidates of $14.1 million, increased personnel related costs of $11.3 million, of which $5.2 million is increased stock-based compensation expense, and increased allocated building rent and facilities costs of $5.1 million, offset by a decrease in TSA costs of $1.8 million.
General and Administrative Expenses
General and administrative expenses were $15.0 million and $11.3 million for the three months ended September 30, 2019 and 2018, respectively. The net increase of $3.7 million was primarily due to an increase in personnel related costs of $4.6 million, of which $3.0 million is increased stock-based compensation expense, a $0.6 million increase in advisory costs including legal fees and professional consulting fees, offset by a decrease of $1.4 million in expenses incurred under the TSA.

Change in Fair Value of 2018 Notes

The change in fair value of convertible notes was zero and $19.4 million for the three months ended September 30, 2019 and 2018, respectively. The decrease was directly attributable to the Company’s progress towards completing an IPO from the issuance date of the 2018 Notes through September 30, 2018. There was no comparative transaction in the three months ended September 30, 2019.

Interest Expense

Interest expense was zero and $3.4 million for the three months ended September 30, 2019 and 2018, respectively. The decrease was due to the debt issuance costs that were expensed during the three months ended September 30, 2018 upon issuance of the 2018 Notes. There was no comparative transaction in the three months ended September 30, 2019.
Interest and Other Income, Net
Interest and other income, net was $4.3 million and $1.5 million for the three months ended September 30, 2019 and 2018, respectively. The increase of $2.8 million was due to interest earned on our cash, cash equivalents and investments as our combined cash, cash equivalents and investments balance was $601.9 million as of September 30, 2019 compared to $398.3 million in cash, cash equivalents and investments as of September 30, 2018.

Comparison of the Nine Months Ended September 30, 2019 and 2018
The following sets forth our results of operations for the nine months ended September 30, 2019 and 2018 (dollars in thousands):

23


 
Nine Months Ended September 30,
 
Change
 
2019
 
2018
 
$
 
%
Operating expenses:
 
 
 
 
 
 
 
Research and development
$
95,172

 
$
133,356

 
$
(38,184
)
 
(29
)%
General and administrative
42,261

 
26,440

 
15,821

 
60
 %
Total operating expenses
137,433

 
159,796

 
(22,363
)
 
(14
)%
Loss from operations
(137,433
)
 
(159,796
)
 
22,363

 
(14
)%
Other income (expense), net:
 
 
 
 
 
 
 
Change in fair value of convertible note payable

 
(19,415
)
 
19,415

 
(100
)%
Interest expense

 
(3,358
)
 
3,358

 
(100
)%
Interest and other income, net
13,693

 
1,573

 
12,120

 
771
 %
Loss before income taxes
(123,740
)
 
(180,996
)
 
57,256

 
(32
)%
Benefit (expense) from income taxes
176

 

 
176

 


Net Loss
$
(123,564
)
 
$
(180,996
)
 
$
57,432

 
(32
)%
Research and Development Expenses
Research and development expenses were $95.2 million and $133.4 million for the nine months ended September 30, 2019 and 2018, respectively. The decrease of $38.2 million was primarily due to a $109.4 million decrease in expense related to the in-process research and development assets with no alternative future use, which was acquired from Pfizer in April 2018. This was offset by an increase of $71.2 million in other research and development expenses, driven primarily by increased personnel related costs of $32.6 million, of which $12.6 million is increased stock-based compensation expense, increased external costs relating to the advancement of our pipeline candidates of $26.1 million, and increased allocated building rent and facilities costs of $13.7 million. These increases were offset by a decrease of $2.5 million in expenses incurred under the TSA.
General and Administrative Expenses
General and administrative expenses were $42.3 million and $26.4 million for the nine months ended September 30, 2019 and 2018, respectively. The increase of $15.8 million was primarily due to increased personnel costs of $15.7 million, of which $6.9 million is related to increased stock-based compensation expense, and $1.6 million of increased advisory costs which include legal fees and professional service fees. These increases were offset by a decrease of $2.1 million in transaction costs related to the Pfizer acquisition.

Change in Fair Value of 2018 Notes

The change in fair value of convertible notes was zero and $19.4 million for the nine months ended September 30, 2019 and 2018, respectively. The decrease was directly attributable to the Company’s progress towards completing an IPO from the issuance date of the 2018 Notes through September 30, 2018. There was no comparative transaction in the nine months ended September 30, 2019.

Interest Expense

Interest expense was zero and $3.4 million for the nine months ended September 30, 2019 and 2018, respectively. The decrease was due to the debt issuance costs that were expensed during the nine months ended September 30, 2018 upon issuance of the 2018 Notes. There was no comparative transaction in the nine months ended September 30, 2019.
Interest and Other Income, Net
Interest and other income, net was $13.7 million and $1.6 million for the nine months ended September 30, 2019 and 2018, respectively. The increase of $12.1 million was due to interest earned on our cash equivalents and investments as our combined cash, cash equivalents and investments balance was $601.9 million as of September 30, 2019 compared to $398.3 million in cash, cash equivalents and investments as of September 30, 2018. Our cash equivalents and investments were also zero for the three months ended March 31, 2018.

24


Liquidity, Capital Resources and Plan of Operations
To date, we have incurred significant net losses and negative cash flows from operations. As of September 30, 2019, we had $601.9 million in cash and cash equivalents and investments. We anticipate that the aggregate of our current cash and cash equivalents and investments available for operations will enable us to maintain our operations for a period of at least one year from the date this Quarterly Report on Form 10-Q is filed with the SEC.
In connection with our IPO, we sold an aggregate of 20,700,000 shares of our common stock (inclusive of 2,700,000 shares of common stock pursuant to the over-allotment option granted to the underwriters) at a price of $18.00 per share and received approximately $343.3 million in net proceeds. At the closing of the IPO, our outstanding convertible promissory notes of $120.2 million in principal amount were automatically converted into 7,856,176 shares of common stock.
Capital Resources
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to UCART19, ALLO-501 and ALLO-715, and other research efforts, fund construction projects and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
Our product candidates are still in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain.  Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise capital when needed, we will need to delay, reduce or terminate planned activities to reduce costs. Doing so will likely harm our ability to execute our business plans.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
 
Nine Months Ended September 30,
 
2019
 
2018
 
(In thousands)
Net cash (used in) provided by:
 
 
 
Operating activities
$
(87,083
)
 
$
(23,172
)
Investing activities
156,155

 
(319,410
)
Financing activities
2,486

 
426,660

Net increase in cash, cash equivalents and restricted cash
$
71,558

 
$
84,078

Operating Activities
During the nine months ended September 30, 2019, cash used in operating activities of $87.1 million was attributable to a net loss of $123.6 million, partially offset by non-cash charges of $36.9 million and a net change of $0.4 million in our net operating assets and liabilities. The non-cash charges consisted primarily of stock compensation expense of $32.2 million, depreciation of $2.7 million and non-cash rent expense of $4.8 million, offset by net accretion on investment securities of $3.1 million. The change in operating assets and liabilities was primarily due to a $7.5 million increase in accrued and other current liabilities. This was offset by $3.1 million decrease in accounts payable, a $2.0 million decrease in other long-term liabilities, a $0.1 million decrease in prepaid expenses and other current assets and a $2.9 million increase in other long-term assets.

During the nine months ended September 30, 2018, cash used in operating activities of $23.2 million was attributable to a net loss of $181.0 million, partially offset by non-cash charges of $146.6 million and a net change of $11.2 million in our net operating assets and liabilities. The non-cash charges consisted primarily of acquired in-process research and development expense resulting from the asset acquisition from Pfizer of $109.4 million, change in fair value of convertible notes payable of

25


$19.4 million and $12.7 million of stock-based compensation. The net change in operating assets and liabilities was primarily due to a $12.7 million increase in accrued and other liabilities resulting from the timing of payments made to our collaboration partners and Pfizer and accrued professional and consulting services, a $3.1 million increase in accounts payable driven by increased professional fees and partially offset by a $3.1 million increase in prepaid expenses and other current assets and a $1.5 million increase in other long-term assets.
Investing Activities
During the nine months ended September 30, 2019, cash provided by investing activities of $156.2 million was related to investment maturities of $355.8 million, offset by purchases of investments of $162.9 million and purchases of property and equipment of $36.7 million.

During the nine months ended September 30, 2018, cash used in investing activities of $319.4 million was related to the purchase of investments of $315.4 million, cash transaction costs of $2.1 million incurred in the asset acquisition from Pfizer and the purchase of property and equipment of $1.9 million.
Financing Activities
During the nine months ended September 30, 2019, cash provided by financing activities of $2.5 million was related to net proceeds from the purchase of common stock through the employee stock purchase program of $1.8 million and net proceeds from the issuance of common stock upon exercise of stock options of $0.7 million.

During the nine months ended September 30, 2018, cash provided by financing activities of $426.7 million was related to net proceeds of $299.3 million from the issuance of our Series A and A-1 convertible preferred stock, $116.8 million in net proceeds from the issuance of the 2018 Notes and $11.4 million from the issuance of common stock in connection with stock option exercises, partially offset by $0.8 million cash payment of deferred offering costs incurred in connection with our IPO.

Contractual Obligations and Commitments
For our contractual obligations and commitments as of December 31, 2018, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our Annual Report.  In the nine months ended September 30, 2019, we entered into a lease agreement for approximately 118,000 square feet of space to develop a cell therapy manufacturing facility in Newark, California. The lease has a term of 15 years and 8 months and is expected to commence in May 2020. Upon certain conditions, we have two ten-year options to extend the lease. Subject to rent abatement for the second through nine months of the lease, we will be required to pay $159,150 per month for rent for the first twelve months of the lease term which will increase at a rate of 3% per year.
Commitments
Our commitments primarily consist of obligations under our agreements with Pfizer, Cellectis and Servier. Under these agreements we are required to make milestone payments upon successful completion of certain regulatory and sales milestones on a target-by-target and country-by-country basis. The payment obligations under the license agreements are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and we will be required to make development milestone payments and royalty payments in connection with the sale of products developed under these agreements. As of September 30, 2019, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales. For additional information regarding our agreements, see “—Our Research and Development and License Agreements” above.
Additionally, we have entered into agreements with third-party contract manufacturers for the manufacture and processing of certain of our product candidates for clinical testing purposes, and we have entered and will enter into other contracts in the normal course of business with contract research organizations for clinical trials and other vendors for other services and products for operating purposes. These agreements generally provide for termination or cancellation, other than for costs already incurred.
We also have a Change in Control and Severance Plan that require the funding of specific payments, if certain events occur, such as a change of control and the termination of employment without cause.

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Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the assumptions and estimates associated with accrued research and development expenditures and stock-based compensation have the most significant impact on our condensed financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Operations” included in our Annual Report.
Recent Accounting Pronouncements
Please refer to Note 2 to our unaudited condensed financial statements appearing under Part 1, Item 1 of this report for a discussion of new accounting standards updates that may impact us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate fluctuations.
Interest Rate Risk
Our cash, cash equivalents and investments of $601.9 million as of September 30, 2019 consist of bank deposits, money market funds and available-for-sale securities. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant for us. A 10% change in the interest rates in effect on September 30, 2019 would not have had a material effect on the fair market value of our cash equivalents and available-for-sale securities.
Foreign Exchange Rate Risk
Our collaboration agreement with Servier requires collaboration payments for shared clinical development costs to be paid in Euros, and thus we face foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any forward exchange contracts. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made. An adverse movement in foreign exchange rates could have an effect on payments due and made to our collaboration partner as well as other foreign suppliers and for license agreements. A 10% change in the applicable foreign exchange rates during the periods presented would not have had a material effect on our condensed financial statements. As of September 30, 2019, we had $1.2 million of liabilities denominated in Euros.

Item 4. Controls and Procedures.

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Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
An evaluation was also performed under the supervision and with the participation of our management, including our principal executive officer and our principal financial and accounting officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II-OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.
Item 1A. Risk Factors
RISK FACTORS
An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this report, before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business. The risk factors set forth below that are marked with an asterisk (*) contain changes to the similarly titled risk factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 (Annual Report), which was filed with the Securities and Exchange Commission (SEC) on March 8, 2019.
Risks Related to Our Business and Industry
We have a limited operating history and face significant challenges and expense as we build our capabilities.*
We were incorporated in 2017 and acquired certain rights to UCART19, ALLO-501 and ALLO-715 and other allogeneic CAR T cell therapy assets from Pfizer in April 2018. We have a limited operating history and are subject to the risks inherent in any newly-formed organization, including, among other things, risks that we may not be able to hire sufficient qualified personnel and establish operating controls and procedures. Several support services were provided by Pfizer through a Transition Services Agreement (TSA), including certain research and development and general and administrative services, which terminated in September 2019. As we build our own capabilities, we expect to encounter risks and uncertainties frequently experienced by growing companies in new and rapidly evolving fields, including the risks and uncertainties described herein. If we are unable to build and manage our support services in a timely manner, our operating and financial results could differ materially from our expectations, and our business could suffer.
As a company, we have not progressed any product candidates through clinical development to commercialization. Our collaboration partner, Servier, conducts the CALM and PALL clinical trials of UCART19, and we cannot be certain that our planned clinical trials of our other product candidates will begin or be completed on time, if at all.
We have incurred net losses in every period since our inception and anticipate that we will incur substantial net losses in the future.*
We are a clinical-stage biopharmaceutical company and investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We have only recently acquired rights to an allogeneic CAR T platform of primarily early-stage product candidates and have no products approved for commercial sale and have not generated any revenue from product sales to date, and we will continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred net losses in each period since our inception. For the year ended December 31, 2018, we reported a net loss of $211.5 million. For the nine months ended September 30, 2019, we reported a net loss of $123.6 million. As of September 30, 2019, we had an accumulated deficit of $335.1 million.
We expect to incur significant expenditures for the foreseeable future, and we expect these expenditures to increase as we continue our research and development of, and seek regulatory approvals for, product candidates based on our engineered allogeneic T cell platform, including UCART19, ALLO-501 and ALLO-715. Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

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Our engineered allogeneic T cell product candidates represent a novel approach to cancer treatment that creates significant challenges for us.*
We are developing a pipeline of allogeneic T cell product candidates that are engineered from healthy donor T cells to express CARs and are intended for use in any patient with certain cancers. Advancing these novel product candidates creates significant challenges for us, including:
manufacturing our product candidates to our or regulatory specifications and in a timely manner to support our clinical trials, and, if approved, commercialization;
sourcing clinical and, if approved, commercial supplies for the raw materials used to manufacture our product candidates;
understanding and addressing variability in the quality of a donor’s T cells, which could ultimately affect our ability to produce product in a reliable and consistent manner;
educating medical personnel regarding the potential side effect profile of our product candidates, if approved, such as the potential adverse side effects related to cytokine release syndrome (CRS), neurotoxicity, graft-versus-host disease (GvHD), prolonged cytopenia and neutropenic sepsis;
using medicines to manage adverse side effects of our product candidates which may not adequately control the side effects and/or may have a detrimental impact on the efficacy of the treatment;
conditioning patients with chemotherapy and ALLO-647 or other lymphodepletion agents in advance of administering our product candidates, which may increase the risk of adverse side effects;
obtaining regulatory approval, as the U.S. Food and Drug Administration (FDA) and other regulatory authorities have limited experience with development of allogeneic T cell therapies for cancer; and
establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of a novel therapy.
The gene-editing technology we use is relatively new, and if we are unable to use this technology in our intended product candidates, our revenue opportunities will be materially limited.*
Cellectis’s TALEN technology involves a relatively new approach to gene editing, using sequence-specific DNA-cutting enzymes, or nucleases, to perform precise and stable modifications in the DNA of living-cells and organisms. Although Cellectis has generated nucleases for many specific gene sequences, it has not created nucleases for all gene sequences that we may seek to target, and we may not be able do so, which could limit the usefulness of this technology. This technology may also not be shown to be effective in clinical studies that Cellectis, we or other licensees of Cellectis technology may conduct, or may be associated with safety issues that may negatively affect our development programs.  For instance, gene-editing may create unintended changes to the DNA such as a non-target site gene-editing, a large deletion, or a DNA translocation, any of which could lead to oncogenesis. The gene-editing of our product candidates may also not be successful in limiting the risk of GvHD or rejection by the patient.
In addition, the gene-editing industry is rapidly developing, and our competitors may introduce new technologies that render our technology obsolete or less attractive. New technology could emerge at any point in the development cycle of our product candidates. As competitors use or develop new technologies, any failures of such technology could adversely impact our program. We also may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. In addition, our competitors may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. If we are unable to maintain technological advancements consistent with industry standards, our operations and financial condition may be adversely affected.
We are heavily reliant on our partners for access to key gene editing technology for manufacturing our product candidates and for the development of UCART19, ALLO-501 and ALLO-501A.*
A critical aspect to manufacturing allogeneic T cell product candidates involves gene editing the healthy donor T cells in an effort to avoid GvHD and to limit the patient’s immune system from attacking the allogeneic T cells. GvHD results when allogeneic T cells start recognizing the patient’s normal tissue as foreign. We use Cellectis’s TALEN gene-editing technology to inactivate a gene coding for TCRα, a key component of the natural antigen receptor of T cells, to cause the engineered T cells to be incapable of recognizing foreign antigens. Accordingly, when injected into a patient, the intent is for the engineered T cell

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not to recognize the tissue of the patient as foreign and thus avoid attacking the patient’s tissue. In addition, we use TALEN gene editing to inactivate the CD52 gene in donor T cells, which codes for the target of an anti-CD52 monoclonal antibody. Anti-CD52 monoclonal antibodies deplete CD52 expressing T cells in patients while sparing therapeutic allogeneic T cells lacking CD52. By administering an anti-CD52 antibody prior to infusing our product candidates, we believe we have the potential to reduce the likelihood of a patient’s immune system from rejecting the engineered allogeneic T cells for a sufficient period of time to enable a window of persistence during which the engineered allogeneic T cells can actively target and destroy the cancer cells.
We rely on an agreement with Cellectis for rights to use TALEN and electroporation technology for 15 select cancer targets, including BCMA, FLT3, CD70, DLL3 and other targets included in our pipeline. We also rely on Cellectis, through our agreement with Servier, for rights to UCART19 and ALLO-501. Pursuant to our agreement with Servier, we are also dependent on Servier for us to obtain rights to ALLO-501A from Cellectis. We would need an additional license from Cellectis or access to other gene-editing technology to research and develop product candidates directed at targets not covered by our existing agreements with Cellectis and Servier. In addition, the Cellectis gene-editing technology may fail to produce viable product candidates. Moreover, both Servier and Cellectis may terminate our respective agreements in the event of a material breach of the agreements, or upon certain insolvency events. If our agreements were terminated or we required other gene editing technology, such a license or technology may not be available to us on reasonable terms, or at all, particularly given the limited number of alternative gene-editing technologies in the market.
In addition, under the Servier Agreement, Servier is responsible for conducting the two clinical trials of UCART19, CALM and PALL. We plan to support Servier in advancing the CALM and PALL trials, and we expect Servier to support our clinical trials of ALLO-501 and ALLO-501A for the treatment of patients with R/R NHL. Other than the agreed-upon global research and development plan for UCART19, we have limited control over the nature or timing of Servier’s clinical trials and limited visibility into their day-to-day activities. In addition, we rely on Servier for access to data from the UCART19 trials, and as a result at any given time we may not be aware of one or more significant trial developments. If UCART19 encounters safety or efficacy problems, manufacturing problems, developmental delays, regulatory issues or other problems, our development plans and business would be significantly harmed. Additionally, other clinical trials being conducted by Servier may at times receive higher priority than research on our programs. Moreover, if Servier does not provide its share of support for the UCART19, ALLO-501 and ALLO-501A clinical trials, our expenses may be greater than we currently expect and we may have difficulty progressing our ongoing and planned clinical trials in a timely manner.
Our product candidates are based on novel technologies, which makes it difficult to predict the time and cost of product candidate development and obtaining regulatory approval.
We have concentrated our research and development efforts on our engineered allogeneic T cell therapy and our future success depends on the successful development of this therapeutic approach. We are in the early stages of developing our platform and there can be no assurance that any development problems we experience in the future will not cause significant delays or unanticipated costs, or that such development problems can be overcome. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical studies or commercializing our products on a timely or profitable basis, if at all. In addition, since we are in the early stages of clinical development, we do not know the doses to be evaluated in pivotal trials or, if approved, commercially. Finding a suitable dose may delay our anticipated clinical development timelines. In addition, our expectations with regard to our scalability and costs of manufacturing may vary significantly as we develop our product candidates and understand these critical factors.
The clinical study requirements of the FDA, European Medicines Agency (EMA) and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate are determined according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more complex and consequently more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. Approvals by the EMA and FDA for existing autologous CAR T therapies, such as Kymriah and Yescarta, may not be indicative of what these regulators may require for approval of our therapies. Also, while we expect reduced variability in our products candidates compared to autologous products, we do not have significant clinical data supporting any benefit of lower variability.  More generally, approvals by any regulatory agency may not be indicative of what any other regulatory agency may require for approval or what such regulatory agencies may require for approval in connection with new product candidates. Moreover, our product candidates may not perform successfully in clinical trials or may be associated with adverse events that distinguish them from the autologous CAR T therapies that have previously been approved. For instance, allogeneic product candidates may result in GvHD not experienced with autologous products. Even if we collect promising initial clinical data of our product candidates, longer-term

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data may reveal new adverse events or responses that are not durable. Unexpected clinical outcomes would significantly impact our business.
Our business is highly dependent on the success of UCART19, ALLO-501 and ALLO-501A. If we or Servier are unable to obtain approval for UCART19 and ALLO-501A and effectively commercialize UCART19 and ALLO-501A for the treatment of patients in approved indications, our business would be significantly harmed.*
Our business and future success depends on our ability to obtain regulatory approval of, and then successfully commercialize, our most advanced product candidates, UCART19 and ALLO-501A. UCART19 is in the early stages of development and has only been administered in a limited number of patients in Phase 1 clinical trials. The results to date may not predict results for our planned trial or any future studies of UCART19 or any other allogeneic CAR T product candidate. Because UCART19 and ALLO-501 are among the first allogeneic products to be evaluated in the clinic, the failure of either product candidate, or the failure of other allogeneic T cell therapies, may impede our ability to develop ALLO-501A, and significantly influence physicians’ and regulators’ opinions in regards to the viability of our entire pipeline of allogeneic T cell therapies, particularly if high or uncontrolled rates of GvHD are observed. If significant GvHD events are observed with the administration of UCART19, ALLO-501 or ALLO-501A, or if any of the product candidates is viewed as less safe or effective than autologous therapies, our ability to develop other allogeneic therapies may be significantly harmed.
We are also dependent on Servier to oversee the manufacturing of UCART19 and conduct the UCART19 trials in a timely and appropriate manner. Servier has experienced UCART19 supply issues that limited its ability to recruit new patients. Significant delays in enrollment, due to supply issues or results from the CALM and PALL studies or other reasons, could affect the progress and success of the CALM and PALL clinical trials, our leadership position in the allogeneic CAR T industry and the ability to progress additional product candidates.  In addition, we expect Servier to submit a revised pediatric investigation plan for UCART19 to the EMA in the first half of 2020. The EMA could reject the revised pediatric investigation plan, which would affect Servier’s ability to progress the PALL2 clinical trial on the timeframe currently anticipated or at all.
All of our product candidates, including UCART19 and ALLO-501A, will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. In addition, because UCART19 and ALLO-501 are our most advanced product candidates, and because our other product candidates are based on similar technology, if any of the product candidates encounters safety or efficacy problems, manufacturing problems, developmental delays, regulatory issues or other problems, our development plans and business would be significantly harmed.
Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.*
Undesirable or unacceptable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Approved autologous CAR T therapies and those under development have shown frequent rates of CRS and neurotoxicity, and adverse events have resulted in the death of patients. We expect similar adverse events for allogeneic CAR T product candidates. Our allogeneic CAR T cell product candidates undergo gene engineering by using lentivirus and TALEN nucleases that can cause insertion, deletion, or chromosomal translocation. These changes can cause allogeneic CAR T cells to proliferate uncontrollably and may cause adverse events. In addition, our allogeneic CAR T cell product candidates may cause unique adverse events related to the differences between the donor and patients, such as GvHD or infusion reaction.
In the PALL and CALM clinical trials, the most common severe or life threatening adverse events resulted from CRS, prolonged cytopenia and neutropenic sepsis. Multiple patients have died in these trials, including deaths that were attributed to UCART19. In the future, patients may experience additional adverse events related to the lymphodepletion regimen as well as UCART19, some of which may result in death. As we treat more patients with UCART19 in our clinical trials, new less common side effects may also emerge.
As an anti-CD19 CAR T cell therapy, we expect ALLO-501 and ALLO-501A to cause similar toxicities as UCART19. Other of our allogeneic CAR T product candidates may also cause similar or worse toxicities. For instance, because ALLO-715 may require a higher dose than UCART19 and could be used in a more elderly patient population, it is possible that the risk of GvHD or other adverse events for ALLO-715 could be greater than UCART19.

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If unacceptable toxicities arise in the development of our product candidates, we or Servier could suspend or terminate our trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. The data safety monitoring board may also suspend or terminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk, including risks inferred from other unrelated immunotherapy trials. Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from T cell therapy are not normally encountered in the general patient population and by medical personnel. We have trained and expect to have to train medical personnel using CAR T cell product candidates to understand the side effect profile of our product candidates for both our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient deaths. Any of these occurrences may harm our business, financial condition and prospects significantly.
Our clinical trials may fail to demonstrate the safety and efficacy of any of our product candidates, which would prevent or delay regulatory approval and commercialization.*
Before obtaining regulatory approvals for the commercial sale of our product candidates, including UCART19, ALLO-501A and ALLO-715, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials, including in any post-approval studies.
There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy, insufficient durability of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products.
In addition, for ongoing and any future trials that may be completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
Interim “top line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim “top line” or preliminary data from our clinical studies. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. For instance, we and Servier have published preliminary data from the CALM and PALL clinical trials, however such results are preliminary in nature, do not bear statistical significance and should not be viewed as predictive of ultimate success. It is possible that such results will not continue or may not be repeated in ongoing or future clinical trials of UCART19 or our other product candidates.
Preliminary or “top line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects.
We may not be able to file INDs to commence additional clinical trials on the timelines we expect, and even if we are able to, the FDA may not permit us to proceed.*
We plan to submit INDs for additional product candidates in the future. We cannot be sure that submission of an IND or IND amendment will result in the FDA allowing testing and clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such clinical trials. The manufacturing of allogeneic CAR T cell therapy remains an emerging and

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evolving field. Accordingly, we expect chemistry, manufacturing and control related topics, including product specification, will be a focus of IND reviews, which may delay the clearance of INDs. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND or clinical trial application, we cannot guarantee that such regulatory authorities will not change their requirements in the future.
We may encounter substantial delays in our clinical trials, or may not be able to conduct our trials on the timelines we expect.*
Clinical testing is expensive, time consuming and subject to uncertainty. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. Even if our trials begin as planned, issues may arise that could suspend or terminate such clinical trials. A failure of one or more clinical study can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely completion of clinical development include:
inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of clinical studies;
delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for clinical trials;
difficulty sourcing healthy donor material of sufficient quality and in sufficient quantity to meet our development needs;
delays in developing suitable assays for screening patients for eligibility for trials with respect to certain product candidates;
delays in reaching a consensus with regulatory agencies on study design;
delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;
delays in obtaining required institutional review board (IRB) approval at each clinical study site;
imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND application or amendment, or equivalent application or amendment; as a result of a new safety finding that presents unreasonable risk to clinical trial participants; a negative finding from an inspection of our clinical study operations or study sites; developments on trials conducted by competitors for related technology that raises FDA concerns about risk to patients of the technology broadly; or if FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;
delays in recruiting suitable patients to participate in our clinical studies;
difficulty collaborating with patient groups and investigators;
failure by our CROs, other third parties or us to adhere to clinical study requirements;
failure to perform in accordance with the FDA’s good clinical practice (GCP) requirements or applicable regulatory guidelines in other countries;
transfer of manufacturing processes to any new contract manufacturing organization (CMO) or our own manufacturing facilities or any other development or commercialization partner for the manufacture of product candidates;
delays in having patients complete participation in a study or return for post-treatment follow-up;
patients dropping out of a study;
occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;
the cost of clinical studies of our product candidates being greater than we anticipate;

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clinical studies of our product candidates producing negative or inconclusive results, which may result in our deciding, or regulators requiring us, to conduct additional clinical studies or abandon product development programs;
delays or failure to secure supply agreements with suitable raw material suppliers, or any failures by suppliers to meet our quantity or quality requirements for necessary raw materials; and
delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates for use in clinical studies or the inability to do any of the foregoing.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical study delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Monitoring and managing toxicities in patients receiving our product candidates is challenging, which could adversely affect our ability to obtain regulatory approval and commercialize.*
For our clinical trials of UCART19, ALLO-501 and ALLO-715 and in our planned clinical trials of other product candidates, we and Servier contract with academic medical centers and hospitals experienced in the assessment and management of toxicities arising during clinical trials. Nonetheless, these centers and hospitals may have difficulty observing patients and treating toxicities, which may be more challenging due to personnel changes, inexperience, shift changes, house staff coverage or related issues. This could lead to more severe or prolonged toxicities or even patient deaths, which could result in us or the FDA delaying, suspending or terminating one or more of our clinical trials, and which could jeopardize regulatory approval. We also expect the centers using our product candidates, if approved, on a commercial basis could have similar difficulty in managing adverse events. Medicines used at centers to help manage adverse side effects of our product candidates may not adequately control the side effects and/or may have a detrimental impact on the efficacy of the treatment. Use of these medicines may increase with new physicians and centers administering our product candidates.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.*
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:
the patient eligibility criteria defined in the protocol;
the size of the patient population required for analysis of the trial’s primary endpoints;
the proximity of patients to study sites;
the design of the trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
our ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will drop out of the trials before the infusion of our product candidates or trial completion.