Allogene Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Allogene is a clinical-stage immuno-oncology company developing off-the-shelf, genetically engineered allogeneic T-cell therapies. It had no approved products and reported no product revenue.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | None reported | |||
| Research and development expense | $47.3m | $31.8m | $89.3m | $55.2m |
| General and administrative expense | $15.9m | $14.2m | $31.5m | $27.2m |
| Total operating expenses | $63.2m | $46.0m | $120.8m | $82.4m |
| Net loss | $61.0m | $41.2m | $115.5m | $72.8m |
| Net loss per share, diluted | $0.53 | $0.41 | $1.03 | $0.74 |
Because the company had no product revenue, profit margins are not meaningful. Operating expenses and losses increased year over year, chiefly as research and development programs, personnel, external development costs, facilities, and stock-based compensation expanded. Lower interest income partly reflected lower yields on cash and investments.
At June 30, 2020, cash and cash equivalents were $280.4m and investments were $830.1m, totaling $1.087bn. Current assets were $909.6m versus current liabilities of $40.9m. Total liabilities were $95.1m, including $53.5m of operating lease liabilities; the filing reports no borrowings. Accumulated deficit was $511.6m.
For the six months, operating cash use was $67.5m, capital spending was $28.3m, and net financing cash provided was $616.8m. Net loss was $115.5m. Financing included $595.7m net proceeds from a June public offering and $14.8m from ATM sales. The offering issued 13.46m shares at $47 per share; shares outstanding rose to 139.23m from 124.27m at year-end 2019.
Changes versus the comparable period
- Q2 operating expenses rose 37% and net loss rose 48% year over year; for the six-month period, operating expenses rose 47% and net loss rose 59%.
- Six-month R&D expense increased $34.2m, including higher personnel and stock compensation, external product-development costs, and facilities costs. G&A rose $4.3m, partly offset by lower Pfizer transition-service costs.
- Cash and investments increased from $536.6m at December 31, 2019 to $1.087bn at June 30, 2020, largely following equity financing. Investment purchases and property spending drove investing cash outflow.
Outlook, risks, and unusual items
- Management expects continued losses and rising R&D, G&A, and capital expenditures. It expects existing cash and investments to fund operations for at least one year from the filing date, while also stating that additional capital will be needed to fully implement its business plan.
- COVID-19 adversely affected or threatened trial enrollment, patient follow-up, site activity, donor-material supply, and construction of the Newark manufacturing facility. Servier paused recruitment in the CALM and PALL trials in Q1 and resumed in Q2; CALM subsequently completed enrollment. Recruitment and follow-up in Allogene’s ALPHA, ALPHA2, and UNIVERSAL trials were also affected. Management said the overall timing and impact remained uncertain.
- Clinical milestones cited included initial ALPHA data presented in May 2020, initiation of the Phase 1/2 ALPHA2 trial in Q2, planned progression of ALPHA2 to Phase 2 in 2021, and expected initial UNIVERSAL data in Q4 2020. The company planned an IND for an ALLO-715/nirogacestat combination in H2 2020 and targeted IND submissions for ALLO-316 by year-end 2020 and ALLO-605 in 2021.
- Safety and development risks are substantial. The filing reports deaths in the CALM and PALL trials, including deaths attributed to UCART19; preliminary clinical findings may change. The company also describes potential serious toxicities, including cytokine release syndrome, neurotoxicity, infections, and graft-versus-host disease.
- License agreements include substantial contingent milestone and royalty obligations; timing and likelihood were not estimable. Non-cancellable purchase commitments were $5.6m. Lease liabilities were $53.5m, with undiscounted future lease payments of $90.5m before adjustments.
- After quarter-end, Allogene entered a 20-year solar power and energy services agreement for the Newark facility, expected to commence in Q1 2021. Termination could trigger an approximately $4.3m payment; the agreement also requires a $4.3m letter of credit.
- Stock-based compensation was $31.0m for the first half of 2020. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material pending legal proceedings were identified.
Most important facts for investors to verify
- Whether trial enrollment, follow-up, and timelines recover from COVID-19 disruptions, and whether planned clinical data and IND milestones are achieved.
- The maturity and completeness of clinical efficacy and safety evidence, particularly given reported trial deaths and the preliminary nature of some disclosed results.
- Whether the stated cash runway remains reasonable as clinical programs, manufacturing build-out, and operating costs expand; assess the potential need for further financing and dilution.
- Progress, cost, and timing of the Newark manufacturing facility and the company’s ability to secure reliable donor cells, raw materials, and contract manufacturing capacity.
- Potential future cash requirements from license milestones, royalties, leases, purchase commitments, and the post-quarter solar agreement.