Business context and reporting period
Allogene Therapeutics, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2018. The company is a clinical-stage immuno-oncology business developing off-the-shelf, genetically engineered allogeneic T-cell therapies; it had no product revenue. Operations began in April 2018 after the company acquired assets from Pfizer. Because the company was newly formed and began operations during 2018, the filing provides no comparable prior-year operating results.
Financial results and liquidity
| Metric | Three months ended September 30, 2018 | Nine months ended September 30, 2018 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $10.9 million | $133.4 million |
| General and administrative expense | $11.3 million | $26.4 million |
| Operating loss | $22.2 million | $159.8 million |
| Net loss | $43.5 million | $181.0 million |
| Basic and diluted net loss per share | $10.71 | $16.38 |
The nine-month R&D expense included a $109.4 million noncash charge for acquired in-process research and development from the Pfizer asset acquisition. Q3 results also included a $19.4 million noncash increase in the fair value of convertible notes and $3.4 million of note issuance costs expensed as interest.
At September 30, 2018, cash and cash equivalents were $83.1 million, short- and long-term investments totaled $315.1 million, and total cash, cash equivalents and investments were approximately $398.3 million. Total assets were $435.2 million; total liabilities were $192.6 million. The company reported a $181.0 million accumulated deficit and no product-generated operating cash flow. Cash used in operations was $23.2 million; investing activities used $319.4 million, primarily for investment purchases; financing activities provided $426.7 million, mainly from preferred stock and convertible notes.
The $120.2 million principal amount of non-interest-bearing 2018 Notes had a September 30 fair value of $139.6 million and was converted at the October IPO closing into 7,856,176 common shares. The October IPO raised approximately $343.0 million net. Management expected available cash and investments to fund operations for at least 12 months after the report’s filing; it also said additional capital would be needed to fully implement the business plan. No gross margin is applicable because the company reported no revenue.
Material changes, outlook and risks
- In April 2018, the company acquired CAR-T assets and related agreements from Pfizer. The acquired in-process R&D charge accounts for most of the nine-month loss and makes the period’s operating expense profile atypical.
- The October 2018 IPO, subsequent conversion of preferred stock and notes, and October lease are post-quarter events. The IPO converted 11,743,987 preferred shares into 61,655,922 common shares; no preferred shares remained outstanding after closing.
- Management planned to submit an IND for ALLO-501 in the first half of 2019 and for ALLO-715 in 2019. UCART19 was being studied in Phase 1 adult and pediatric trials; Servier’s manufacturing challenges were expected to delay enrollment. Allogene said it was working with Servier to resolve them and did not expect them to affect ALLO-501 or ALLO-715 timelines.
- The company expects operating losses and R&D and G&A expenses to increase as programs advance, manufacturing capabilities are developed, and public-company costs grow. It may need further equity, debt, or collaboration funding; unavailable financing could force delays or reductions to development plans.
- Key risks include early-stage clinical and manufacturing uncertainty, reliance on Servier, Pfizer, Cellectis and contract manufacturers, regulatory and commercialization uncertainty, and potentially serious cell-therapy toxicities. The filing notes that multiple deaths occurred in UCART19 trials, including two attributed to UCART19.
- Potential future obligations include substantial contingent development, regulatory and sales milestones and royalties under Pfizer, Cellectis and Servier agreements. The company could not estimate their timing or likelihood. The August 2018 headquarters lease carries a $25.7 million recorded liability; an additional October lease had approximately $10.8 million of aggregate payments.
Most important facts for investors to verify
- Whether Servier resolves UCART19 manufacturing issues and enrollment resumes as planned.
- Whether ALLO-501 and ALLO-715 meet the stated IND timelines, including manufacturing readiness and regulatory acceptance.
- How clinical safety and efficacy data develop, particularly given reported UCART19-attributed deaths and risks including cytokine release syndrome and graft-versus-host disease.
- Whether the reported cash runway remains adequate as development, manufacturing, lease and public-company costs rise, and whether additional financing will be required.
- The potential financial impact of contingent milestone and royalty obligations under the Pfizer, Cellectis and Servier agreements.