Allogene Therapeutics, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019, with unaudited quarterly data for 2019. The company is a clinical-stage immuno-oncology business developing donor-derived, gene-edited, “off-the-shelf” T-cell therapies. It had no approved products and generated no product revenue.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $144.5 million | $151.9 million |
| General and administrative expense | $57.5 million | $41.0 million |
| Total operating expenses / operating loss | $202.0 million | $192.8 million |
| Net loss | $184.6 million | $211.5 million |
| Net loss per share, basic and diluted | $1.83 | $7.31 |
| Operating cash flow | $(137.4) million | $(44.7) million |
| Cash, cash equivalents and investments at year-end | $588.9 million | $721.4 million |
There was no meaningful revenue or profit margin to report because the company had no commercial product sales and incurred operating losses. The 2019 net loss narrowed by $26.9 million year over year, largely because 2018 included a $21.2 million convertible-note fair-value charge and $3.4 million of note issuance costs, while interest and other income rose $11.6 million. Operating expenses nevertheless increased $9.2 million. R&D expense declined $7.3 million because 2018 included $109.4 million of acquired in-process R&D expense; excluding that item, 2019 R&D spending increased substantially. G&A rose $16.5 million, primarily from higher personnel, stock-based compensation, and professional-service costs.
Year-end working capital was $511.5 million, total assets were $717.8 million, total liabilities were $88.8 million, and accumulated deficit was $396.1 million. The filing reports no outstanding conventional debt at year-end; the 2018 convertible notes converted into common stock at the IPO. Lease obligations were $93.3 million undiscounted, with a $51.3 million noncurrent lease liability reported on the balance sheet. Capital expenditures were $50.8 million in 2019. The company reported $179.4 million of cash, cash equivalents and restricted cash at year-end in its cash-flow statement; this includes $4.3 million of restricted cash.
Pipeline, changes and outlook
- UCART19: Servier sponsors Phase 1 adult and pediatric trials in relapsed/refractory (R/R) acute lymphoblastic leukemia (ALL). Interim results from 21 patients through October 2018 showed a 67% complete remission/complete remission with incomplete blood recovery rate; among the 17 patients receiving fludarabine, cyclophosphamide and an anti-CD52 antibody, the rate was 82%. No responses or cell expansion were observed in the four patients receiving chemotherapy without anti-CD52 treatment. The filing reports treatment-related deaths, including two described in the interim safety data and one additional death after that data cutoff. These early, limited results are not conclusive.
- ALLO-501: The company initiated its Phase 1 ALPHA trial in R/R non-Hodgkin lymphoma in 2019, completed enrollment in three dose-escalation cohorts, and expected initial data in the second quarter of 2020.
- ALLO-501A: FDA-cleared in December 2019 for a planned Phase 1/2 trial; initiation was expected in the second quarter of 2020, subject to manufacturing. The candidate removes rituximab-recognition domains intended to address a potential treatment-eligibility limitation with ALLO-501.
- ALLO-715: The Phase 1 UNIVERSAL trial in R/R multiple myeloma began in the third quarter of 2019. Initial data were expected in the fourth quarter of 2020. A combination study with SpringWorks’ investigational nirogacestat was planned for the second half of 2020, subject to regulatory clearance.
- Other development: The company planned to submit an IND for ALLO-316 by year-end 2020 and an IND for the BCMA-targeting TurboCAR candidate ALLO-605 in 2021. It began an iPSC-based research collaboration with Notch in late 2019.
- Manufacturing: Allogene leased approximately 118,000 square feet in Newark, California, for a cell-therapy facility. It expected most of the build-out to be completed in the second half of 2020 and cGMP manufacturing to begin in 2021; clinical supply continued to depend on contract manufacturers.
Management expected continuing net losses and increases in R&D, G&A and capital expenditures as trials, manufacturing development and public-company compliance costs expanded. It believed available cash, cash equivalents and investments would fund operations for at least 12 months from the filing date, but stated additional capital would be needed to fully implement its plans. In November 2019, it established a $250 million at-the-market equity program and sold shares for $54.2 million net proceeds through year-end; it subsequently raised another $14.8 million net in January 2020.
Risks, contingencies and unusual items
- Clinical programs are early-stage and subject to substantial safety and efficacy uncertainty. UCART19 interim data included serious toxicities and treatment-related deaths; lymphodepletion and anti-CD52 treatment may also increase infection and immune-suppression risks.
- Execution depends on scalable, consistent manufacturing, qualified donor cells, specialized raw materials and third-party manufacturers. Servier had experienced UCART19 supply issues that limited recruitment.
- The platform relies on licensed TALEN gene-editing technology and collaborations with Cellectis and Servier. Manufacturing-facility construction, validation and regulatory approval remain uncertain.
- The company expects to need additional financing; equity issuance may dilute shareholders. The filing also identifies competitive, regulatory, intellectual-property, reimbursement, personnel, data-security and operational risks.
- Potential milestone and royalty commitments under Pfizer, Cellectis, Servier and Notch agreements are contingent on future development, regulatory and sales events. Their timing and likelihood were not estimable. No material litigation was reported.
- 2019 included a $10.0 million upfront payment to Notch expensed as R&D and a $5.0 million investment in Notch, giving Allogene a 25% ownership interest. Stock-based compensation was $46.1 million, versus $18.6 million in 2018.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded that disclosure controls and internal controls were effective as of December 31, 2019. The auditor identified accrued R&D costs as a critical audit matter because estimating services received but not yet invoiced required significant judgment.
Key facts for investors to verify
- Whether trial results for UCART19, ALLO-501/501A and ALLO-715 support efficacy and acceptable safety as larger datasets mature, particularly given reported serious adverse events and deaths.
- Whether ALLO-501A and ALLO-715 trials and planned data readouts proceeded on the stated timelines, and whether anti-CD52 dosing improves cell expansion without unacceptable toxicity.
- Actual cash burn and runway relative to the company’s stated 12-month funding expectation, including subsequent ATM issuance, facility spending and potential dilution.
- Progress, cost and regulatory readiness of the Newark manufacturing facility, and continued reliance on CMOs and specialized suppliers.
- The scope and economics of collaboration and license obligations, including contingent milestones, royalties, cost sharing and rights to key gene-editing technology.