Allogene Therapeutics, Inc. — Q3 2019 Form 10-Q
Business context and reporting period. Clinical-stage immuno-oncology company developing off-the-shelf allogeneic T-cell therapies for cancer. This unaudited report covers the three and nine months ended September 30, 2019. All amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial results and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development expense | $40.0 | $10.9 | $95.2 | $133.4 |
| General and administrative expense | $15.0 | $11.3 | $42.3 | $26.4 |
| Total operating expenses | $55.0 | $22.2 | $137.4 | $159.8 |
| Net loss | $(50.7) | $(43.5) | $(123.6) | $(181.0) |
| Net loss per share, basic and diluted | $(0.50) | $(10.71) | $(1.24) | $(16.38) |
- Cash, investments and liquidity: $601.9 of cash, cash equivalents and investments at September 30, 2019, compared with $721.4 at year-end 2018. Current assets were $509.8 and current liabilities $33.4. Management expected available cash and investments to fund operations for at least one year from the filing date.
- Cash flow: Operating activities used $87.1 in the first nine months, versus $23.2 used in the comparable 2018 period. Investing activities provided $156.2, primarily from investment maturities, while financing activities provided $2.5.
- Debt and obligations: No convertible notes remained outstanding at September 30, 2019; the 2018 notes converted to common stock at the IPO. Lease liabilities totaled $37.7, including $37.7 noncurrent. The company reported no off-balance-sheet arrangements.
- Margins: Not meaningful because the company had no product revenue. The filing does not report a useful operating margin.
Material changes versus the prior comparable period
- Q3 operating expenses rose 148% year over year, led by R&D expense up $29.1, reflecting pipeline development, higher personnel costs and facilities costs. G&A rose $3.7, mainly from personnel-related costs.
- Nine-month operating expenses fell 14%, but this comparison is affected by a $109.4 in-process R&D charge recorded in 2018 when assets were acquired from Pfizer. Excluding that one-time item, 2019 R&D spending increased as clinical and pipeline activity expanded.
- Nine-month net loss narrowed by $57.4, also reflecting the absence of 2018 convertible-note fair-value and issuance-cost charges, and higher interest income from cash and investments.
- Cash used in operations increased substantially year over year. Capital spending also increased: property and equipment purchases were $36.7 for the first nine months, including investment in facilities and laboratory infrastructure.
Outlook, commentary, risks and unusual items
- Management expects continued losses and rising R&D, G&A and capital expenditures. It states additional capital will be needed to fully implement the business plan; future financing may dilute shareholders or impose debt restrictions. If funding is unavailable, development plans may be delayed or reduced.
- Program milestones: the ALPHA Phase 1/2 trial of ALLO-501 was ongoing, with top-line Phase 1 data expected in the first half of 2020; the company planned a protocol amendment to explore dose, schedule and re-dosing. The UNIVERSAL Phase 1 trial of ALLO-715 began in Q3 2019. Servier expected UCART19 to advance to potential registrational trials in 2020.
- Key risks include clinical failure or delay, serious treatment toxicities, manufacturing and supply constraints, reliance on partners and licensors, and the need to build internal manufacturing capabilities. The filing notes UCART19 supply issues had limited new patient recruitment and reports severe or life-threatening events and patient deaths in the UCART19 trials, including deaths attributed to UCART19.
- Facility commitments are increasing. A Newark manufacturing-site lease for approximately 118,000 square feet has a 15-year, 8-month term, is expected to commence in 2020 and carries $36.2 of undiscounted payments. The company’s existing operating leases had $94.9 of undiscounted future payments, including the Newark lease.
- Subsequent event: On November 1, 2019, Allogene entered a Notch Therapeutics collaboration and invested $5.0 for a 25% fully diluted ownership interest, alongside a $10.0 upfront payment. Notch may receive research, development, regulatory and commercial milestones, including up to $283.0 per exclusive target and cell type, plus royalties.
- Other material contractual exposure includes contingent Pfizer milestones (up to $840.0 in aggregate potential regulatory and development milestones described in the filing), Cellectis milestones (up to $2.8 billion in aggregate development and sales milestones), and Servier milestones. These are contingent on future events and are not current debt.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter. It reported no pending legal matter believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether clinical data support safety and efficacy expectations, particularly in light of reported UCART19 deaths and the early-stage nature of the programs.
- Whether UCART19 supply constraints are resolved and Servier’s trials and anticipated 2020 development steps remain on schedule.
- Whether ALLO-501 top-line data arrive as expected in the first half of 2020, and what the planned protocol changes mean for trial design and interpretation.
- Cash burn, capital spending and the stated runway; the runway estimate is management’s expectation, not a guarantee.
- Construction, startup and operating costs for the Newark manufacturing facility, and the company’s ability to secure reliable clinical supply.
- The timing and potential financial impact of the Notch collaboration and other contingent milestone and royalty obligations.