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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

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  001-37368

ADAPTIMMUNE THERAPEUTICS PLC

(Exact name of Registrant as specified in its charter)

England and Wales

Not Applicable

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

60 Jubilee Avenue, Milton Park

Abingdon, Oxfordshire OX14 4RX

United Kingdom

(Address of principal executive offices)

(44) 1235 430000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

American Depositary Shares, each representing 6 Ordinary Shares, par value £0.001 per share

ADAP

The Nasdaq Global Select Market

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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “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 standard 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 August 4, 2020, the number of outstanding ordinary shares par value £0.001 per share of the Registrant is 927,968,286.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

5

Item 1.

Financial Statements:

5

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

5

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019

6

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019

7

Unaudited Condensed Consolidated Statements of Change in Equity for the three and six months ended June 30, 2020 and 2019

8

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

10

Notes to the Unaudited Condensed Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II — OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 3.

Defaults Upon Senior Securities

83

Item 4.

Mine Safety Disclosures

83

Item 5.

Other Information

83

Item 6.

Exhibits

84

Signatures

85

2

General information

In this Quarterly Report on Form 10-Q (“Quarterly Report”), “Adaptimmune,” the “Group,” the “Company,” “we,” “us” and “our” refer to Adaptimmune Therapeutics plc and its consolidated subsidiaries, except where the context otherwise requires.

Information Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this Quarterly Report are forward-looking statements.

These forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. These forward-looking statements are based on assumptions regarding our present and future business strategies and the environment in which we expect to operate in the future. Important factors that could cause those differences include, but are not limited to:

our ability to progress and continue with business operations as a result of the outbreak of coronavirus, SARS-CoV-2 (“COVID-19”) including our ability to treat and enroll patients in clinical trials, manufacture cell therapies for patients, obtain responses and approvals from regulatory authorities, progress third party relationships and collaborations, obtain and publish data from our clinical trials and source and procure resources and supplies needed for ongoing activities;
our ability to successfully advance our ADP-A2M4 (MAGE-A4), ADP-A2M4CD8 (MAGE-A4CD8) and ADP-A2AFP (AFP) products through clinical development and the timing within which we can recruit and treat patients in all of our clinical trials;
our ability to continue to fund our operations including as a result of the impact of the COVID-19 pandemic;
our ability to successfully and reproducibly manufacture SPEAR T-cells and other cell therapies in order to meet patient demand;
our ability to further develop our commercial manufacturing process for our SPEAR T-cells and other cell therapies, transfer such commercial process to third party contract manufacturers, if required, and for such third party contract manufacturers or ourselves to manufacture SPEAR T-cells to the quality and on the timescales we require;
our ability to successfully advance our SPEAR T-cell technology platform, to improve the safety and effectiveness of our existing SPEAR T-cell candidates, to identify and develop new cell therapies and to submit Investigational New Drug Applications, or INDs, for new cell therapies;
the rate and degree of market acceptance of cell therapy generally, and of our particular cell therapies including our SPEAR T-cells;
government regulation and approval, including, but not limited to, the expected regulatory approval timelines for our SPEAR T-cells and the level of pricing and reimbursement for our SPEAR T-cells, if approved for marketing;
our ability to successfully commercialize any products;
the existence of any third-party patents preventing further development of any of our cell therapies, including, any inability to obtain appropriate third party licenses, or enforcement of patents against us or our collaborators;
our ability to obtain granted patents covering our cell therapies and to enforce such patents against third parties;
volatility in equity markets in general, and in the biopharmaceutical sector in particular;

3

fluctuations in the price of materials and bought-in components;
the scope and timing of performance of our ongoing collaborations with GlaxoSmithKline (“GSK”) and with Astellas Pharma Inc. through its wholly-owned subsidiary Universal Cells Inc. (“Astellas”);
our relationships with suppliers, contract manufacturing organizations or CROs and other third-party providers including fluctuations in the price of materials and services, ability to obtain reagents particularly where such reagents are only available from a single source, and performance of third party providers;
increased competition from other companies in the biotechnology and pharmaceutical industries including where such competition impacts ability to recruit patients into clinical trials;
claims for personal injury or death arising from the use of our cell therapies;
our ability to attract and retain qualified personnel; and
additional factors that are not known to us at this time.

Additional factors that could cause actual results, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results to differ materially include, but are not limited to, those discussed under “Risk Factors” in Part II, Item 1A in this Quarterly Report and in our other filings with the Securities and Exchange Commission (the “SEC”). Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Quarterly Report not to occur. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only at the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this Quarterly Report might not occur, and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive of, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.

4

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

June 30, 

December 31, 

    

2020

    

2019

Assets

Current assets

Cash and cash equivalents

$

122,359

$

50,412

Marketable securities - available-for-sale debt securities

296,629

39,130

Other current assets and prepaid expenses (including current portion of clinical materials)

39,099

30,947

Total current assets

458,087

120,489

Restricted cash

4,324

4,496

Clinical materials

1,744

2,503

Operating lease right-of-use assets, net of accumulated amortization

18,892

20,789

Property, plant and equipment, net of accumulated depreciation of $26,100 (2019: $23,649)

27,020

31,068

Intangibles, net of accumulated amortization

2,134

2,198

Total assets

$

512,201

$

181,543

Liabilities and stockholders’ equity

Current liabilities

Accounts payable

$

8,766

$

6,357

Operating lease liabilities, current

2,493

2,493

Accrued expenses and other accrued liabilities

23,836

23,363

Deferred revenue, current

3,464

2,128

Total current liabilities

38,559

34,341

Operating lease liabilities, non-current

20,814

22,966

Deferred revenue, non-current

44,651

Other liabilities, non-current

592

598

Total liabilities

104,616

57,905

Stockholders’ equity

Common stock - Ordinary shares par value £0.001, 1,038,249,630 authorized and 927,668,946 
issued and outstanding (2019: 785,857,300 authorized and 631,003,568 issued and outstanding)

1,324

943

Additional paid in capital

928,777

585,623

Accumulated other comprehensive loss

(8,805)

(7,264)

Accumulated deficit

(513,711)

(455,664)

Total stockholders' equity

407,585

123,638

Total liabilities and stockholders’ equity

$

512,201

$

181,543

See accompanying notes to unaudited condensed consolidated financial statements.

5

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

Three months ended

    

Six months ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Revenue

$

502

$

157

$

1,263

$

157

Operating expenses

Research and development

(20,460)

(25,511)

 

(41,724)

 

(47,530)

General and administrative

(10,295)

(10,148)

 

(19,556)

 

(21,921)

Total operating expenses

(30,755)

(35,659)

(61,280)

 

(69,451)

Operating loss

(30,253)

(35,502)

 

(60,017)

 

(69,294)

Interest income

1,147

757

 

1,877

 

1,709

Other (expense) income, net

(749)

(6,277)

 

188

 

(847)

Loss before income taxes

(29,855)

(41,022)

 

(57,952)

 

(68,432)

Income taxes

(25)

(65)

 

(95)

 

(67)

Net loss attributable to ordinary shareholders

$

(29,880)

$

(41,087)

$

(58,047)

$

(68,499)

Net loss per ordinary share

Basic and diluted

$

(0.04)

$

(0.07)

$

(0.07)

$

(0.11)

Weighted average shares outstanding:

Basic and diluted

822,725,556

629,355,975

 

781,235,457

 

628,655,278

See accompanying notes to unaudited condensed consolidated financial statements.

6

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Three months ended

Six months ended

June 30, 

June 30, 

    

2020

    

2019

2020

    

2019

Net loss

$

(29,880)

$

(41,087)

$

(58,047)

$

(68,499)

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments, net of tax of $0, $0, $0 and $0

1,194

4,842

19,105

1,299

Foreign currency losses on intercompany loan of a long-term investment nature, net of tax of $0 and $0

(1,108)

(20,759)

Unrealized gains on available-for-sale debt securities

Unrealized holding gains on available-for-sale debt securities, net of tax of $0, $0, $0 and $0

699

68

113

278

Reclassification adjustment for gains on available-for-sale debt securities included in net loss, net of tax of $0 and $0

(13)

(13)

Total comprehensive loss for the period

$

(29,095)

$

(36,190)

$

(59,588)

$

(66,935)

See accompanying notes to unaudited condensed consolidated financial statements.

7

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

(In thousands, except share data)

Accumulated other

comprehensive loss

Accumulated

unrealized

Accumulated

(losses)

foreign

gains on

Additional

currency

available-for-

Total

Common

Common

paid in

translation

sale debt

Accumulated

stockholders'

    

stock

    

stock

    

capital

    

adjustments

    

securities

    

deficit

    

equity

Balance as of 1 January 2020

631,003,568

$

943

$

585,623

$

(7,302)

$

38

$

(455,664)

$

123,638

Net loss

 

 

 

 

 

 

(28,167)

 

(28,167)

Issuance of shares upon exercise of stock options

 

4,610,772

 

6

 

888

 

 

 

 

894

Issuance of shares upon completion of public offering, net of issuance costs

144,900,000

190

90,360

90,550

Other comprehensive loss

Foreign currency translation adjustments

 

 

 

 

17,911

 

 

 

17,911

Foreign currency losses on intercompany loan of a long-term investment nature, net of tax of $-

(19,651)

(19,651)

Unrealized holding losses on available-for-sale debt securities, net of tax of $-

 

 

 

 

 

(586)

 

 

(586)

Share-based compensation expense

 

 

 

1,448

 

 

 

 

1,448

Balance as of March 31, 2020

 

780,514,340

$

1,139

$

678,319

$

(9,042)

$

(548)

$

(483,831)

$

186,037

Net loss

 

 

 

 

 

 

(29,880)

 

(29,880)

Issuance of shares upon exercise of stock options

 

5,704,606

 

7

 

4,174

 

 

 

 

4,181

Issuance of shares upon completion of public offering, net of issuance costs

141,450,000

178

243,660

243,838

Other comprehensive income

Foreign currency translation adjustments

 

 

 

 

1,194

 

 

 

1,194

Foreign currency losses on intercompany loan of a long-term investment nature, net of tax of $-

(1,108)

(1,108)

Unrealized holding gains on available-for-sale debt securities, net of tax of $-

 

 

 

 

 

699

 

 

699

Share-based compensation expense

 

 

 

2,624

 

 

 

 

2,624

Balance as of June 30, 2020

 

927,668,946

$

1,324

$

928,777

$

(8,956)

$

151

$

(513,711)

$

407,585

See accompanying notes to unaudited condensed consolidated financial statements.

8

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

(In thousands, except share data)

Accumulated other

comprehensive loss

Accumulated

Accumulated

unrealized

foreign

gains (losses) on

Additional

currency

available-for-

Total

Common

Common

paid in

translation

sale debt

Accumulated

stockholders’

stock

stock

capital

adjustments

securities

deficit

equity

Balance as of 1 January 2019

 

627,454,270

 

939

 

574,208

 

(9,607)

 

(156)

 

(318,499)

 

246,885

Net loss

 

  

 

  

 

  

 

  

 

  

 

(27,412)

 

(27,412)

Issuance of shares upon exercise of stock options

 

840,432

 

1

 

35

 

 

 

 

36

Other comprehensive loss

Foreign currency translation adjustments

 

 

 

 

(3,543)

 

 

 

(3,543)

Unrealized holding gains on available-for-sale debt securities, net of tax of $-

 

 

 

 

 

210

 

 

210

Share-based compensation expense

 

 

 

3,479

 

 

 

 

3,479

Balance as of March 31, 2019

 

628,294,702

$

940

$

577,722

$

(13,150)

$

54

$

(345,911)

$

219,655

Net loss

 

 

 

 

 

 

(41,087)

 

(41,087)

Issuance of shares upon exercise of stock options

 

2,377,876

 

3

 

327

 

 

 

 

330

Other comprehensive income before reclassifications

Foreign currency translation adjustments

 

 

 

 

4,842

 

 

 

4,842

Unrealized holding gains on available-for-sale debt securities, net of tax of $-

 

 

 

 

 

68

 

 

68

Reclassification from accumulated other comprehensive loss of gains on available-for-sale debt securities included in net income, net of tax of $-

(13)

(13)

Share-based compensation expense

 

 

 

3,196

 

 

 

 

3,196

Balance as of June 30, 2019

 

630,672,578

$

943

$

581,245

$

(8,308)

$

109

$

(386,998)

$

186,991

See accompanying notes to unaudited condensed consolidated financial statements.

9

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Six months ended

    

June 30, 

    

2020

    

2019

    

Cash flows from operating activities

Net loss

$

(58,047)

$

(68,499)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

3,583

3,642

Amortization

464

333

Share-based compensation expense

4,072

6,675

Unrealized foreign exchange (gains) losses

(2,004)

1,048

Other

718

(166)

Changes in operating assets and liabilities:

Increase in receivables and other operating assets

(10,104)

(16,851)

Decrease in non-current operating assets

615

1,263

Increase (decrease) in payables and other current liabilities

3,571

(876)

Increase in deferred revenue

49,074

3,060

Net cash used in operating activities

(8,058)

(70,371)

Cash flows from investing activities

Acquisition of property, plant and equipment

(460)

(1,202)

Acquisition of intangibles

(407)

(922)

Maturity or redemption of marketable securities

39,931

54,324

Investment in marketable securities

(298,016)

(15,983)

Net cash (used in) provided by investing activities

(258,952)

36,217

Cash flows from financing activities

Proceeds from issuance of common stock, net of issuance costs

334,388

Proceeds from exercise of stock options

5,075

366

Net cash provided by financing activities

339,463

366

Effect of currency exchange rate changes on cash, cash equivalents and restricted cash

(678)

289

Net increase (decrease) in cash, cash equivalents and restricted cash

71,775

(33,499)

Cash, cash equivalents and restricted cash at start of period

54,908

72,476

Cash, cash equivalents and restricted cash at end of period

$

126,683

$

38,977

See accompanying notes to unaudited condensed consolidated financial statements.

10

ADAPTIMMUNE THERAPEUTICS PLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 General

Adaptimmune Therapeutics plc is registered in England and Wales. Its registered office is 60 Jubilee Avenue, Milton Park, Abingdon, Oxfordshire, OX14 4RX, United Kingdom. Adaptimmune Therapeutics plc and its subsidiaries (collectively “Adaptimmune” or the “Company”) is a clinical-stage biopharmaceutical company primarily focused on providing novel cell therapies to people with cancer. We are a leader in the development of T-cell therapies for solid tumors. The Company’s proprietary SPEAR (Specific Peptide Enhanced Affinity Receptor) T-cell platform enables it to identify cancer targets, find and genetically engineer T-cell receptors (“TCRs”) against those targets, and produce therapeutic candidates (“SPEAR T-cells”) for administration to patients.

The Company is subject to a number of risks similar to other biopharmaceutical companies in the early stage of clinical development including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical programs or clinical programs, the need to obtain marketing approval for its SPEAR T-cells, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s SPEAR T-cells, the need to develop a reliable commercial manufacturing process, the need to commercialize any T-cell therapies that may be approved for marketing, and protection of proprietary technology. If the Company does not successfully commercialize any of its SPEAR T-cells, it will be unable to generate product revenue or achieve profitability. The Company had an accumulated deficit of $513.7 million as of June 30, 2020.

Note 2 Summary of Significant Accounting Policies

(a)          Basis of presentation

The condensed consolidated financial statements of Adaptimmune Therapeutics plc and its subsidiaries and other financial information included in this Quarterly Report are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars. All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated on consolidation.

The unaudited condensed consolidated financial statements presented in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2020 (the “Annual Report”). The balance sheet as of December 31, 2019 was derived from audited consolidated financial statements included in the Company’s Annual Report but does not include all disclosures required by U.S. GAAP. The Company’s significant accounting policies are described in Note 2 to those consolidated financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. However, these interim financial statements include all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to fairly state the results of the interim period. The interim results are not necessarily indicative of results to be expected for the full year.

11

(b)          Use of estimates in interim financial statements

The preparation of interim financial statements, in conformity with U.S. GAAP and SEC regulations, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the interim financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are primarily made in relation to the valuation of share options, valuation allowances relating to deferred tax assets, revenue recognition, estimation of the incremental borrowing rate for operating leases, estimating clinical trial expenses and estimating R&D tax and expenditure credits. If actual results differ from the Company’s estimates, or to the extent these estimates are adjusted in future periods, the Company’s results of operations could either benefit from, or be adversely affected by, any such change in estimate.

(c)          Fair value measurements

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The hierarchy defines three levels of valuation inputs:

Level 1 - Quoted prices in active markets for identical assets or liabilities

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3 - Unobservable inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability

The carrying amounts of the Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The fair value of marketable securities, which are measured at fair value on a recurring basis is detailed in Note 6, Fair value measurements.

(d)          New accounting pronouncements

Adopted in the period

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

On January 1, 2020, the Company adopted ASU 2018-15 – Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The guidance 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 (and hosting arrangements that include an internal use software license). The Company elected to apply the guidance prospectively to all implementation costs incurred after the date of adoption. The guidance has not had a material effect on the condensed consolidated financial statements.

Simplifying the Accounting for Income Taxes

On January 1, 2020, the Company adopted ASU 2019-12 – Simplifying the Accounting for Income Taxes (Topic 740). The simplifications to accounting for income taxes cover a variety of areas, including the removal of the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income). The changes also add a requirement for an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. Most of the amendments should be applied on a prospective basis. The guidance has not had a material effect on the condensed consolidated financial statements.

12

Changes to the Disclosure Requirements for Fair Value Measurement

On January 1, 2020, the Company adopted ASU 2018-13 – Fair Value Measurement (Topic 820) - Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Certain amendments apply prospectively with all other amendments applied retrospectively to all periods presented upon their effective date. The guidance has not had a material effect on the condensed consolidated financial statements.

Revenue Recognition in Collaborative Arrangements

On January 1, 2020, the Company adopted ASU 2018-18 – Collaborative Arrangements — Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. The guidance has been applied retrospectively to all contracts that were not completed at the date of initial application of Topic 606. The guidance has not had a material effect on the condensed consolidated financial statements because it did not change the Company’s accounting for existing or previous collaborative arrangements.

To be adopted in future periods

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit losses, which replaces the incurred loss impairment methodology for financial instruments in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for the fiscal year beginning January 1, 2020, including interim periods within that fiscal year. In November 2019, the FASB issued ASU 2019-10 which resulted in the postponement of the effective date of the new guidance for eligible smaller reporting companies to the fiscal year beginning January 1, 2023. The Company currently intends to adopt the guidance in the fiscal year beginning January 1, 2023. The guidance must be adopted using a modified-retrospective approach and a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Company is currently evaluating the impact of the guidance on its condensed consolidated financial statements.

Note 3 Revenue

The Company has two contracts with customers: a collaboration and license agreement with GSK (the “GSK Collaboration and License Agreement”) and a collaboration agreement with Astellas Pharma Inc. (the “Astellas Collaboration Agreement”) through its wholly-owned subsidiary, Universal Cells, Inc. (“Astellas”).

Development revenue from contracts with customers in the three and six months ended June 30, 2020 comprises the following (in thousands):

Three months ended

 

Six months ended

 

June 30, 

June 30, 

     

2020

     

2019

2020

     

2019

Development revenue

 

$

502

 

$

157

$

1,263

 

$

157

 

$

502

 

$

157

$

1,263

 

$

157

13

Deferred revenue increased by $46.0 million from $2.1 million at January 1, 2020 to $48.1 million at June 30, 2020, primarily due to amounts invoiced in the period of $50.0 million under the Astellas Collaboration Agreement. Revenue recognized in the three and six months ended June 30, 2020 of $0.4 million and $1.2 million, respectively, was included in deferred revenue at January 1, 2020.

The Astellas Collaboration Agreement

On January 13, 2020, the Company entered into the Astellas Collaboration Agreement. The Company received $50.0 million as a non-refundable upfront payment in January 2020 after entering into the agreement. Under the agreement the parties will agree on up to three targets and will co-develop T-cell therapies directed to those targets pursuant to an agreed research plan. For each target, Astellas will fund co-development up until completion of a Phase 1 trial for products directed to such target.

Upon successful completion of the Phase 1 trial for a product, Astellas and Adaptimmune will elect whether to progress with co-development and co-commercialization of such product, or to allow the other party to pursue the candidate independently. If the parties progress with co-development and co-commercialization of a product, then each party will grant the other party a co-exclusive license to co-develop and co-commercialize such product in the field of T-cell therapy. If a product is developed solely by one party, then the other party will grant to the continuing party an exclusive license to develop and commercialize such product in the field of T-cell therapy.

In the three months ended June 30, 2020, the parties nominated the target for the first collaboration program and the Company has commenced development of this target under the agreement and has begun recognizing revenue for this performance obligation.

In addition, Astellas was also granted the right to develop, independently of Adaptimmune, allogeneic T-cell therapy candidates directed to two targets selected by Astellas. Astellas will have sole rights to develop and commercialize products resulting from these two targets.

Under the terms of the agreement, Adaptimmune could be entitled to receive up to $847.5 million in further payments, including:

Development milestones of up to $73.75 million for each co-developed and co-commercialized product; and
Development milestones of up to $147.5 million per product and up to $110.0 million in sales milestones for products developed unilaterally by Astellas.

In addition, Adaptimmune is entitled to receive research funding of up to $7.5 million per year on a per collaboration target basis, which is payable on a quarterly basis within standard payment terms, and tiered royalties on net sales in the mid-single to mid-teen digits.

In consideration for rights under certain contributed Astellas technology for a product unilaterally developed by Adaptimmune, Astellas could be eligible to receive up to $552.5 million, including up to $147.5 million in milestone payments per product, and up to $110.0 million in sales milestones for products developed unilaterally by Adaptimmune. In addition, Astellas is entitled to receive tiered royalties on net sales in the mid-single to mid-teen digits.

To the extent that Astellas and Adaptimmune co-develop and co-commercialize any product, the parties would share equally all worldwide costs and profits.

Either party can terminate the agreement in the event of material breach or insolvency of the other party. Astellas can terminate the Agreement for convenience in its entirety or partly in relation to any targets and products directed to such targets. Adaptimmune can terminate the Agreement for convenience in relation to any target it is unilaterally developing and to products directed to such target.

The Company has assessed the agreement under the provisions of ASC 606, Revenue from Contracts with Customers and ASC 808, Collaborative Arrangements. The Company determined that Astellas is a customer and has applied the provisions of ASC 606 to the contract and related performance obligations. The Company identified the following performance obligations under the agreement: (i) research services and rights granted under the co-exclusive for each of the three co-development targets and (ii) the rights granted for each of the two independent Astellas targets.

The aggregate transaction price at inception of the agreement was the $50.0 million upfront payment. Future development milestones are not considered probable as of June 30, 2020 and have not been included in the transaction price. Reimbursement of the research funding over the co-development period (up until completion of a Phase 1 trial for products directed to such target) is variable

14

consideration and included in the transaction price as of June 30, 2020 to the extent that a significant reversal of revenue is not probable. The Company may also receive sales milestones upon the achievement of specified levels of annual net sales by Astellas under an independent Astellas program. These amounts have not been included within the transaction price as of June 30, 2020 because they are sales-based and would be recognized when the subsequent sales occur.

The aggregate transaction price is allocated to the performance obligations depending on the relative standalone selling price of the performance obligations. In determining the best estimate of the standalone selling price, the Company considered internal pricing objectives it used in negotiating the contract, together with internal data regarding the cost and margin of providing research services and adjusted-market data from comparable arrangements. The variable consideration is allocated to the performance obligation to which it relates.

The amount of the transaction price allocated to the performance obligation is recognized as or when the Company satisfies the performance obligation. The Company expects to satisfy the performance obligations relating to the three co-development targets as development progresses and recognizes revenue based on an estimate of the percentage of completion of the project determined based on the costs incurred on the project as a percentage of the total expected costs. The Company considers that this depicts the progress of the project, where the significant inputs would be internal project resources and third-party costs. The determination of the percentage of completion requires the Company to estimate the costs-to-complete the project. The Company makes a detailed estimate of the costs-to-complete, which is re-assessed every reporting period based on the latest project plan and discussions with project teams. If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate. The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs. The revenue allocated to the research services will be recognized as development of products directed to the target progresses up until completion of a Phase 1 trial.

The Company has determined that the performance obligations relating to the two independent Astellas targets would be recognized at a point-in-time, upon commencement of the licenses in the event of nomination of the target, since they are right-to-use licenses.

The amount of the transaction price that is allocated to performance obligations that are unsatisfied or partially satisfied under the agreement as of June 30, 2020 was $62.2 million, of which $13.7 million is allocated to the rights granted for each of the two independent Astellas targets, $6.6 million is allocated to research services and rights under the co-exclusive license for each of the second and third co-development targets, and $21.6 million is allocated to research services and rights granted under the co-exclusive license for the first co-development target.

Note 4 Other (expense) income, net

Other (expense) income, net consisted of the following (in thousands):

Three months ended

Six months ended

June 30, 

June 30, 

     

2020

     

2019

     

2020

     

2019

Foreign exchange (losses) gains

 

$

(182)

 

$

(6,403)

 

$

907

 

$

(1,013)

Other

 

(567)

 

126

 

 

(719)

 

166

 

$

(749)

 

$

(6,277)

$

188

 

$

(847)

Note 5 Loss per share

The dilutive effect of 89,998,033 and 97,292,240 stock options outstanding as of June 30, 2020 and 2019 respectively have been excluded from the diluted loss per share calculation for the three and six months ended June 30, 2020 and 2019 respectively, because they would have an antidilutive effect on the loss per share for the period.

15

Note 6 Fair value measurements

Assets and liabilities measured at fair value on a recurring basis based on Level 1, Level 2, and Level 3 fair value measurement criteria as of June 30, 2020 are as follows (in thousands):

Fair value measurements using

June 30, 

Level 1

Level 2

Level 3

     

2020

    

    

    

Assets:

Corporate debt securities

 

$

288,632

 

$

288,632

 

 

Agency bonds

5,997

5,997

Treasury bills

2,000

2,000

 

$

296,629

 

$

288,632

 

$

7,997

 

$

The Company estimates the fair value of available-for-sale debt securities with the aid of a third party valuation service, which uses actual trade and indicative prices sourced from third-party providers on a daily basis to estimate the fair value. If observed market prices are not available (for example securities with short maturities and infrequent secondary market trades), the securities are priced using a valuation model maximizing observable inputs, including market interest rates.

Note 7 — Marketable securities

As of June 30, 2020, the Company has the following investments in marketable securities (in thousands):

Gross

Gross

Aggregate

Remaining

Amortized

Unrealized

Unrealized

Estimated

    

Contractual Maturity

    

Cost

    

Gains

    

Losses

    

Fair Value

Available-for-sale debt securities:

 

  

 

  

 

  

 

  

 

  

Corporate debt securities

 

Less than 3 months

$

17,478

$

36

$

$

17,514

Treasury bills

Less than 3 months

1,999

1

2,000

Corporate debt securities

3 months to 1 year

118,989

548

(25)

119,512

Agency bonds

1 year to 2 years

5,991

6

5,997

Corporate debt securities

1 year to 2 years

152,021

28

(443)

151,606

 

  

$

296,478

$

619

$

(468)

$

296,629

As of June 30, 2020 and December 31, 2019, the aggregate fair value of securities held by the Company in an unrealized loss position was $168.2 million and $2.0 million respectively, which consisted of 26 and one separate securities, respectively. No securities have been in an unrealized loss position for more than one year.

As of June 30, 2020, the securities in an unrealized loss position are not considered to be other than temporarily impaired because the impairments are not severe and have been for a short duration. The Company does not intend to sell the debt securities in an unrealized loss position and believes that it has the ability to hold the debt securities to maturity.

16

Note 8 — Other current assets

Other current assets consisted of the following (in thousands):

June 30, 

December 31, 

    

2020

    

2019

Corporate tax receivable

 

$

26,746

 

$

19,284

Prepayments

 

7,903

 

8,395

Clinical materials

 

1,521

 

1,459

Other current assets

 

2,929

 

1,809

$

39,099

$

30,947

In July 2020, the Company received $18.7 million of the above Corporate tax receivable balance, reimbursable Research & Development Tax Credits relating to the previous financial year included within Corporate tax receivable as of June 30, 2020. The remainder of the Corporate tax receivable balance above relates to 2020.

Note 9 Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

June 30, 

December 31, 

    

2020

    

2019

Accrued clinical and development expenditures

$

9,219

$

8,782

Accrued employee expenses

9,892

6,863

Other accrued expenditures

2,057

2,662

Accrued purchase commitments

2,500

5,000

Other

 

168

 

56

$

23,836

$

23,363

In 2016, the Company entered into a supply agreement with ThermoFisher for the supply of the Dynabeads® CD3/CD28 technology. The supply agreement runs until December 31, 2025. Under the supply agreement, the Company is required to purchase its requirements for CD3/CD28 magnetic bead product exclusively from ThermoFisher for a period of 5 years. There are minimum purchasing obligations of $2.5 million due within the next year, which are included within accrued purchase commitments above.

Note 10 Share-based compensation

The following table shows the total share-based compensation expense included in the unaudited consolidated statements of operations (in thousands):

Three months ended

Six months ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Research and development

$

929

$

786

$

1,907

$

2,807

General and administrative

 

1,695

 

2,410

 

2,165

3,868

$

2,624

$

3,196

$

4,072

$

6,675

17

The following table shows information about share options and options which have a nominal exercise price (similar to restricted stock units (RSUs)) granted:

Three months ended

Six months ended

June 30, 

June 30, 

2020

    

2019

    

2020

    

2019

Number of options over ordinary shares granted

2,738,936

936,696

12,968,216

11,743,896

Weighted average fair value of ordinary shares options

$

0.30

$

0.39

$

0.47

$

0.54

Number of additional options with a nominal exercise price granted

778,120

459,240

6,838,816

6,957,366

Weighted average fair value of options with a nominal exercise price

$

0.43

0.70

$

0.71

$

0.93

Note 11 Stockholders’ equity

On January 24, 2020, the Company closed an underwritten public offering of 21,000,000 American Depository Shares (ADSs) which, together with the full exercise by the underwriters of their option to purchase an additional 3,150,000 ADSs, generated net proceeds of $90.5 million.

On June 4, 2020, the Company closed an underwritten public offering of 23,575,000 ADSs, which included 3,075,000 ADSs pursuant to the full exercise by the underwriters of their option to purchase additional ADSs and generated net proceeds of $243.8 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2019, included in our Annual Report on Form 10-K that was filed with the SEC on February 27, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on providing novel cell therapies to people with cancer. We are a leader in the development of T-cell therapies for solid tumors. Our proprietary SPEAR (Specific Peptide Enhanced Affinity Receptor) T-cell platform enables us to identify cancer targets, find and genetically engineer T-cell receptors (“TCRs”) against those targets, and produce therapeutic candidates (“SPEAR T-cells”) for administration to patients. Using our affinity engineered TCRs, we aim to become the first company to have a TCR T-cell approved for the treatment of a solid tumor indication.

As the outbreak of COVID-19 continues, we remain focused on ensuring the safety of our workforce and continuing, where possible, to safely treat patients with our cell therapies. Many of our clinical sites are currently restricted in their ability to treat patients with cell therapies in clinical trials. We are working with these clinical sites to continue screening patients for eligibility when possible and to ensure we are in a position to treat patients when those clinical sites are able to do so. Our facilities in the United States (“U.S.”) and the United Kingdom (“U.K.”) remain open to support manufacturing and delivery of our cell therapies and research and development of new cell therapies. Further information on risks related to COVID-19 is provided in the “Information Regarding Forward-Looking Statements” and “Risk Factors” sections.

18

We have clinical trials ongoing with our wholly-owned ADP-A2M4, ADP-A2M4CD8, and ADP-A2AFP SPEAR T-cell therapies.

SPEARHEAD-1 Phase 2 Trial with ADP-A2M4: A Phase 2 clinical trial is underway in synovial sarcoma and myxoid round cell liposarcoma (“MRCLS”) indications. Subject to the successful conclusion of the SPEARHEAD-1 study, which we aim to fully enroll during the first half of 2021, and approval of a Biologics License Application by the FDA, we plan to commercially launch ADP-A2M4 in 2022. Orphan Drug designation for ADP-A2M4 for the treatment of soft tissue sarcomas has been granted in the European Union and U.S. together with Regenerative Medicine Advanced Therapy (RMAT) designation in the U.S. for the treatment of synovial sarcoma. We have also recently been granted access to the Priority Medicines (“PRIME”) Regulatory Support initiative by the European Medicines Agency (“EMA”) for ADP-A2M4 for the treatment of synovial sarcoma.

SPEARHEAD-2 Phase 2 Trial with ADP-A2M4: We have initiated a Phase 2 trial combining ADP-A2M4 with pembrolizumab in ten patients with head and neck cancer. The first clinical site is now active and other clinical sites are in the process of being initiated.

SURPASS Phase 1 Trial with ADP-A2M4CD8: Enrollment has started in a Phase 1 trial for a next generation SPEAR T-cell, ADP-A2M4CD8. We are focussing on the treatment of patients with lung, gastroesophageal, head and neck and bladder cancers. This next generation SPEAR T-cell utilizes the same engineered T-cell receptor as ADP-A2M4, but with the addition of a CD8α homodimer. The addition of the CD8α homodimer has been shown in vitro to increase cytokine release and SPEAR T-cell potency. Initial responses were reported in May 2020 for three of the first four patients treated in the trial as follows:

o an unconfirmed response in a patient with head and neck cancer; and
o two responses (one confirmed and one unconfirmed) in patients with esophagogastric junction (“EGJ”) cancer.

Based on the responses seen in the Phase 1 clinical trial using ADP-A2M4 and these initial responses seen in the SURPASS trial, we are currently planning to initiate a Phase 2 clinical trial with ADP-A2M4CD8 in gastroesophageal cancers in the first half of 2021.

ADP-A2M4 Pilot Trial: Our Phase 1 clinical trial of ADP-A2M4 in urothelial, melanoma, head and neck, ovarian, non-small cell lung, esophageal and gastric, synovial sarcoma and MRCLS cancers has now completed enrollment. A data update on the trial was presented at ASCO on May 29, 2020. Clinical responses and promising durability was reported in patients with synovial sarcoma, with a 50% response rate (eight partial responses in 16 patients treated) reported, including an unconfirmed partial response (44% response rate without inclusion of unconfirmed partial response). Responses were also reported in head and neck cancer (one confirmed partial response in three patients treated) and lung cancer (one confirmed partial response in two patients treated), with evidence of anti-tumor activity in ovarian cancer, bladder cancer and melanoma. A radiation sub-study under the Phase 1 clinical trial also continues to enroll patients and a partial response in rectal mucosal melanoma was reported in the first patient treated.

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ADP-A2AFP Phase 1 Trial: We continue dosing patients in our Phase 1, open-label, dose-escalation trial designed to evaluate the safety and anti-tumor activity of our alpha fetoprotein (“AFP”) therapeutic candidate for the treatment of hepatocellular carcinoma (“HCC”). It was reported in May 2020 that the first patient treated with target doses of up to 10 billion SPEAR T-cells (range 1.2 to 10 billion) achieved a complete response. Two further HCC patients treated at similar target doses have been assessed to have progressive disease. A further cohort has also been initiated for patients with tumors other than HCC that express the AFP antigen. The first patient treated in that cohort was assessed by the investigator to have progressive disease.

We have a number of next generation and combination strategies designed to further enhance our SPEAR T-cells in development both internally and in collaboration with third parties. We have two strategic collaboration programs ongoing;

Astellas co-development and co-commercialization: We are collaborating with Astellas (through its wholly owned subsidiary Universal Cells) in relation to up to three targets with the aim of co-developing T-cell therapy candidates directed to those targets and utilising our allogeneic platform for “off-the-shelf” cell therapies.

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GSK collaboration: We are collaborating with GSK in relation to the development, manufacture and commercialization of TCR therapeutic candidates for up to five programs. The third target program under the Collaboration and License Agreement remains ongoing.

We continue to invest and expand our manufacturing and research capabilities to facilitate a strong future pipeline of cell therapies, to enhance translational understanding of our cell therapies and to support our target of launching ADP-A2M4 for the treatment of synovial sarcoma and MRCLS in 2022, including:

expanding our ability to manufacture cell therapies at our Navy Yard facility in the U.S.;
enhancing commercial resources and activities within the Company ahead of a targeted launch date in 2022;
increasing our ability to manufacture vector at our dedicated manufacturing space within the Cell and Gene Therapy Catapult Manufacturing Centre at Stevenage, U.K. including recent confirmation of GMP compliance from the U.K. regulatory authority, the MHRA;
Focussing on development of our allogeneic platform for “off-the-shelf” cell immunotherapies, including CAR-T and TCR T-cells; and
Expanding the type of cell therapies being developed.

Significant Events in the Three Months Ended June 30, 2020

On April 1, 2020, Gavin Wood was appointed as Chief Financial Officer.

On April 28, 2020, the Company announced that the EMA’s Committee for Orphan Medicinal Products (COMP) has adopted a positive opinion for Orphan Drug Designation for ADP-A2M4 for the treatment of soft tissue sarcomas.

On May 29, 2020, Giles Kerr retired from his Board position and John Furey was appointed to replace Giles Kerr as a member of the Board’s audit committee.

On June 4, 2020, the Company closed an underwritten public offering of 23,575,000 ADSs, which included 3,075,000 ADSs pursuant to the full exercise by the underwriters of their option to purchase additional ADSs and generated net proceeds of $243.8 million.

Subsequent Events since June 30, 2020

On July 24, 2020 the Company announced that the EMA has granted access to the PRIME initiative for the Company’s ADP-A2M4 therapy for the treatment of synovial sarcoma.

Financial Operations Overview

Revenue

The Company has two contracts with customers: the GSK Collaboration and License Agreement, and the Astellas Collaboration Agreement.

The GSK Collaboration Agreement

The GSK Collaboration and License Agreement consists of multiple performance obligations. GSK nominated its third target under the Collaboration and License Agreement in 2019, and the Company received $3.2 million following the nomination of the target, which is being recognized as revenue as development progresses.

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The Astellas Collaboration Agreement

On January 13, 2020, the Company entered into a collaboration agreement with Astellas. The Company received $50.0 million as an upfront payment in January 2020 after entering into the agreement. Under the agreement the parties will agree on up to three targets and will co-develop T-cell therapies directed to those targets pursuant to an agreed research plan. For each target, Astellas will fund co-development up until completion of a Phase 1 trial for products directed to such target. In addition, Astellas was also granted the right to develop, independently of Adaptimmune, allogeneic T-cell therapy candidates directed to two targets selected by Astellas. Astellas will have sole rights to develop and commercialize products resulting from these two targets.

The agreement consists of the following performance obligations: (i) research services and rights granted under the co-exclusive for each of the three co-development targets and (ii) the rights granted for each of the two independent Astellas targets. The revenue allocated to the co-development targets is recognized as the development of products directed to the targets progresses up until completion of a Phase 1 trial. The revenue allocated to each of the research licenses for the targets being independently developed by Astellas will be recognized when the associated license commences, which is upon designation of a target by Astellas.

Research and Development Expenses

Research and development expenditures are expensed as incurred. Research and development expenses consist principally of the following:

salaries for research and development staff and related expenses, including benefits;
costs for production of preclinical compounds and drug substances by contract manufacturers;
fees and other costs paid to contract research organizations in connection with additional preclinical testing and the performance of clinical trials;
costs associated with the development of a process to manufacture and supply our lentiviral vector and SPEAR T-cells for use in clinical trials;
costs to develop manufacturing capability at our U.S. facility for manufacture of SPEAR T-cells for use in clinical trials;
costs relating to facilities, materials and equipment used in research and development;
costs of acquired or in-licensed research and development which does not have alternative future use;
amortization and depreciation of property, plant and equipment and intangible assets used to develop our SPEAR T-cells; and
share-based compensation expenses;

offset by:

reimbursable tax and expenditure credits from the U.K. government.

Research and development expenditure is presented net of reimbursements from reimbursable tax and expenditure credits from the U.K. government. As a company that carries out extensive research and development activities, we benefit from the U.K. research and development tax credit regime for small and medium sized companies (“SME R&D Tax Credit Scheme”), whereby our principal research subsidiary company, Adaptimmune Limited, is able to surrender the trading losses that arise from its research and development activities for a payable tax credit of up to approximately 33.4% of eligible research and development expenditures. Qualifying expenditures largely comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive income. Subcontracted research expenditures are eligible for a cash rebate of up to approximately 21.7%. A large

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proportion of costs in relation to our pipeline research, clinical trials management and manufacturing development activities, all of which are being carried out by Adaptimmune Limited, are eligible for inclusion within these tax credit cash rebate claims.

Expenditures incurred in conjunction with our collaboration agreements are not qualifying expenditures under the SME R&D Tax Credit Scheme but certain of these expenditures can be reimbursed through the U.K. research and development expenditure credit scheme (the “RDEC Scheme”). Under the RDEC Scheme tax relief is given at 12% (up to April 1, 2020) and 13% (after April 1, 2020) of allowable R&D costs, which may result in a payable tax credit at an effective rate of approximately 10.3% of qualifying expenditure for the year ended December 31, 2020.

Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, which depends upon the timing of initiation of clinical trials and the rate of enrollment of patients in clinical trials. The duration, costs, and timing of clinical trials and development of our SPEAR T-cells will depend on a variety of factors, including:

the scope, rate of progress, and expense of our ongoing as well as any additional clinical trials and other research and development activities;
uncertainties in clinical trial enrollment rates;
future clinical trial results;
significant and changing government regulation;
the timing and receipt of any regulatory approvals;
supply and manufacture of lentiviral vector and SPEAR T-cells for clinical trials; and
an allocation of indirect costs clearly related to research and development.

For further detail please see Part II — Item 1A Risk Factors — Risks Related to the Development of our SPEAR T-cells of this Quarterly Report

A change in the outcome of any of these variables may significantly change the costs and timing associated with the development of that SPEAR T-cell. For example, if the FDA, or another regulatory authority, requires us to conduct clinical trials beyond those that we currently anticipate will be required for regulatory approval, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

Our general and administrative expenses consist principally of:

salaries for employees other than research and development staff, including benefits;
business development expenses, including travel expenses;
professional fees for auditors, lawyers and other consulting expenses;
costs of facilities, communication, and office expenses;
information technology expenses;
amortization and depreciation of property, plant and equipment and intangible assets not related to research and development activities; and

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share-based compensation expenses.

Other (Expense) Income, Net

Other (expense) income, net primarily comprises foreign exchange (losses) gains. We are exposed to foreign exchange rate risk because we currently operate in the United Kingdom and United States. Our revenue from the GSK Collaboration and License Agreement is denominated in pounds sterling and is generated by our U.K.-based subsidiary, which has a pounds sterling functional currency. As a result, these sales are subject to translation into U.S. dollars when we consolidate our financial statements. Our expenses are generally denominated in the currency in which our operations are located, which are the United Kingdom and United States. However, our U.K.-based subsidiary incurs significant research and development costs in U.S. dollars and, to a lesser extent, Euros. Our U.K. subsidiary has an intercompany loan balance in U.S. dollars payable to the ultimate parent company, Adaptimmune Therapeutics plc. Since July 1, 2019, the intercompany loan has been considered of a long-term investment nature as repayment is not planned or anticipated in the foreseeable future. It is Adaptimmune Therapeutics plc’s intent not to request payment of the intercompany loan for the foreseeable future. The foreign exchange gains or losses arising on the revaluation of intercompany loans of a long-term investment nature are reported within other comprehensive loss.

Our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future. We seek to minimize this exposure by maintaining currency cash balances at levels appropriate to meet foreseeable expenses in U.S. dollars and pounds sterling. To date, we have not used hedging contracts to manage exchange rate exposure, although we may do so in the future.

Taxation

We are subject to corporate taxation in the United Kingdom and the United States. We incur tax losses and tax credit carryforwards in the United Kingdom. No deferred tax assets are recognized on our U.K. losses and tax credit carryforwards because there is currently no indication that we will make sufficient taxable profits to utilize these tax losses and tax credit carryforwards.

We benefit from reimbursable tax credits in the United Kingdom through the SME R&D Tax Credit Scheme as well as the RDEC Scheme which are presented as a deduction to research and development expenditure.

Our subsidiary in the United States has generated taxable profits due to a Service Agreement between our U.S. and U.K. operating subsidiaries and is subject to U.S. federal corporate income tax of 21%. Due to its activity in the United States, and the sourcing of its revenue, the U.S. subsidiary is not currently subject to any state or local income taxes. The Company also benefits from the U.S Research Tax Credit and Orphan Drug Credit.

In the future, if we generate taxable income in the United Kingdom, we may benefit from the United Kingdom’s “patent box” regime, which would allow certain profits attributable to revenues from patented products to be taxed at a rate of 10%. As we have many different patents covering our products, future upfront fees, milestone fees, product revenues, and royalties may be taxed at this favorably low tax rate.

U.K. Value Added Tax (“VAT”) is charged on all qualifying goods and services by VAT-registered businesses. An amount of 20% of the value of the goods or services is added to all relevant sales invoices and is payable to the U.K. tax authorities. Similarly, VAT paid on purchase invoices paid by Adaptimmune Limited and Adaptimmune Therapeutics plc is reclaimable from the U.K. tax authorities.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenues and expenses incurred during the reported periods. We base our estimates on historical experience and on various other factors that we believe are relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies considered to be critical to the judgments and estimates used in the preparation of our financial statements are disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.

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Allocation of transaction price and determination of costs to complete

Under our revenue generating collaboration agreements, we allocate the aggregate transaction price to the performance obligations depending on the standalone selling price of the performance obligations. In determining the best estimate of the standalone selling price, we considered internal pricing objectives used in negotiating the contract, together with internal data regarding the cost and margin of providing services for each deliverable taking into account the different stage of development of each development program included in the contract. Assessing the pricing objectives, internal data and the relative standalone selling price of each performance obligation is highly judgmental and can have a significant impact on the amount and timing of revenue recognition.

We expect to satisfy the performance obligations relating to the development activities as development progresses and recognize revenue based on an estimate of the percentage of completion of the project determined based on the costs incurred on the project as a percentage of the total expected costs. We consider that this depicts the progress of the project, where the significant inputs would be internal project resources and third-party costs. The determination of the percentage of completion requires management to estimate the costs-to-complete the project. We make a detailed estimate of the costs-to-complete, which is re-assessed every reporting period based on the latest project plan and discussions with project teams. If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate. The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs. Identifying the most appropriate basis on which to recognize revenue and assessing the inputs and outputs of the costs-to-complete estimate require significant judgment and may have a significant impact on the amount and timing of revenue recognition. In addition, judgment is required to determine the costs-to-complete at each reporting date, and it is possible that the costs-to-complete in subsequent periods may differ significantly to those initially anticipated.

Results of Operations

Comparison of Three Months Ended June 30, 2020 and 2019

The following table summarizes the results of our operations for the three months ended June 30, 2020 and 2019, together with the changes to those items (in thousands):

Three months ended