Quarterly Report (10-q)

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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 September 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 November 4, 2020, the number of outstanding ordinary shares par value £0.001 per share of the Registrant is 928,672,584.

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TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION		5

Item 1.	Financial Statements:	5

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	5

	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	6

	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019	7

	Unaudited Condensed Consolidated Statements of Change in Equity for the three and nine months ended September 30, 2020 and 2019	8

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 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	30

Item 4.	Controls and Procedures	30

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	84

Item 3.	Defaults Upon Senior Securities	84

Item 4.	Mine Safety Disclosures	84

Item 5.	Other Information	84

Item 6.	Exhibits	85

Signatures		86

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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) SPEAR T-cell therapies 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 Specific Peptide Enhanced Affinity Receptor (“SPEAR”) T-cells and other cell therapies in order to meet patient demand;

●

our ability to further develop our commercial manufacturing process for our cell therapies, transfer such commercial process to third party contract manufacturers, if required, and for such third party contract manufacturers or ourselves to manufacture cell therapies to the quality and on the timescales we require;

●

our ability to successfully advance our cell therapy platform, to improve the safety and effectiveness of our existing cell therapy 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 and HLA-independent TCR (“HiT”) therapies;

●

government regulation and approval, including, but not limited to, the expected regulatory approval timelines for our cell therapies and the level of pricing and reimbursement for our cell therapies, if approved for marketing;

●

our ability to successfully commercialize any products including the planned launch of ADP-A2M4 in 2022;

●

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;

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●

volatility in equity markets in general, and in the biopharmaceutical sector in particular;

●

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.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30,		December 31,
	2020		2019
Assets
Current assets
Cash and cash equivalents	$	78,466	$	50,412
Marketable securities - available-for-sale debt securities		321,442		39,130
Other current assets and prepaid expenses (including current portion of clinical materials)		26,825		30,947
Total current assets		426,733		120,489

Restricted cash		4,441		4,496
Clinical materials		160		2,503
Operating lease right-of-use assets, net of accumulated amortization		18,775		20,789
Property, plant and equipment, net of accumulated depreciation of $28,503 (2019: $23,649)		26,943		31,068
Intangibles, net of accumulated amortization		1,970		2,198
Total assets	$	479,022	$	181,543

Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	4,030	$	6,357
Operating lease liabilities, current		2,619		2,493
Accrued expenses and other accrued liabilities		24,615		23,363
Deferred revenue, current		3,635		2,128
Total current liabilities		34,899		34,341

Operating lease liabilities, non-current		21,090		22,966
Deferred revenue, non-current		46,212		—
Other liabilities, non-current		615		598
Total liabilities		102,816		57,905

Stockholders’ equity
Common stock - Ordinary shares par value £0.001, 1,038,249,630 authorized and 928,525,410 issued and outstanding (2019: 785,857,300 authorized and 631,003,568 issued and outstanding)		1,325		943
Additional paid in capital		932,518		585,623
Accumulated other comprehensive loss		(8,494)		(7,264)
Accumulated deficit		(549,143)		(455,664)
Total stockholders' equity		376,206		123,638

Total liabilities and stockholders’ equity	$	479,022	$	181,543

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)


	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenue	$	1,193	$	237	$	2,456	$	394
Operating expenses
Research and development (including losses accrued on firm purchase commitments of $0, $5,000, $0 and $5,000)		(24,067)		(29,617)		(65,791)		(77,147)
General and administrative		(13,001)		(10,741)		(32,557)		(32,662)
Total operating expenses		(37,068)		(40,358)		(98,348)		(109,809)
Operating loss		(35,875)		(40,121)		(95,892)		(109,415)
Interest income		2,147		615		4,024		2,324
Other (expense) income, net		(1,689)		291		(1,501)		(556)
Loss before income taxes		(35,417)		(39,215)		(93,369)		(107,647)
Income taxes		(15)		(87)		(110)		(154)
Net loss attributable to ordinary shareholders	$	(35,432)	$	(39,302)	$	(93,479)	$	(107,801)

Net loss per ordinary share
Basic and diluted	$	(0.04)	$	(0.06)	$	(0.11)	$	(0.17)

Weighted average shares outstanding:
Basic and diluted		928,022,057		630,866,800		829,973,177		629,403,293

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)



	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Net loss	$	(35,432)	$	(39,302)	$	(93,479)	$	(107,801)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments, net of tax of $0, $0, $0 and $0		(15,522)		6,617		3,583		7,916
Foreign currency gains (losses) on intercompany loan of a long-term investment nature, net of tax of $0, $0, $0 and $0		15,698		(8,388)		(5,061)		(8,388)
Unrealized gains (losses) on available-for-sale debt securities
Unrealized holding gains (losses) on available-for-sale debt securities, net of tax of $0, $0, $0 and $0		211		(55)		324		223
Reclassification adjustment for gains on available-for-sale debt securities included in net loss, net of tax of $0, $0, $0 and $0		(76)		—		(76)		(13)
Total comprehensive loss for the period	$	(35,121)	$	(41,128)	$	(94,709)	$	(108,063)

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

(In thousands, except share data)


						Accumulated other
						comprehensive loss
								Accumulated
								unrealized
						Accumulated		gains
						foreign		(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 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 $0	—		—		—		(19,651)		—		—		(19,651)
Unrealized holding losses on available-for-sale debt securities, net of tax of $0	—		—		—		—		(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 $0	—		—		—		(1,108)		—		—		(1,108)
Unrealized holding gains on available-for-sale debt securities, net of tax of $0	—		—		—		—		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
Net loss	—		—		—		—		—		(35,432)		(35,432)
Issuance of shares upon exercise of stock options	856,464		1		461		—		—		—		462
Other comprehensive income
Foreign currency translation adjustments	—		—		—		(15,522)		—		—		(15,522)
Foreign currency losses on intercompany loan of a long-term investment nature, net of tax of $0	—		—		—		15,698		—		—		15,698
Unrealized holding gains on available-for-sale debt securities, net of tax of $0	—		—		—		—		211		—		211
Reclassification from accumulated other comprehensive income of gains on available-for-sale debt securities included in net loss, net of tax of $-	—		—		—		—		(76)		—		(76)
Share-based compensation expense	—		—		3,280		—		—		—		3,280
Balance as of September 30, 2020	928,525,410	$	1,325	$	932,518	$	(8,780)	$	286	$	(549,143)	$	376,206

See accompanying notes to unaudited condensed consolidated financial statements.

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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 $0	—		—		—		—		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 $0	—		—		—		—		68		—		68
Reclassification from accumulated other comprehensive loss of gains on available-for-sale debt securities included in net income, net of tax of $0	—		—		—		—		(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
Net loss	—		—		—		—		—		(39,302)		(39,302)
Issuance of shares upon exercise of stock options	280,158		—		—		—		—		—		—
Other comprehensive loss
Foreign currency translation adjustments	—		—		—		6,617		—		—		6,617
Foreign currency losses on intercompany loan of a long-term investment nature, net of tax of $0	—		—		—		(8,388)		—		—		(8,388)
Unrealized holding losses on available-for-sale debt securities, net of tax of $0	—		—		—		—		(55)		—		(55)
Share-based compensation expense	—		—		1,820		—		—		—		1,820
Balance as of September 30, 2019	630,952,736	$	943	$	583,065	$	(10,079)	$	54	$	(426,300)	$	147,683

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine months ended
	September 30,
	2020		2019
Cash flows from operating activities
Net loss	$	(93,479)	$	(107,801)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		5,151		5,406
Amortization		718		511
Share-based compensation expense		7,352		8,495
Unrealized foreign exchange (gains) losses		(1,102)		522
Other		2,817		(208)
Changes in operating assets and liabilities:
Decrease (increase) in receivables and other operating assets		3,345		(20,075)
Decrease in non-current operating assets		2,291		1,468
(Decrease) increase in payables and other current liabilities		(117)		8,879
Increase in deferred revenue		48,649		2,824
Net cash used in operating activities		(24,375)		(99,979)

Cash flows from investing activities
Acquisition of property, plant and equipment		(1,174)		(1,425)
Acquisition of intangibles		(496)		(1,036)
Maturity or redemption of marketable securities		78,915		92,803
Investment in marketable securities		(363,777)		(19,080)
Net cash (used in) provided by investing activities		(286,532)		71,262

Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs		334,388		—
Proceeds from exercise of stock options		5,541		366
Net cash provided by financing activities		339,929		366

Effect of currency exchange rate changes on cash, cash equivalents and restricted cash		(1,023)		(398)
Net increase (decrease) in cash, cash equivalents and restricted cash		27,999		(28,749)
Cash, cash equivalents and restricted cash at start of period		54,908		72,476
Cash, cash equivalents and restricted cash at end of period	$	82,907	$	43,727

See accompanying notes to unaudited condensed consolidated financial statements.

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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 platform enables it to identify cancer targets, find and develop cell therapy candidates active against those targets and produce therapeutic candidates 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 cell therapies, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of its cell therapies, the need to develop a reliable commercial manufacturing process, the need to commercialize any cell therapies that may be approved for marketing, and protection of proprietary technology. If the Company does not successfully commercialize any of its cell therapies, it will be unable to generate product revenue or achieve profitability. The Company had an accumulated deficit of $549.1 million as of September 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.

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(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.

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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 nine months ended September 30, 2020 comprises the following (in thousands):


	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019

Development revenue	$	1,193	$	237	$	2,456	$	394
	$	1,193	$	237	$	2,456	$	394

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Deferred revenue increased by $47.7 million from $2.1 million at January 1, 2020 to $49.8 million at September 30, 2020. The movement is largely due to the upfront payment of $50.0 million received under the Astellas Collaboration Agreement in January 2020 offset by revenue recognized under our collaboration agreements in the nine months ended September 30, 2020.

As of December 31, 2019, there was deferred revenue of $2.1 million associated with the third target under the GSK Collaboration Agreement, of which $0.4 million and $1.5 million was recognized as revenue in the three and nine months ended September 30, 2020 respectively.

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 commenced development of this target under the agreement and began 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 license for each of the three co-development targets and (ii) the rights granted for each of the two independent Astellas targets.

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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 September 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 consideration and included in the transaction price as of September 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 September 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 September 30, 2020 was $62.9 million, of which $14.3 million is allocated to the rights granted for each of the two independent Astellas targets, $6.9 million is allocated to research services and rights under the co-exclusive license for each of the second and third co-development targets, and $20.5 million is allocated to research services and rights granted under the co-exclusive license for the first co-development target.

Note 4 — Loss per share

The dilutive effect of 91,263,299 and 90,072,300 stock options outstanding as of September 30, 2020 and 2019 respectively have been excluded from the diluted loss per share calculation for the three and nine months ended September 30, 2020 and 2019, because they would have an antidilutive effect on the loss per share for the period.

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Note 5 — 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 September 30, 2020 are as follows (in thousands):


			Fair value measurements using
	September 30,		Level 1		Level 2		Level 3
	2020
Assets:
Corporate debt securities	$	315,437	$	315,437		—		—
Agency bonds		6,005				6,005		—
	$	321,442	$	315,437	$	6,005	$	—

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 6 — Marketable securities – available-for-sale debt securities

As of September 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	$	14,272	$	16	$	(4)	$	14,284
Corporate debt securities	3 months to 1 year		164,830		336		(40)		165,126
Agency bonds	1 year to 2 years		5,996		9		—		6,005
Corporate debt securities	1 year to 2 years		136,058		107		(138)		136,027
		$	321,156	$	468	$	(182)	$	321,442

As of September 30, 2020 and December 31, 2019, the aggregate fair value of securities held by the Company in an unrealized loss position was $135.0 million and $2.0 million respectively, which consisted of 23 and 1 separate securities, respectively. No securities have been in an unrealized loss position for more than one year.

As of September 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.

Note 7 — Other current assets

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


	September 30,		December 31,
	2020		2019
Corporate tax receivable	$	13,921	$	19,284
Prepayments		7,754		8,395
Clinical materials		2,488		1,459
Other current assets		2,662		1,809
	$	26,825	$	30,947

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Note 8 — Accrued expenses and other current liabilities

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


	September 30,		December 31,
	2020		2019
Accrued clinical and development expenditure	$	11,097	$	8,782
Accrued employee expenses		8,127		6,863
Other accrued expenditure		2,784		2,662
Accrued purchase commitments		2,500		5,000
Other		107		56
	$	24,615	$	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. In the three months ended September 30, 2019, management considered that there was sufficient uncertainty surrounding the utility of the Dynabeads to result in $5.0 million of minimum purchasing obligations being recognized in in research and development expense in that period. The related per-share amount for both the three and nine months ended September 30, 2019 is $(0.01). Of the minimum purchasing obligations of $5.0 million, $2.5 million was paid during the nine-months ended September 30, 2020. The remaining minimum purchase obligations of $2.5 million are payable within the next year, and are included within accrued purchase commitments above.

Note 9 — 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			Nine months ended
		September 30,			September 30,
	2020		2019		2020		2019
Research and development	$	1,219	$	144	$	3,126	$	2,951
General and administrative		2,061		1,676		4,226		5,544
	$	3,280	$	1,820	$	7,352	$	8,495

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			Nine months ended
		September 30,			September 30,
	2020		2019		2020		2019
Number of options over ordinary shares granted		1,882,966		3,733,359		14,851,182		15,477,255
Weighted average fair value of ordinary shares options	$	1.25	$	0.31	$	0.57	$	0.48
Number of additional options with a nominal exercise price granted		571,320		743,292		7,410,136		7,700,658
Weighted average fair value of options with a nominal exercise price	$	1.70		0.51	$	0.78	$	0.89

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Note 10 — 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 together with the full exercise by the underwriters of their option to purchase an additional 3,075,000 ADSs, 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 engineered T-cell therapies for solid tumors. Our proprietary platform enables us to identify cancer targets, find and develop cell therapy candidates active against those targets and produce therapeutic candidates for administration to patients. Our cell therapies include Specific Peptide Enhanced Affinity Receptor (“SPEAR”) T-cells, which use genetically engineered T-cell receptors, and HLA-independent TCRs (HiTs) that recognize targets independently of the HLA profile of the tumor cell. Using our SPEAR T-cells, we aim to become the first company to have a TCR T-cell approved for the treatment of solid tumor indication.

As the COVID-19 pandemic continues, we remain focused on ensuring the safety of our workforce and continuing, where possible, to safely treat patients with our cell therapies. We continue to work with our clinical sites to ensure that patients are treated as soon as 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

ADAP

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