IOVANCE BIOTHERAPEUTICS, INC. (IOVA) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Business” section and elsewhere in this report. We use words such as “may,” “will,” “might,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “aim,” “potential,” “continue,” “ongoing,” “goal,” “forecast,” “guidance,” “outlook,” or the negative of these terms or other similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.
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Overview
We are a clinical-stage biopharmaceutical company pioneering a transformational approach to treating cancer by harnessing the human immune system’s ability to recognize and destroy diverse cancer cells using therapies personalized for each patient. We are preparing for potential U.S. regulatory approval and commercialization of the first autologous T-cell therapy to address a solid tumor cancer. Our mission is to be the global leader in innovating, developing and delivering tumor infiltrating lymphocyte, or TIL, therapies for patients with solid tumor cancers. Our autologous TIL therapy platform uses a centralized, scalable and proprietary 22-day manufacturing process to grow polyclonal T-cells unique to each patient and yields a cryopreserved, individualized therapy. We have applied multiple TIL therapy modalities in clinical trials in solid tumors, including TIL monotherapies for patients with later stage disease who have progressed on or after standard of care, as well as TIL combinations with standard of care therapies in patients who are earlier in their disease, to potentially improve outcomes compared to current standard(s) of care.
Our lead product candidate, lifileucel, is being developed in advanced, or metastatic or unresectable, melanoma as well as in other indications. Lifileucel was investigated in two consecutive cohorts in a clinical trial of advanced melanoma patients post-anti-PD-1 therapy, including in a prospectively defined pivotal cohort. These patients had progressed on or after standard of care therapy, which is immune checkpoint inhibitors, or ICIs, and targeted BRAF/MEK inhibitor therapy where appropriate. Based on the positive results of these cohorts, we initiated a rolling Biologics License Application, or BLA, submission to the U.S. Food and Drug Administration, or FDA, for lifileucel in August 2022. We expect to complete this rolling BLA submission in the first quarter of 2023. Our Phase 3 clinical trial of lifileucel in combination with pembrolizumab, TILVANCE-301, is intended to be registrational in frontline advanced melanoma and serve as a confirmatory clinical trial to support full approval of lifileucel monotherapy in post-anti-PD-1 melanoma.
We are also pursuing registrational strategies for lifileucel in advanced cervical cancer and for our TIL therapy, LN-145, in metastatic non-small cell lung cancer, or NSCLC. To continuously innovate and maintain our global leadership within the field, we are investigating next generation approaches to optimize TIL products, manufacturing processes and treatment regimens, including a first-in-human clinical trial of our lead genetically modified TIL therapy, IOV-4001. We are also exploring a 16-day manufacturing process, tumor tissue procurement via core biopsy, additional genetically modified TIL therapies including multiple immune checkpoint gene edits and cytokine-tethered TIL therapies, and a novel interleukin-2, or IL-2, analog, designated IOV-3001, as potential avenues to improve manufacturing timelines, sample collection and supportive treatments involved in the overall TIL therapy process and treatment regimen.
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Highlights of our current development pipeline are presented in the figure below:
Platform Technologies and Manufacturing
Our T-cell-based immunotherapy technology platforms are potentially applicable to many solid tumor types and blood cancers. Each platform is focused on leveraging patient-specific cells to recognize and attack diverse cancer cells that are unique to each patient. Unlike cell therapies that act on a single or small number of shared antigen targets common to certain tumors, our polyclonal T-cells are personalized therapies designed to target a variety of neoantigens that are unique to the patient or tumor. The majority of solid tumor immune targets are patient-specific, with fewer than 1% shared among patients. TIL therapy is our lead T-cell-based immunotherapy platform in multiple advanced solid tumor cancers. For blood cancers, our peripheral blood lymphocyte, or PBL, therapy platform is based on polyclonal T-cells that are collected from a patient’s blood sample, and then amplified and reinvigorated.
TIL Clinical Development in Advanced, Metastatic or Unresectable Solid Tumor Cancers
Building on the prior TIL therapy clinical trials conducted at single academic centers, including the National Cancer Institute, or NCI, we have investigated TIL therapy in global, multi-center Phase 2 clinical trials in advanced melanoma, cervical cancer, NSCLC and head and neck squamous cell carcinoma, or HNSCC. Additional information about our clinical trials is summarized below.
In post-anti-PD-1 advanced melanoma, we are investigating lifileucel in our C-144-01 clinical trial that supports our BLA submission and potential approval of lifileucel in advanced post-anti-PD-1 melanoma.
In frontline advanced melanoma patients who are naïve to anti-PD-1 therapy, we are investigating lifileucel in combination with pembrolizumab in the IOV-COM-202 clinical trial and the Phase 3 TILVANCE-301 clinical trial. TILVANCE-301 is a randomized Phase 3 clinical trial intended to support registration in advanced frontline melanoma as well as to serve as a confirmatory trial for full approval in advanced post-anti-PD-1 melanoma.
We are also executing a registrational strategy for lifileucel in advanced cervical cancer. C-145-04 is a multicenter Phase 2 clinical trial that is currently enrolling a pivotal cohort to support a BLA in cervical cancer following progression on or after chemotherapy and pembrolizumab.
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In NSCLC, we are investigating our TIL therapy, LN-145, in two clinical trials in several NSCLC patient populations with significant unmet need. IOV-LUN-202 is a clinical trial of LN-145 in advanced NSCLC patients who have progressed following chemotherapy and anti-PD-1 therapy. IOV-COM-202 also includes cohorts of NSCLC patients treated with LN-145 monotherapy and combination therapy.
Our first genetically modified, PD-1 inactivated TIL therapy, IOV-4001, entered a first-in-human Phase 1/2 clinical trial, IOV-GM1-201, in 2022 in patients with previously treated advanced melanoma and NSCLC. IOV-4001 utilizes the gene-editing TALEN® technology, licensed from Cellectis S.A., or Cellectis, to inactivate the gene coding for the programmed cell death protein-1, or PD-1.
In metastatic head and neck cancer squamous cell carcinoma, or HNSCC, we are evaluating LN-145 as monotherapy and in combination with pembrolizumab. The Phase 2 C-145-03 trial began in June 2017 and closed in January 2021 after reaching its pre-specified enrollment target to investigate LN-145 using various manufacturing processes. Cohort 2A in IOV-COM-202 is evaluating LN-145 in combination with pembrolizumab in patients with HNSCC who are naïve to anti-PD-1 therapy.
PBL Therapy in Blood Cancers
In blood cancers, our clinical trial IOV-CLL-01 is a Phase 1/2 clinical trial evaluating the safety and efficacy of IOV-2001, our polyclonal PBL therapy, in patients with relapsed or refractory chronic lymphocytic leukemia, or CLL, and small lymphocytic lymphoma, or SLL, to receive IOV-2001.
Beyond our Iovance-sponsored clinical trials, we have academic collaborations with leading cancer research centers to investigate TIL therapy, including next-generation processes and technologies, in other cancers and treatment settings.
Next-Generation Therapeutic and Manufacturing Approaches
Our current next-generation technology platforms are designed to optimize TIL therapy, as well as TIL treatment regimen and manufacturing processes, across four key initiatives: genetic modifications, potency, process optimization and new treatment regimens.
| Column 1 | Column 2 | Column 3 |
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| ● | Genetic modifications: We are pursuing several targets for genetic modification that utilize the gene-editing TALEN® platform licensed from the clinical-stage biotechnology company, Cellectis. Programs include single- and double- knockout candidates to further harness the immune system response to cancer and potentially increase the efficiency, potency and application of TIL therapy. Preclinical development is also ongoing with cytokine-tethered TIL products and additional TIL products and TIL-cell lines using transient and stable gene insertion and inactivation. Additional transient and permanent genetic modifications of TIL, such as cytokine-tethered TIL, may expand and activate TIL to achieve better efficacy while avoiding systemic side effects of cytokines. |
| Column 1 | Column 2 | Column 3 |
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| ● | Potency: Potential approaches to increase potency of the final TIL product include the sorting and selection of specific TIL, such as PD-1+ selected TIL and CD39/69 double-negative TIL, and the use of certain inhibitors or other reagents in TIL expansion cultures. Our TIL candidate LN-145-S1 is manufactured from TIL selected for PD-1 expression and has been investigated in post-anti-PD-1 melanoma and post-anti-PD-1 HNSCC patient cohorts in our clinical trials. |
| Column 1 | Column 2 | Column 3 |
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| ● | Process optimization: We are committed to further optimizing and streamlining the processes for manufacturing TIL therapy and collecting tumor samples. We are investigating a 16-day manufacturing process, or Gen 3, in patient cohorts included in the C-145-03 clinical trial in HNSCC and the IOV-COM-202 clinical trial. We are also exploring our Gen 3 process to manufacture TIL from core biopsy as a less-invasive collection of tumor samples in a cohort of patients with NSCLC in our IOV-LUN-202 clinical trial. |
| Column 1 | Column 2 | Column 3 |
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| ● | New treatment regimens: We are exploring potential avenues to improve aspects of the TIL treatment regimen. In 2020, we licensed an antibody cytokine-engrafted protein, or IL-2 analog, which we refer to as IOV-3001, from Novartis. IOV-4001 is in IND-enabling studies supporting its use as part of the TIL treatment regimen following TIL infusion. |
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Intellectual Property
We have established a leading intellectual property portfolio developed internally and licensed from third parties. We currently own more than 60 U.S. patents related to TIL therapy, including patents directed to compositions and methods of treatment in a broad range of cancers, such as U.S. Patent Nos. 10,130,659; 10,166,257; 10,272,113; 10,363,273; 10,398,734; 10,420,799; 10,463,697; 10,517,894; 10,537,595; 10,639,330; 10,646,517; 10,653,723; 10,695,372; 10,894,063; 10,905,718; 10,918,666; 10,925,900; 10,933,094; 10,946,044; 10,946,045; 10,953,046; 10,953,047; 11,007,225; 11,007,226; 11,013,770; 11,026,974; 11,040,070; 11,052,115; 11,052,116; 11,058,728; 11,083,752; 11,123,371; 11,141,438 11,168,303; 11,168,304; 11,179,419; 11,202,803; 11,202,804; 11,241,456; 11,254,913; 11,266,694; 11,273,180; 11,273,181; 11,291,687; 11,304,979; 11,304,980; 11,311,578; 11,337,998; 11,344,579; 11,344,580; 11,344,581; 11,351,197; 11,351,198; 11,351,199; 11,364,266; 11,369,637; 11,384,637; 1,433,097; 11,529,372; and 11,541,077. More than 35 of these patents are related to our Gen 2 TIL manufacturing processes and have terms that we anticipate will extend to January 2038, not including any patent term extensions or adjustments that may be available. Our owned and licensed intellectual property portfolio also includes patents and patent applications relating to TIL, MIL, and PBL therapies; frozen tumor-based TIL technologies; remnant TIL and digest TIL compositions, methods and processes; methods of manufacturing TIL, MIL, and PBL therapies; the use of costimulatory and T-cell modulating molecules in TIL therapy and manufacturing; stable and transient genetically-modified TIL therapies, including genetic knockouts of immune checkpoints; cytokine-tethered TIL therapies; methods of using ICIs in combination with TIL therapies; TIL selection technologies; and methods of treating patient subpopulations.
Impact of COVID-19 on our Business
Operations and Liquidity
The full impact of the novel strain of coronavirus, or COVID-19, pandemic is unknown and continuously evolving. While the potential economic impact brought by and over the duration of the COVID-19 pandemic may be difficult to assess or predict, the COVID-19 pandemic has resulted in significant disruption of global financial markets, which could in the future negatively affect our liquidity. In addition, a recession or market volatility resulting from the COVID-19 pandemic could affect our business. We have taken proactive, aggressive action throughout the COVID-19 pandemic to protect the health and safety of our employees and expect to continue to implement these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business. We may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees. We do not believe that the COVID-19 pandemic had a material impact on our liquidity or results of operations for the year ended December 31, 2022. Further, to date, the COVID-19 pandemic has not had significant effects on our clinical trial enrollment. Given the nature and type of our short-term investments in U.S. government securities, we do not believe that the COVID-19 pandemic will have a material impact on our current investment liquidity.
Outlook
Although there is uncertainty related to the anticipated impact of the recent COVID-19 pandemic on our future results, we believe our current cash reserves leave us well positioned to manage our business in light of the COVID-19 pandemic. However, the impacts of the COVID-19 pandemic are broad-reaching and continuing and the financial impacts associated with the COVID-19 pandemic are still uncertain.
The COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic, and actions that would be taken by governmental authorities to contain the pandemic or to treat its impact, makes it difficult to forecast any effects on our results for future periods.
Despite the economic uncertainty resulting from the COVID-19 pandemic, we intend to continue to focus on the development of our product candidates. We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.
Components of Operating Results
Revenues
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We have not yet generated any revenues since our formation, With the submission of the rolling BLA for lifileucel for metastatic melanoma and our expected completion of the submission in the first quarter of 2023, we anticipate generating revenues from the sale of products during the 12 months from the date these financial statements are issued, however, such revenue may not be material. Our ability to generate revenues in the future will depend on our ability to complete the development of our product candidates and to obtain regulatory approval for them.
Operating Expenses
Research and Development
Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services. Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered, or the related services are performed, subject to an assessment of recoverability.
Clinical development costs are a significant component of research and development expenses. We have a history of contracting with third parties that perform various clinical trial activities on our behalf in connection with the ongoing development of our product candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. We accrue and expense costs for clinical trial activities performed by third parties based upon estimates of work completed to date of the individual trial in accordance with agreements established with contract research organizations and clinical trial sites. The duration, costs and timing of our clinical trials and development of our product candidates will depend on a number of factors that include, but are not limited to, the number of patients that enroll in the trial, per patient trial costs, number of sites included in the trial, discontinuation rates of patients, duration of patient follow-up, efficacy and safety profile of the product candidate, and the length of time required to enroll eligible patients.
We expect our research and development expenses to continue to increase as we prepare for commercial manufacturing of our products and continue to conduct our clinical trials for other indications. However, it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates.
General and Administrative
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, procurement, legal, investor relations, facilities, business development, marketing, commercial, information technology and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to corporate matters and intellectual property, insurance, public company expenses relating to maintaining compliance with Nasdaq listing rules and SEC requirements, investor relations costs, and fees for accounting and consulting services. General and administrative costs are expensed as incurred, and we accrue for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from its service providers and adjusting its accruals as actual costs become known.
We anticipate general and administrative expenses will increase as we continue to prepare for commercialization and support an expected growth of the internal general and administrative team.
Interest income, net
Interest income, net results from our interest-bearing cash and investment balances.
Results of Operations for the Years Ended December 31, 2022 and 2021
Research and development activities are central to our business model. Product candidates in later stage of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a clinical stage company that is currently engaged in the development of novel cancer immunotherapy products, we have not yet generated any revenues from our biotechnology business or otherwise since our formation. Our ability to generate revenues in the future will depend on our ability to complete the development of our product candidates and to
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obtain regulatory approval for them. Our major sources of funding to date have been proceeds from various public and private offerings of our equity securities (both common stock and preferred stock), option and warrant exercises, and interest income. Since 2017 our primary source of funds has been from the public sale of our common stock.
Costs and expenses
Research and Development Expense (in thousands)
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| | Years Ended December 31, | | Increase (Decrease) | | |||||||
| | 2022 | 2021 | $ | % | |||||||
| Research and development expense | $ | 294,781 | | $ | 259,039 | | $ | 35,742 | | 14 | % |
| Stock-based compensation expense included in research and development expense | 50,242 | | 40,833 | | 9,409 | | 23 | % |
Research and development expense for the year ended December 31, 2022 increased by $35.7 million, or 14%, compared to the year ended December 31, 2021. The increase was primarily attributable to (i) a $23.9 million increase in payroll and related expenses and a $9.4 million increase in stock-based compensation expenses, both driven by increased hiring of research and development employees to support our on-going and planned clinical development activities, (ii) a $16.2 million increase in facility related expenses, including depreciation expenses associated with the iCTC and the build-out of our new corporate headquarters office, (iii) a $3.5 million increase in research and research alliance activities due to increased spend in lab supplies and consumables to support preclinical activities, (iv) a $2.7 million increase in patient advocacy and physician outreach and travel to support our planned commercial launch, and (v) a $2.4 million increase in license costs associated with the expansion of our information technology infrastructure to support our clinical and manufacturing activities at the iCTC. These increases were partially offset by a $17.4 million decrease in clinical trial costs, including clinical trial drug costs, and a $5.0 million decrease in manufacturing costs driven by completion of enrollment in pivotal cohorts of our clinical trials.
General and Administrative Expense (in thousands)
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| | | Years Ended December 31, | | Increase (Decrease) | | |||||||
| | 2022 | 2021 | $ | % | ||||||||
| General and administrative expense | | $ | 104,097 | | $ | 83,664 | | $ | 20,433 | | 24 | % |
| Stock-based compensation expense included in general and administrative expense | | 33,780 | | 28,932 | | 4,848 | | 17 | % |
General and administrative expense for the year ended December 31, 2022, increased by $20.4 million, or 24%, compared to the year ended December 31, 2021. The increase was primarily attributable to (i) a $10.0 million increase in payroll and related expenses and a $4.8 million increase in stock-based compensation expenses, both resulting from increases in headcount to support the growth in the overall business and related corporate infrastructure, (ii) a $3.4 million increase in marketing, advertising and travel related costs related to branding awareness to support our planned commercial launch, (iii) a $1.7 million increase in other costs, including professional fees and costs associated with the build-out of our new headquarter office and our information technology infrastructure to support the continued growth in the overall company, and (iv) a $0.5 million increase in depreciation expenses and facility related costs associated with the build-out of our new corporate headquarters.
Interest income, net (in thousands)
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| | | Years Ended December 31, | Increase (Decrease) | | ||||||||
| | 2022 | 2021 | $ | % | ||||||||
| Interest income, net | | $ | 2,985 | $ | 451 | $ | 2,534 | | 562 | % |
Interest income results from our interest-bearing cash and investment balances. Net interest income increased by $2.5 million, or 562%, due primarily to an increase in cash and cash equivalents as well as returns resulting from increased interest rates in 2022 as compared to the same period in 2021.
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Net Loss (in thousands)
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| | | Years Ended December 31, | (Increase) Decrease | | ||||||||
| | 2022 | 2021 | $ | % | ||||||||
| Net loss | | $ | (395,893) | $ | (342,252) | $ | (53,641) | | 16 | % |
Net loss for the year ended December 31, 2022, increased by $53.6 million or 16%, compared to the year ended December 31, 2021. The increase in our net loss was due to the continued expansion of our research and development activities, and the overall growth of our corporate infrastructure. We anticipate that we will continue to incur net losses in the future as we further invest in our research and development activities, including our commercial readiness and clinical development.
Results of Operations for the Years Ended December 31, 2021 and 2020
Costs and expenses
Research and Development Expense (in thousands)
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| | | Years Ended December 31, | | Increase (Decrease) | | |||||||
| | 2021 | 2020 | $ | % | ||||||||
| Research and development expense | | $ | 259,039 | | $ | 201,727 | | $ | 57,312 | | 28 | % |
| Stock-based compensation expense included in research and development expense | | 40,833 | | 19,727 | | 21,106 | | 107 | % |
Research and development expense for the year ended December 31, 2021, increased by $57.3 million, or 28%, compared to the year ended December 31, 2020. The increase was primarily attributable to (i) a $29.2 million increase in payroll and related expenses and a $21.1 million increase in stock-based compensation expenses, both driven by increased hiring of research and development employees to support our on-going and planned clinical development activities, (ii) a $14.9 million increase in facility and related costs associated with the iCTC and the build-out of our new corporate headquarters office, (iii) a $5.1 million increase in clinical trial costs driven by continued enrollment in our IOV-COM-202 and IOV-LUN-202 clinical trials and purchases of clinical trial drug used in these clinical trials, and (iv) a $2.2 million increase in travel and others, including allocated costs associated with the expansion of our infrastructure, including information systems, to further support the growth in the organization and operations associated with our clinical trials and pre-commercial efforts. These increases were partially offset by a $10.0 million decrease in research alliance costs due to a one-time license fee from Novartis to further develop IOV-3001 which was recognized in full in 2020, and a $5.2 million decrease in manufacturing costs driven by completion of our pivotal clinical trials.
General and Administrative Expense (in thousands)
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| | | Years Ended December 31, | | Increase (Decrease) | | |||||||
| | 2021 | 2020 | $ | % | ||||||||
| General and administrative expense | | $ | 83,664 | | $ | 60,210 | | $ | 23,454 | | 39 | % |
| Stock-based compensation expense included in general and administrative expense | | 28,932 | | 21,160 | | 7,772 | | 37 | % |
General and administrative expense for the year ended December 31, 2021, increased by $23.5 million, or 39%, compared to the year ended December 31, 2020. The increase was primarily attributable to (i) a $9.8 million increase in payroll and related expenses and a $7.8 million increase in stock-based compensation expenses, both resulting from increases in headcount to support the growth in the overall business and related corporate infrastructure (ii) a $4.3 million increase in insurance and intellectual property filing related costs, and (iii) a $2.8 million increase in other costs, including professional fees and costs associated with the build-out of our new headquarter office and IT infrastructure to support the continued growth in the overall company. These costs were partially offset by a $1.2 million decrease in pre-commercial and marketing costs due to reprioritization of corporate initiatives during the year ended December 31, 2021.
Interest income, net (in thousands
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| | | Years Ended December 31, | Increase (Decrease) | | ||||||||
| | 2021 | 2020 | $ | % | ||||||||
| Interest income, net | | $ | 451 | $ | 2,356 | $ | (1,905) | | (81) | % |
Interest income results from our interest-bearing cash and investment balances. Net interest income decreased by $1.9 million, or 81%, due primarily to a decrease in interest rates in 2021 as compared to the same period in 2020.
Net Loss (in thousands)
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| | | Years Ended December 31, | (Increase) Decrease | | ||||||||
| | 2021 | 2020 | $ | % | ||||||||
| Net loss | | $ | (342,252) | $ | (259,581) | $ | (82,671) | | 32 | % |
Net loss for the year ended December 31, 2021, increased by $82.7 million or 32%, compared to the year ended December 31, 2020. The increase in our net loss was due to the continued expansion of our research and development activities, increased clinical trials, and the overall growth of our corporate infrastructure. We anticipate that we will continue to incur net losses in the future as we further invest in our research and development activities, including our commercial readiness and clinical development.
Liquidity and Capital Resources
We have incurred losses and generated negative cash flows from operations since inception. Historically, we have funded our operations from various public and private offerings of our equity securities, both common stock and preferred stock, from option and warrant exercises, and from interest income. Since 2017, our primary source of funds has been from the public sale of our common stock. With the submission of the rolling BLA for lifileucel for metastatic melanoma and the expected completion of the submission in the first quarter of 2023, we anticipate generating revenue from the sale of products during the 12 months from the date these consolidated financial statements are issued, however such revenues may not be material. We expect to continue to incur significant expenses to support our research and development activities, on-going pre-commercial activities and completion of the construction of tenant improvements for the iCTC facility during the remainder of 2023 and beyond. Specifically, we expect increased spending on clinical trials, research and development activities, and higher payroll expenses as we increase our professional and scientific staff and continue our expansion of manufacturing activities, including the ramp-up of the iCTC. Based on the funds we have available as of the date of our consolidated financial statements, we believe that we have sufficient capital to fund our anticipated operating expenses and capital expenditures as planned for at least the next twelve months from the date these consolidated financial statements are issued.
We currently anticipate making aggregate capital expenditures of approximately $20.0 million during the next 12 months, which is expected to primarily include equipment to be used for clinical trials, research and manufacturing at the iCTC, as well as spending associated with the expansion of our manufacturing facilities of offices.
As of December 31, 2022, we had $478.3 million in cash, cash equivalents, investments, and restricted cash ($231.7 million of cash and cash equivalents, $240.1 million in short-term investments, and $6.4 million in restricted cash). Based on the funds we have available as of the date of the filing of this Annual Report on Form 10-K, we believe that we have sufficient capital to fund our anticipated operating expenses and capital expenditure for at least 12 months from the date of filing this report.
Corporate Capitalization
As of December 31, 2022, we had outstanding 187,812,072 shares of our $0.000041666 par value common stock, 194 shares of our $0.001 par value Series A Convertible Preferred Stock, and 2,842,158 shares of our $0.001 par value Series B Convertible Preferred Stock. The outstanding shares of Series A Convertible Preferred Stock are currently convertible into 97,000 shares of our common stock, and the outstanding shares of Series B Convertible Preferred Stock are currently convertible into 2,842,158 shares of our common stock. The shares of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock do not have voting rights or accrue dividends.
On September 17, 2019, we filed a shelf registration statement, or the 2019 Shelf Registration Statement, with the SEC for the issuance up to an aggregate amount of $400 million, which was declared effective on September 24, 2019. The 2019 Shelf
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Registration Statement was terminated upon effectiveness of the 2020 Automatic Shelf Registration Statement as discussed below. No shares were sold under the 2019 Shelf Registration Statement prior to its termination.
On May 27, 2020, we filed an automatic shelf registration statement, or the 2020 Automatic Shelf Registration Statement, with the SEC for the issuance of an indeterminate amount of securities (the “Shelf Securities”), which was immediately effective upon filing with the SEC. Upon filing of the 2020 Automatic Shelf Registration Statement, the 2019 Shelf Registration Statement was terminated.
On June 2, 2020, we sold 19,475,806 shares of our common stock at a public offering price of $31.00 per share pursuant to the 2020 Automatic Shelf Registration Statement, or the June 2020 Public Offering. We received gross proceeds of $603.7 million and net proceeds of $567.0 million from the June 2020 Public Offering, after deducting underwriting discounts and offering expenses. Following the June 2020 Public Offering, the 2020 Automatic Shelf Registration Statement remains available for the future issuance of an indeterminate amount of Shelf Securities.
On February 8, 2021, we entered into an Open Market Sales Agreement, or the First Sales Agreement, with Jefferies LLC, or Jefferies, with respect to an “at the market” offering program, under which we may, from time to time, in our sole discretion, issue and sell through Jefferies, acting as sales agent, up to $350.0 million of shares of our common stock.
On November 18, 2022, we entered into a new Open Market Sales Agreement, or the Second Sales Agreement, with Jefferies, which superseded and replaced the First Sales Agreement dated February 8, 2021. Pursuant to the terms of the Second Sales Agreement, we may, from time to time, in our sole discretion, issue and sell through Jefferies, acting as sales agent, up to $500.0 million of shares of our common stock. The issuance and sale, if any, of shares of our common stock under the First Sales Agreement and the Second Sales Agreement will be made pursuant to a prospectus supplement, dated February 8, 2021, and November 18, 2022, respectively, to the 2020 Automatic Shelf Registration Statement. During the year ended December 31, 2022, we received gross proceeds of $194.2 million and net proceeds of $189.5 million, after deducting underwriting discounts and offering expenses, through the sale of 29,788,993 of our common stock, under both the First Sales Agreement and Second Sales Agreement. During the year ended December 31, 2021, we received gross proceeds of $207.9 million and net proceeds of $203.2 million, after deducting underwriting discounts and offering expenses, through the sale of 6,474,099 shares of our common stock, under the First Sales Agreement.
In the future, we may periodically offer one or more of these securities in amounts, prices and terms to be announced when and if the securities are offered. If any of the securities covered by the 2020 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of such offering at that time.
Cash Flows
Cash flows from operating, investing and financing activities (in thousands):
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Years Ended December 31, | |||||||
| | | 2022 | 2021 | 2020 | |||||
| Net cash (used in) provided by: | | | | | |||||
| Operating activities | | $ | (292,757) | | $ | (227,941) | | $ | (205,134) |
| Investing activities | | 256,455 | | 132 | | (317,853) | |||
| Financing activities | | 190,150 | | 239,268 | | 576,422 | |||
| Net increase in cash, cash equivalents and restricted cash | | $ | 153,848 | | $ | 11,459 | | $ | 53,435 |
Operating Activities
Net cash used in operating activities represents cash disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net loss for non-cash items and changes in operating assets and liabilities. Net cash used in operating activities for the year ended December 31, 2022, was $292.8 million compared to $227.9 million for the same period in 2021. The increase of $64.8 million in cash used in operating activities was primarily due to an increase in net loss driven by increased costs in research and development and pre-commercial activities, which was partially offset by an increase in non-cash charges of $16.3 million primarily driven by higher stock-based compensation expenses, operating right-of-use assets associated with our office and manufacturing facility as well as embedded leases, and depreciation expenses, partially offset by accretion of discount on investments. In addition, it reflects a $31.4 million increase in cash used by assets and liabilities driven
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primarily by changes in accruals and accounts payable as well as prepaid assets, resulting from the increased workforce, overall growth in the business and operations, and the timing of vendor invoicing and related payments. These increases were offset by a net increase in our operating lease liabilities primarily driven by receipts of tenant improvement allowances for our new corporate headquarters office.
Net cash used in operating activities for the year ended December 31, 2021 was $227.9 million compared to $205.1 million for the same period in 2020. The increase of $22.8 million in cash used in operating activities was primarily due to an increase in net loss driven by increased costs in research and development and pre-commercial activities, which was partially offset by an increase in non-cash charges of $38.3 million primarily driven by higher stock-based compensation expenses, amortization of premiums on investments and operating right-of-use assets associated with our office and manufacturing facility as well as embedded leases, and depreciation expenses. In addition, it reflects a $5.6 million reduction in our operating lease liabilities associated with payments on lease arrangements, offset by a $16.0 million increase in accruals and accounts payable primarily related to our increased workforce, overall growth in the business and operations, and the timing of vendor invoicing and related payments.
Net cash used in operating activities for the year ended December 31, 2020 was $205.1 million compared to $158.9 million for the same period in 2019. The increase of $46.2 million in cash used in operating activities was primarily attributable to an increase in net loss and increase in accruals primarily related to our research and development activities, which were partially offset by an increase in non-cash charges of $22.8 million, primarily driven by higher-stock-based compensation expenses and amortization of premiums on investments.
Investing Activities
Net cash (used in) / provided by investing activities primarily consists of purchases, maturities of our investments and capital expenditures. Net cash provided by investing activities for the year ended December 31, 2022 was $256.5 million compared to net cash provided by investing activities of $0.1 million for the same period in 2021. The increase in cash provided by investing activities of $256.4 million was primarily due to the timing of maturities and purchases of investments and lower capital expenditures in 2022.
Net cash provided by investing activities for the year ended December 31, 2021 was $0.1 million compared to net cash used in investing activities of $317.9 million for the same period in 2020. The increase in cash provided by investing activities of $318.0 million was primarily due to the timing of maturities and purchases of investments and lower capital expenditures in 2021.
Net cash used in investing activities for the year ended December 31, 2020 was $317.9 million compared to net cash provided by $90.0 million for the same period in 2019. The increase in net cash used in investing activities of $407.9 million was due primarily to purchases of investments with the proceeds received from the June 2020 Public Offering and an increase in capital expenditures to support the iCTC build-out.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2022 was $190.2 million compared to net cash provided of $239.3 million for the same period in 2021. The net cash provided by financing activities during the year ended December 30, 2022, related to $189.5 million net cash proceeds from our “at the market” offering, $1.7 million of cash receipts from the issuance of common stock under the 2020 ESPP, and $1.6 million of cash receipts from the issuance of common stock upon the exercise of stock options. This was offset by cash used of $2.6 million for tax payments related to vested RSUs.
Net cash provided by financing activities for the year ended December 31, 2021 was $239.3 million compared to net cash provided of $576.4 million for the same period in 2020. The net cash provided by financing activities during the year ended December 30, 2021, related to $203.2 million net cash proceeds from our “at the market” offering and $33.5 million of cash receipts from the issuance of common stock upon the exercise of stock options. The net cash provided by financing activities during the year ended December 31, 2020, primarily related to $567.0 million net cash proceeds received in the June 2020 public offering and $9.7 million cash proceeds from issuance of common stock upon exercise of stock options in 2021.
Net cash provided by financing activities for the year ended December 31, 2020, was $576.4 million compared to net cash provided of $6.1 million for the same period in 2019. The net cash provided in financing activities during the year ended December 31, 2020, primarily related to net cash proceeds of $567.0 million received from the June 2020 Public Offering and $9.7 million cash
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proceeds received in issuing common stock upon exercise of stock options. Net cash provided by financing activities for the year ended December 31, 2019, related to cash proceeds received in issuing common stock upon exercise of stock options.
Contractual Obligations
The following table summarizes our non-cancellable contractual obligations as of December 31, 2022, and the effects that such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Payments due by period | |||||||||||||||||||
| | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | ||||||||||||||
| Operating lease obligations - facilities (1) | | $ | 124,970 | | $ | 8,304 | | $ | 8,424 | | $ | 8,240 | | $ | 7,989 | | $ | 8,186 | | $ | 83,827 |
| Total (2), (3) | | $ | 124,970 | | $ | 8,304 | | $ | 8,424 | | $ | 8,240 | | $ | 7,989 | | $ | 8,186 | | $ | 83,827 |
| | |
|---|---|
| (1) | Our operating lease obligations consist of obligations under non-cancellable operating leases for our facilities in San Carlos, CA, Philadelphia, PA, and Tampa, FL. Excluded from the above are contractual obligations with certain Contract Manufacturing Organizations, or CMO, for the manufacturing facilities and minimum fixed commitment fees included in our manufacturing contracts, such as personnel, general support fee, and minimum production or material fees. These obligations met the conditions of embedded leases under Topic ASC 842 and were included in the Operating lease liabilities in the Consolidated Balance Sheets. However, these contracts are cancellable upon prior notice and as a result, are not included in the above table. |
| (2) | We acquire assets still in development and enter into research and development arrangements with third parties that often require milestone and royalty payments to the third-party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product (e.g., approval of the product for marketing by a regulatory agency). If required by the arrangement, we may have to make royalty payments based upon a percentage of the sales of the pharmaceutical product in the event that regulatory approval for marketing is obtained. Because of the contingent nature of these milestone payments, they are not included in the table of contractual obligations.These arrangements may be material individually, and in the event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations in any one period. In addition, these arrangements often give us the discretion to unilaterally terminate development of the product, which would allow us to avoid making contingent payments. |
| (3) | The contractual obligations table above excludes estimated equipment and construction costs of approximately $20.0 million over the next year for the iCTC facility in Philadelphia, PA. |
Off-Balance Sheet Arrangements
As of December 31, 2022 we did not have, and currently do not have, any off-balance sheet arrangements.
Critical Accounting Estimates
Our accounting policies are more fully described in Note 2 of the consolidated financial statements included in this Annual Report on Form 10-K. As described in Note 2, the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts in the financial statements and related disclosures. On an ongoing basis, we evaluate our significant accounting policies and estimates. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Estimates are assessed each period and updated to reflect current information. Actual results may differ from these estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
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Accrued Research and Development Costs
Research and development costs are expensed as incurred. Clinical development costs compose a significant component of research and development costs. We have a history of contracting with third parties, including contract research organizations (“CROs”), independent clinical investigators, and contract manufacturing organizations (“CMOs”) that perform various clinical trial activities on our behalf in connection with the ongoing development of our product candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. We accrue and expense costs for clinical trial activities performed by third parties based upon the work completed to date for each clinical trial in accordance with agreements established with CROs, hospitals, and clinical investigators. Accruals for CROs and CMOs are recorded based on services received and efforts expended pursuant to agreements established with CROs, CMOs and other outside service providers. We determine our costs through discussions with internal clinical stakeholders and outside service providers as to the progress or stage of completion of clinical trials or services and the contracted fee to be paid for such services.
Included in our clinical development costs are investigator costs, which are costs associated with treatments administered at clinical sites as required under each clinical trial protocol. Our estimates for clinical investigator costs and timing of expense recognition will depend on a number of factors that include, but are not limited to, (i) the overall number of patients that enroll in the trial at each individual site, (ii) the length of clinical trial enrollment period, (iii) discontinuation and completion rates of patients, (iv) duration of patient safety follow-ups, (v) the number of sites included in the clinical trial, and (vi) the contracted fee of each participating site for patient treatment while on clinical trial, which can vary greatly for several reasons including, but not limited to, geographic region, medical center or physician costs, and overhead costs. In addition, our estimates for per patient trial costs will vary based on a number of factors that include, but are not limited to, the extent of additional treatments that may be administered by investigators as a result of patient health status, recoverability of patient costs through insurance carriers of patients, and unanticipated cost of injuries incurred as a result of the clinical trial treatment. We accrue estimated expenses resulting from obligations under investigator site agreements as the timing of payments does not always timely align with the periods over which the treatments are administered by the clinical investigators. These estimates are typically based on contracted amounts, patient visit data, discussions with internal clinical stakeholders and outside service providers, and historical look-back analysis of actual payments made to date.
We make judgements and estimates in determining the accrual balance in each reporting period. In the event advance payments are made to a CRO, CMO or other outside service provider, the payments are recorded within prepaid expenses and other current assets and subsequently recognized as research and development expense when the associated services have been performed. As actual costs become known, we adjust our estimates, liabilities and assets. Inputs used in our determination of estimates discussed above may vary from actual, which will result in adjustments to research and development expense in future periods.
Inflation
Inflation has not had a material effect on our business, financial condition, or results of operations over our two most recent fiscal years.