UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

	For the quarterly period ended June 30, 2019

	OR

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

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 July 29, 2019, the number of outstanding ordinary shares par value £0.001 per share of the Registrant is 630,762,860.

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PART I — FINANCIAL INFORMATION		5

Item 1.	Financial Statements:	5

	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	5

	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	6

	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018	7

	Unaudited Condensed Consolidated Statements of Change in Equity for the three and six months ended June 30, 2019 and 2018	8

	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	10

	Notes to the Unaudited Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

PART II — OTHER INFORMATION		32

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79

Item 3.	Defaults Upon Senior Securities	79

Item 4.	Mine Safety Disclosures	79

Item 5.	Other Information	79

Item 6.	Exhibits	80

Signatures		81

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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 successfully advance our ADP-A2M4 (MAGE-A4) and ADP-A2AFP (AFP) products through clinical development and the timing within which we can recruit patients and treat patients in all of our clinical trials;

●

our ability to successfully and reproducibly manufacture SPEAR T-cells in order to meet patient demand;

●

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

●

the scope and timing of performance of our ongoing collaboration with GlaxoSmithKline (“GSK”);

●

our ability to successfully advance our SPEAR T-cell technology platform to improve the safety and effectiveness of our existing SPEAR T-cell candidates and to submit Investigational New Drug Applications, or INDs, for new SPEAR T-cell candidates;

●

the rate and degree of market acceptance of T-cell therapy generally, and of SPEAR T-cells;

●

government regulation and approval, including, but not limited to, the expected regulatory approval timelines for SPEAR T-cells and the level of pricing and reimbursement for SPEAR T-cells, if approved for marketing;

●

the existence of any third party patents preventing further development of any SPEAR T-cells, 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 any SPEAR T-cells and to enforce such patents against third parties;

●

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

●

fluctuations in the price of materials and bought-in components;

●

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 in to clinical trials;

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●

claims for personal injury or death arising from the use of SPEAR T-cell candidates;

●

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)


	June 30,		December 31,
	2019		2018
Assets
Current assets
Cash and cash equivalents	$	34,574	$	68,379
Marketable securities - available-for-sale debt securities		98,832		136,755
Accounts receivable, net of allowance for doubtful accounts of $0 and $0		3,809		192
Other current assets and prepaid expenses (including current portion of clinical materials)		37,918		25,769
Total current assets		175,133		231,095

Restricted cash		4,403		4,097
Clinical materials		2,690		3,953
Operating lease right-of-use assets, net of accumulated amortization		21,507		—
Property, plant and equipment, net of accumulated depreciation of $19,528 (2018: $15,924)		33,722		36,118
Intangibles, net of accumulated amortization		2,066		1,473
Total assets	$	239,521	$	276,736

Liabilities and stockholders’ equity
Current liabilities
Accounts payable		4,344		4,083
Operating lease liabilities, current		2,338		—
Accrued expenses and other accrued liabilities		18,595		20,354
Deferred revenue		3,016		—
Total current liabilities		28,293		24,437

Operating lease liabilities, non-current		23,666		—
Other liabilities, non-current		571		5,414
Total liabilities		52,530		29,851

Stockholders’ equity
Common stock - Ordinary shares par value £0.001, 785,857,300 authorized and 630,672,578 issued and outstanding (2018: 701,103,126 authorized and 627,454,270 issued and outstanding)		943		939
Additional paid in capital		581,245		574,208
Accumulated other comprehensive loss		(8,199)		(9,763)
Accumulated deficit		(386,998)		(318,499)
Total stockholders' equity		186,991		246,885

Total liabilities and stockholders’ equity	$	239,521	$	276,736

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				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenue	$	157	$	9,038	$	157	$	17,234
Operating expenses
Research and development		(25,511)		(26,624)		(47,530)		(52,016)
General and administrative		(10,148)		(11,291)		(21,921)		(22,495)
Total operating expenses		(35,659)		(37,915)		(69,451)		(74,511)
Operating loss		(35,502)		(28,877)		(69,294)		(57,277)
Interest income		757		540		1,709		1,199
Other expense, net		(6,277)		(15,406)		(847)		(8,276)
Loss before income taxes		(41,022)		(43,743)		(68,432)		(64,354)
Income taxes		(65)		(102)		(67)		(229)
Net loss attributable to ordinary shareholders	$	(41,087)	$	(43,845)	$	(68,499)	$	(64,583)

Net loss per ordinary share - Basic and diluted
Basic and diluted	$	(0.07)	$	(0.08)	$	(0.11)	$	(0.11)

Weighted average shares outstanding:
Basic and diluted		629,355,975		565,197,217		628,655,278		563,804,832

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				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
Net loss	$	(41,087)	$	(43,845)	$	(68,499)	$	(64,583)
Other comprehensive loss, net of tax
Foreign currency translation adjustments, net of tax of $0, $0, $0 and $0		4,842		6,107		1,299		3,582
Unrealized gains on available-for-sale debt securities
Unrealized holding gains on available-for-sale debt securities, net of tax of $0, $0, $0 and $0		68		5,223		278		1,167
Reclassification adjustment for (gains) losses on available-for-sale debt securities included in net loss, net of tax of $0, $0, $0 and $0		(13)		1,310		(13)		2,473

Total comprehensive loss for the period	$	(36,190)	$	(31,205)	$	(66,935)	$	(57,361)

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 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
Foreign currency translation adjustments	—		—		—		(3,543)		—		—		(3,543)
Unrealized holding gains on available-for-sale debt securities, net of tax of $-	—		—		—		—		210		—		210
Share-based compensation expense	—		—		3,479		—		—		—		3,479
Balance as of March 31, 2019	628,294,702	$	940	$	577,722	$	(13,150)	$	54	$	(345,911)	$	219,655
Net loss	—		—		—		—		—		(41,087)		(41,087)
Issuance of shares upon exercise of stock options	2,377,876		3		327		—		—		—		330
Foreign currency translation adjustments	—		—		—		4,842		—		—		4,842
Unrealized holding gains on available-for-sale debt securities, net of tax of $-	—		—		—		—		68		—		68
Reclassification from accumulated other comprehensive income of gains on available-for-sale debt securities included in net income, net of tax of $-	—		—		—		—		(13)		—		(13)
Share-based compensation expense	—		—		3,196		—		—		—		3,196
Balance as of June 30, 2019	630,672,578	$	943	$	581,245	$	(8,308)	$	109	$	(386,998)	$	186,991

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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 2018 (under previous guidance)	562,119,334	$	854	$	455,401	$	(17,867)	$	(3,774)	$	(231,630)	$	202,984
Cumulative effect of applying new accounting standards	—		—		—		—		—		8,645		8,645
Balance as of 1 January 2018 (adjusted)	562,119,334		854		455,401		(17,867)		(3,774)		(222,985)		211,629

Net loss											(20,738)		(20,738)
Issuance of shares upon exercise of stock options	2,740,626		4		1,530		—		—		—		1,534
Other comprehensive loss before reclassifications
Foreign currency translation adjustments	—		—		—		(2,525)		—		—		(2,525)
Unrealized holding losses on available-for-sale debt securities, net of tax of $-	—		—		—		—		(4,056)		—		(4,056)
Reclassification from accumulated other comprehensive income of losses on available-for-sale debt securities included in net income, net of tax of $-	—		—		—		—		1,163		—		1,163
Share-based compensation expense	—		—		4,672		—		—		—		4,672
Balance as of March 31, 2018	564,859,960	$	858	$	461,603	$	(20,392)	$	(6,667)	$	(243,723)	$	191,679
Net loss											(43,845)		(43,845)
Issuance of shares upon exercise of stock options	1,636,440		2		887		—		—		—		889
Other comprehensive loss before reclassifications													—
Foreign currency translation adjustments	—		—		—		6,107		—		—		6,107
Unrealized holding gains on available-for-sale debt securities, net of tax of $-	—		—		—		—		5,223		—		5,223
Reclassification from accumulated other comprehensive loss of losses on available-for-sale debt securities included in net income, net of tax of $-	—		—		—		—		1,310		—		1,310
Share-based compensation expense	—		—		3,739		—		—		—		3,739
Balance as of June 30, 2018	566,496,400	$	860	$	466,229	$	(14,285)	$	(134)	$	(287,568)	$	165,102

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)


	Six months ended
	June 30,
	2019		2018
Cash flows from operating activities
Net loss	$	(68,499)	$	(64,583)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		3,642		3,499
Amortization		333		304
Share-based compensation expense		6,675		8,411
Realized (gain) loss on available-for-sale debt securities		(13)		2,473
Unrealized foreign exchange losses		1,048		2,915
Other		(153)		16
Changes in operating assets and liabilities:
Increase in receivables and other operating assets		(16,851)		(11,602)
Decrease in non-current operating assets		1,263		87
Increase (decrease) in payables and deferred revenue		2,184		(24,162)
Net cash used in operating activities		(70,371)		(82,642)

Cash flows from investing activities
Acquisition of property, plant and equipment		(1,202)		(3,139)
Acquisition of intangibles		(922)		(10)
Maturity or redemption of marketable securities		54,324		70,717
Investment in marketable securities		(15,983)		(33,556)
Net cash provided by investing activities		36,217		34,012

Cash flows from financing activities
Proceeds from exercise of stock options		366		2,424
Net cash provided by financing activities		366		2,424

Effect of currency exchange rate changes on cash, cash equivalents and restricted cash		289		4,417
Net decrease in cash and cash equivalents		(33,499)		(41,789)
Cash, cash equivalents and restricted cash at start of period		72,476		88,296
Cash, cash equivalents and restricted cash at end of period	$	38,977	$	46,507

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 patients, particularly for the treatment of solid tumors. The Company’s proprietary SPEAR (Specific Peptide Enhanced Affinity Receptor) T-cell platform enables it to identify cancer targets, find and genetically engineer T-cell receptors (“TCRs”), and produce therapeutic candidates (“SPEAR T-cells”) for administration to patients. Using its affinity engineered TCRs, the Company aims to become the first company to have a TCR T-cell approved for the treatment of a solid tumor indication.

The Company is subject to a number of risks similar to other biopharmaceutical companies in the early stage of clinical development including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical programs or clinical programs, the need to obtain marketing approval for its SPEAR T-cells, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s SPEAR T-cells, the need to develop a suitable commercial manufacturing process and protection of proprietary technology. If the Company does not successfully commercialize any of its SPEAR T-cells, it will be unable to generate product revenue or achieve profitability. The Company had an accumulated deficit of $387.0 million as of June 30, 2019.

Note 2 — Summary of Significant Accounting Policies

(a) Basis of presentation

The condensed consolidated interim 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 interim 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, 2019 (the “Annual Report”). The balance sheet as of December 31, 2018 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.

On January 1, 2019, the Company adopted new guidance on the accounting for leases, which has been codified within Accounting Standard Codification Topic 842, Leases (“ASC 842”). The Company has adopted the guidance using the modified retrospective approach, with the cumulative effect of initially applying the guidance recognized as an adjustment to the opening balance of equity at January 1, 2019. Therefore, the comparative financial information for the three and six months ended June 30, 2018 and as of December 31, 2018 has not been restated and continues to be reported under previous guidance. The effect of adopting ASC 842 on the accumulated deficit, total stockholders’ equity and net assets as at January 1, 2019 was $0.

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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 consolidated 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, estimating clinical trial expenses and estimating reimbursements from 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 8, Fair value measurements.

(d) Leases

On January 1, 2019, the Company adopted a new standard, Accounting Standard Update 2016-02 – Leases, which is codified in ASC 842. The comparative financial information for the three and six months ended June 30, 2018 and as of December 31, 2018 has not been restated and is prepared in accordance with the accounting policies that are described in Note 2 to the consolidated financial statements included in the Annual Report.

The Company determines whether an arrangement is a lease at contract inception by establishing if the contract conveys the right to use, or control the use of, identified property, plant, or equipment for a period of time in exchange for consideration. Leases may be classified as finance leases or operating leases. All the Company’s leases are classified as operating leases as they were previously classed as these and the lease classification is not reassessed on adoption of ASC 842. Operating lease right-of-use (ROU) assets and operating lease liabilities recognized in the Condensed Consolidated Balance Sheet represent the right to use an underlying asset for the lease term and an obligation to make lease payments arising from the lease respectively.

Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. Since the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rates (the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment) based on the information available at commencement date in determining the discount rate used to calculate the present value of lease payments. As the Company has no external borrowings, the incremental borrowing rates are determined using information on indicative borrowing rates that would be available to the Company based on the value, currency and borrowing term provided by financial institutions, adjusted for company and market specific factors. The lease term is based on the non-cancellable period in the lease contract, and options to extend the lease are included when it is reasonably certain that the Company will exercise that option. Any termination fees are included in the calculation of the ROU asset and lease liability when it is assumed that the lease will be terminated.

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The Company accounts for lease components (e.g. fixed payments including rent and termination costs) separately from non-lease components (e.g. common-area maintenance costs and service charges based on utilization) which are recognized over the period in which the obligation occurs.

At each reporting date, the operating lease liabilities are increased by interest and reduced by repayments made under the lease agreements. The right-of-use asset is subsequently measured for an operating lease at the amount of the remeasured lease liability (i.e. the present value of the remaining lease payments), adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, and any unamortized initial direct costs.

The Company has operating leases in relation to property for office and research facilities. All of the leases have termination options, and it is assumed that the initial termination options for the buildings will be activated for most of these. The maximum lease term without activation of termination options is to 2041.

The Company has elected not to recognize a right-of-use asset and lease liability for short-term leases. A short-term lease is a lease with a lease term of 12 months or less and which does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

Operating lease costs are recognized on a straight line basis over the lease term, and they are categorized within Research and development and General and administrative expenses in the Condensed Consolidated Statement of Operations. The operating lease cash flows are categorized under Net cash used in operating activities in the Condensed Consolidated Statement of Cash Flows.

(e) New accounting pronouncements

Adopted in the period

Leases

On January 1, 2019, the Company adopted Accounting Standard Update 2016-02 – Leases, which is codified in ASC 842. The Company has adopted the guidance using the modified retrospective approach, with the cumulative effect of initially applying the guidance recognized as an adjustment to the opening balance of equity at January 1, 2019. Therefore, the comparative information has not been adjusted and continues to be reported under previous guidance. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification of the Company’s leases as operating leases. The effect on the accumulated deficit, total stockholders’ equity and net assets as at January 1, 2019 was $0.

The adoption of ASC 842 has had a material impact on the Company’s financial statements. At January 1, 2019 the Company recognized right-of-use assets and liabilities for operating leases following the adoption date of $22.2 million and $26.9 million respectively and derecognized $4.7 million of other liabilities and prepayments that had been recognized under previous guidance.

During the three months ended June 30, 2019, management performed further benchmarking of the incremental borrowing rate used in the determination of the right-of-use asset and the lease liability as more information became publicly available. This has highlighted that the Company is at the lower end of the range for comparable companies and as a result, management performed further analysis of the factors which were considered. Based on this additional analysis, the incremental borrowing rate has increased from a weighted-average of 4.65% to 7.2%. The change in the incremental borrowing rate has reduced the right-of-use asset and corresponding lease liability by $2.6 million. There is no impact on the Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows.

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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. Early application is permitted for the fiscal year beginning January 1, 2019, including interim periods within that fiscal year. 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 consolidated financial statements.

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

In August 2018, the FASB issued 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, which 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 guidance is effective for the fiscal year beginning January 1, 2020, including interim periods within that fiscal year. Early application is permitted for the fiscal year beginning January 1, 2019, including interim periods within that fiscal year. The guidance may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.

Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued 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. The guidance is effective for the fiscal year beginning January 1, 2020, including interim periods within that fiscal year. Early application is permitted. Certain amendments apply prospectively with the all other amendments applied retrospectively to all periods presented upon their effective date. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.

Note 3 — Revenue

Revenue from contracts with customers arises from one customer, which is GlaxoSmithKline (“GSK”), in one geographic location, which is the United Kingdom. Revenue comprises the following categories (in thousands):


	Three months ended		Three months ended		Six months ended		Six months ended
	June 30,		June 30,		June 30,		June 30,
	2019		2018		2019		2018

Development	$	157	$	9,038	$	157	$	17,234
	$	157	$	9,038	$	157	$	17,234

The Company has one contract with a customer, which is the GSK Collaboration and License Agreement. The GSK Collaboration and License Agreement consists of multiple performance obligations. In 2019, GSK nominated a third target under the Collaboration and License Agreement. Development of this target commenced during the three months ended June 30, 2019.

The amount of the transaction price probable of being received that is allocated to performance obligations that are unsatisfied or partially satisfied at June 30, 2019 was $3.0 million. The revenue allocated to the third target program will be recognized over an estimated period of 18 months as the development of the target progresses.

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The Company became entitled to invoice GSK $3.2 million upon the nomination of the third target. Under the terms of the GSK Collaboration and License Agreement, the Company may also be entitled to development and regulatory milestones. The development and regulatory milestones are per product milestones and are dependent on achievement of certain obligations, the nature of the product being developed, stage of development of product, territory in which an obligation is achieved and type of indication or indications in relation to which the product is being developed. In addition, for any program multiple products may be developed to address different HLA-types. These amounts have not been included within the transaction price as of June 30, 2019 because they are not considered probable.

The Company may also receive commercialization milestones upon the first commercial sale of a product based on the indication and the territory and mid-single to low double-digit royalties on worldwide net sales. These amounts have not been included within the transaction price as of June 30, 2019 because they are sales or usage-based royalties promised in exchange for a license of intellectual property, which will be recognized when the subsequent sale or usage occurs.

Development revenue recognized in the three and six months ended June 30, 2018 related to development of the second target program, PRAME, which ended in 2018, and the NY-ESO program, which was transferred to GSK on July 23, 2018.

The following table shows movements in deferred revenue for the six months ended June 30, 2019 (in thousands):


	Deferred revenue
Deferred revenue at January 1, 2019	$	—
Revenue in the period		(157)
Amounts invoiced in the period		3,217
Foreign exchange arising on consolidation		(44)
Deferred revenue at June 30, 2019	$	3,016

Note 4 – Operating leases

The following table shows the lease costs for the three and six months ended June 30, 2019 (in thousands):


	Three months ended		Six months ended
	June 30,		June 30,
	2019		2019
Lease cost:
Operating lease cost	$	1,024	$	2,014
Short-term lease cost		121		168
	$	1,145	$	2,182

			Six months ended
			June 30,
			2019
Other information:
Operating cash flows from operating leases (in thousands)			$	2,194

			June 30,
			2019

Weighted-average remaining lease term - operating leases			7.8 years
Weighted-average discount rate - operating leases			7.2%

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The maturities of operating lease liabilities are as follows (in thousands):


	Operating leases

2019	$	2,037
2020		4,110
2021		4,153
2022		4,158
2023		3,918
after 2023		16,302
Total lease payments		34,678
Less: Imputed interest		(8,674)
Present value of lease liability	$	26,004

The Company has operating leases in relation to property for office and research facilities. The maximum lease term without activation of termination options is to 2041.

Note 5 — Other expense, net

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


	Three months ended				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018

Foreign exchange losses	$	(6,403)	$	(14,022)	$	(1,013)	$	(5,605)
Gains (losses) on redemption or maturity of available-for-sale debt securities		13		(1,310)		13		(2,473)
Other		113		(74)		153		(198)
	$	(6,277)	$	(15,406)	$	(847)	$	(8,276)

Note 6 — Loss per share

The dilutive effect of 97,292,240 and 87,434,329 stock options outstanding as of June 30, 2019 and 2018, respectively, have been excluded from the diluted loss per share calculation, because they would have an antidilutive effect on the loss per share for the period.

Note 7 — Accumulated other comprehensive income (loss)

The following amounts were reclassified out of other comprehensive income during the three and six months ended June 30, 2019 and 2018 (in thousands):

Amount reclassified

Three months ended

Six months ended

June 30,

Component of accumulated other comprehensive income

2019

2018

2019

2018

Unrealized gains (losses) on available-for-sale securities

Reclassification adjustment for (gains) losses on available-for-sale debt securities

(13)

1,310

(13)

2,473

The affected line in the Condensed Consolidated Statement of Operations for the amounts reclassified out of other comprehensive income above is “Other expense, net”.

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Note 8 — Fair value measurements

Assets and liabilities measured at fair value on a recurring basis based on Level 1, Level 2, and Level 3 fair value measurement criteria as of June 30, 2019 are as follows (in thousands):


			Fair value measurements using
	June 30,		Level 1		Level 2		Level 3
	2019
Assets:
Marketable securities:
Corporate debt securities	$	91,831	$	91,831	$	—	$	—
Agency bond		3,999		—		3,999		—
Certificate of deposit		3,002		—		3,002		—
	$	98,832	$	91,831	$	7,001	$	—

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 9 — Available-for-sale debt securities

As of June 30, 2019, the Company has the following investments in available-for-sale debt securities (in thousands):


				Gross		Gross		Aggregate
	Remaining	Amortized		Unrealized		Unrealized		Estimated
	Contractual Maturity	Cost		Gains		Losses		Fair Value
Cash equivalents:
Money market funds	Less than 3 months	$	10,241	$	—	$	—	$	10,241
		$	10,241	$	—	$	—	$	10,241

Marketable securities:
Corporate debt securities	Less than 3 months	$	35,703	$	18	$	—	$	35,721
Corporate debt securities	3 months to 1 year		56,027		85		(2)		56,110
Agency bond	3 months to 1 year		3,992		7		—		3,999
Certificate of deposit	Less than 3 months		3,002		—		—		3,002
		$	98,724	$	110	$	(2)	$	98,832

Maturity information above is categorized by the period remaining after the reporting period until the maturity date. In the three and six months ended June 30, 2019, $13,000 of realized gains recognized on the maturity of available-for-sale debt securities were reclassified out of other accumulated other comprehensive loss. As of June 30, 2019 and December 31, 2018, the aggregate fair value of securities held by the Company in an unrealized loss position was $9.6 million and $117.2 million respectively, which consisted of 3 and 37 separate securities, respectively. No securities have been in an unrealized loss position for more than one year. As of June 30, 2019, the securities in an unrealized loss position are not considered to be other than temporarily impaired because the impairments are not severe, have been for a short duration and are due to normal market fluctuations. Furthermore, the Company does not intend to sell the debt securities in an unrealized loss position and it is unlikely that the Company will be required to sell these securities before the recovery of the amortized cost.

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Note 10 — Other current assets

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


	June 30,		December 31,
	2019		2018
Corporate tax receivable	$	26,328	$	16,459
Prepayments		8,600