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 March 31, 2020

	OR

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

For the transition period from to

Commission File Number 001-37368

ADAPTIMMUNE THERAPEUTICS PLC

(Exact name of Registrant as specified in its charter)


England and Wales	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

60 Jubilee Avenue, Milton Park

Abingdon, Oxfordshire OX14 4RX

United Kingdom

(Address of principal executive offices)

(44) 1235 430000

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol	Name of each exchange on which registered

American Depositary Shares, each representing 6 Ordinary Shares, par value £0.001 per share	ADAP	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes ◻ No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer◻	Accelerated filer ⌧
Non-accelerated filer◻	Smaller reporting company ⌧
	Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ⌧ No

As of May 13, 2020, the number of outstanding ordinary shares par value £0.001 per share of the Registrant is 780,593,444.

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PART I — FINANCIAL INFORMATION		5

Item 1.	Financial Statements:	5

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

	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019	6

	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019	7

	Unaudited Condensed Consolidated Statements of Change in Equity for the three months ended March 31, 2020 and 2019	8

	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	10

	Notes to the Unaudited Condensed Consolidated Financial Statements	11

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

PART II — OTHER INFORMATION		30

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81

Item 3.	Defaults Upon Senior Securities	81

Item 4.	Mine Safety Disclosures	81

Item 5.	Other Information	81

Item 6.	Exhibits	82

Signatures		83

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General information

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

Information Regarding Forward-Looking Statements

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

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

●

our ability to progress and continue with business operations as a result of the outbreak of coronavirus, SARS-CoV-2 (“COVID-19”) including our ability to treat and enroll patients in clinical trials, manufacture cell therapies for patients, obtain responses and approvals from regulatory authorities, progress third party relationships and collaborations, obtain and publish data from our clinical trials and source and procure resources and supplies needed for ongoing activities;

●

our ability to successfully advance our ADP-A2M4 (MAGE-A4), ADP-A2M4CD8 (MAGE-A4CD8) and ADP-A2AFP (AFP) products through clinical development and the timing within which we can recruit and treat patients in all of our clinical trials;

●

our ability to fund our operations and continue as a going concern including as a result of the impact of the COVID-19 pandemic;

●

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

●

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

●

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

●

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

●

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

●

our ability to successfully commercialize any products;

●

the existence of any third-party patents preventing further development of any of our cell therapies, including, any inability to obtain appropriate third party licenses, or enforcement of patents against us or our collaborators;

●

our ability to obtain granted patents covering our cell therapies and to enforce such patents against third parties;

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●

volatility in equity markets in general, and in the biopharmaceutical sector in particular and our ability to maintain compliance with the Nasdaq Global Select Market closing bid price requirement;

●

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

●

the scope and timing of performance of our ongoing collaborations with GlaxoSmithKline (“GSK”) and with Astellas Pharma Inc. through its wholly-owned subsidiary Universal Cells Inc. (“Astellas”);

●

our relationships with suppliers, contract manufacturing organizations or CROs and other third-party providers including fluctuations in the price of materials and services, ability to obtain reagents particularly where such reagents are only available from a single source, and performance of third party providers;

●

increased competition from other companies in the biotechnology and pharmaceutical industries including where such competition impacts ability to recruit patients into clinical trials;

●

claims for personal injury or death arising from the use of our cell therapies;

●

our ability to attract and retain qualified personnel; and

●

additional factors that are not known to us at this time.

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

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	March 31,		December 31,
	2020		2019
Assets
Current assets
Cash and cash equivalents	$	86,429	$	50,412
Marketable securities - available-for-sale debt securities		110,000		39,130
Other current assets and prepaid expenses (including current portion of clinical materials)		31,332		30,947
Total current assets		227,761		120,489

Restricted cash		4,331		4,496
Clinical materials		2,611		2,503
Operating lease right-of-use assets, net of accumulated amortization		19,498		20,789
Property, plant and equipment, net of accumulated depreciation of $24,274 (2019: $23,649)		28,674		31,068
Intangibles, net of accumulated amortization		2,366		2,198
Total assets	$	285,241	$	181,543

Liabilities and stockholders’ equity
Current liabilities
Accounts payable		7,066		6,357
Operating lease liabilities, current		2,590		2,493
Accrued expenses and other accrued liabilities		18,502		23,363
Deferred revenue, current		1,658		2,128
Total current liabilities		29,816		34,341

Operating lease liabilities, non-current		21,829		22,966
Deferred revenue, non-current		46,974		—
Other liabilities, non-current		585		598
Total liabilities		99,204		57,905

Stockholders’ equity
Common stock - Ordinary shares par value £0.001, 785,857,300 authorized and 780,514,340 issued and outstanding (2019: 785,857,300 authorized and 631,003,568 issued and outstanding)		1,139		943
Additional paid in capital		678,319		585,623
Accumulated other comprehensive loss		(9,590)		(7,264)
Accumulated deficit		(483,831)		(455,664)
Total stockholders' equity		186,037		123,638

Total liabilities and stockholders’ equity	$	285,241	$	181,543

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)


	Three months ended
	March 31,
	2020		2019
Revenue	$	761	$	—
Operating expenses
Research and development		(21,264)		(22,019)
General and administrative		(9,261)		(11,773)
Total operating expenses		(30,525)		(33,792)
Operating loss		(29,764)		(33,792)
Interest income		730		952
Other income, net		937		5,430
Loss before income taxes		(28,097)		(27,410)
Income taxes		(70)		(2)
Net loss attributable to ordinary shareholders	$	(28,167)	$	(27,412)

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

Weighted average shares outstanding:
Basic and diluted		739,753,371		627,945,243

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
	March 31,
	2020		2019
Net loss	$	(28,167)	$	(27,412)
Other comprehensive loss, net of tax
Foreign currency translation adjustments, net of tax of $0 and $0		17,911		(3,543)
Foreign currency losses on intercompany loan of a long-term investment nature, net of tax of $0		(19,651)		—
Unrealized holding (losses) gains on available-for-sale debt securities, net of tax of $0 and $0		(586)		210

Total comprehensive loss for the period	$	(30,493)	$	(30,745)

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		(losses)
						foreign		gains on
				Additional		currency		available-for-				Total
	Common	Common		paid in		translation		sale debt		Accumulated		stockholders'
	stock	stock		capital		adjustments		securities		deficit		equity
Balance as of 1 January 2020	631,003,568	$	943	$	585,623	$	(7,302)	$	38	$	(455,664)	$	123,638

Net loss	—		—		—		—		—		(28,167)		(28,167)
Issuance of shares upon exercise of stock options	4,610,772		6		888		—		—		—		894
Issuance of shares upon completion of public offering (net of issuance costs of $979)	144,900,000		190		90,360		—		—		—		90,550
Other comprehensive loss before reclassifications
Foreign currency translation adjustments	—		—		—		17,911		—		—		17,911
Foreign currency losses on intercompany loan of a long-term investment nature, net of tax of $-	—		—		—		(19,651)		—		—		(19,651)
Unrealized holding losses on available-for-sale debt securities, net of tax of $-	—		—		—		—		(586)		—		(586)
Share-based compensation expense	—		—		1,448		—		—		—		1,448
Balance as of March 31, 2020	780,514,340	$	1,139	$	678,319	$	(9,042)	$	(548)	$	(483,831)	$	186,037

See accompanying notes to unaudited condensed consolidated financial statements

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

(In thousands, except share data)


						Accumulated other
						comprehensive loss
								Accumulated
						Accumulated		unrealized
						foreign		gains (losses) on
				Additional		currency		available-for-				Total
	Common	Common		paid in		translation		sale debt		Accumulated		stockholders’
	stock	stock		capital		adjustments		securities		deficit		equity
Balance as of 1 January 2019	627,454,270		939		574,208		(9,607)		(156)		(318,499)		246,885

Net loss											(27,412)		(27,412)
Issuance of shares upon exercise of stock options	840,432		1		35		—		—		—		36
Other comprehensive loss before reclassifications
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

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)


	Three months ended
	March 31,
	2020		2019
Cash flows from operating activities
Net loss	$	(28,167)	$	(27,412)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		1,711		1,828
Amortization		180		167
Share-based compensation expense		1,448		3,479
Unrealized foreign exchange gains		(1,745)		(5,095)
Other		145		(39)
Changes in operating assets and liabilities:
Increase in receivables and other operating assets		(3,193)		(6,659)
Increase in non-current operating assets		(259)		(19)
Decrease in payables		(2,708)		(2,453)
Increase in deferred revenue		49,445		—
Net cash provided by (used in) operating activities		16,857		(36,203)

Cash flows from investing activities
Acquisition of property, plant and equipment		(192)		(904)
Acquisition of intangibles		(152)		(205)
Maturity or redemption of marketable securities		26,364		22,669
Investment in marketable securities		(97,967)		(3,904)
Net cash (used in) provided by investing activities		(71,947)		17,656

Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs of $979		90,550		—
Proceeds from exercise of stock options		894		36
Net cash provided by financing activities		91,444		36

Effect of currency exchange rate changes on cash, cash equivalents and restricted cash		(502)		425
Net increase (decrease) in cash and cash equivalents		35,852		(18,086)
Cash, cash equivalents and restricted cash at start of period		54,908		72,476
Cash, cash equivalents and restricted cash at end of period	$	90,760	$	54,390

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — General

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

The Company is subject to a number of risks similar to other biopharmaceutical companies in the early stage of clinical development including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical programs or clinical programs, the need to obtain marketing approval for its SPEAR T-cells, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s SPEAR T-cells, the need to develop a reliable commercial manufacturing process, the need to commercialize any T-cell therapies that may be approved for marketing, and protection of proprietary technology. If the Company does not successfully commercialize any of its SPEAR T-cells, it will be unable to generate product revenue or achieve profitability. The Company had an accumulated deficit of $483.8 million as of March 31, 2020.

Note 2 — Summary of Significant Accounting Policies

(a) Basis of presentation

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

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

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

(b) Going concern analysis

Management considers that there are no conditions or events, in the aggregate (including those arising from the impact of COVID-19), that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least one year from the date the condensed consolidated financial statements are issued. Although our financial statements have been prepared on a going concern basis, if the Company fails to obtain additional financing in future, this may raise substantial doubt over the Company’s ability to continue as a going concern in future reporting periods. Our ability to raise additional funds may be adversely affected by global economic conditions and a prolonged downturn in the financial markets resulting from the ongoing COVID-19 pandemic.

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(c) Use of estimates in interim financial statements

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

(d) Fair value measurements

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

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

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

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

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

(e) New accounting pronouncements

Adopted in the period

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

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

Simplifying the Accounting for Income Taxes

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

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Changes to the Disclosure Requirements for Fair Value Measurement

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

Revenue Recognition in Collaborative Arrangements

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

To be adopted in future periods

Measurement of Credit Losses on Financial Instruments

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

Note 3 — Revenue

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

Revenue from contracts with customers in the three months ended March 31, 2020, which was included in the deferred income balance at January 1, 2020, comprises the following (in thousands):


	Three months ended		Three months ended
	March 31,		March 31,
	2020		2019

Development revenue: GSK Collaboration and License Agreement	$	761	$	—
	$	761	$	—

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The following table shows movements in deferred revenue for the three months ended March 31, 2020 (in thousands):


	Deferred revenue
Deferred revenue at January 1, 2020	$	2,128
Amounts invoiced in the period		50,000
Revenue in the period		(761)
Foreign exchange arising on consolidation⁽¹⁾		(2,735)
Deferred revenue at March 31, 2020	$	48,632

(1) Revenues from our collaboration agreements are generated by our U.K.-based subsidiary, which has a pounds sterling functional currency. As a result, the deferred revenue is subject to foreign currency translation adjustments when it is translated into U.S. dollars in the condensed consolidated financial statements.

The amounts invoiced in the period related to the $50.0 million upfront payment under the Astellas Collaboration Agreement. The revenue recognized in the period relates to work performed on products to the third target under the GSK Collaboration and License Agreement.

The Astellas Collaboration Agreement

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

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

At March 31, 2020, the collaboration is in the early stages. In April, the parties agreed on the target for the first collaboration program, and discussions remain ongoing around the research plan for the program.

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

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

●

Development milestones of up to $73.75 million for each co-developed and co-commercialized product

●

Development milestones of up to $147.5 million per product and up to $110 million in sales milestones for products developed unilaterally by Astellas.

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

In consideration for rights under certain contributed Astellas technology for a product unilaterally developed by Adaptimmune, Astellas could be eligible to receive up to $552.5 million, including up to $147.5 million in milestone payments per product, and up to $110 million in sales milestones for products developed unilaterally by Adaptimmune. In addition, Astellas will receive tiered royalties on net sales in the mid-single to mid-teen digits.

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

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

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

The aggregate transaction price at inception of the agreement is the $50.0 million upfront payment. Future development milestones are not considered probable as of March 31, 2020 and have not been included in the transaction price. Reimbursement of the research funding over the co-development period (up until completion of a Phase 1 trial for products directed to such target) is variable consideration and included in the transaction price to the extent that it is probable. The Company may also receive sales milestones upon the achievement of specified levels of annual net sales by Astellas under an independent Astellas program. These amounts have not been included within the transaction price as of March 31, 2020 because they are sales-based and will be recognized when the subsequent sales occur.

The aggregate transaction price is allocated to the performance obligations depending on the relative standalone selling price of the performance obligations. In determining the best estimate of the standalone selling price, the Company considered internal pricing objectives it used in negotiating the contract, together with internal data regarding the cost and margin of providing research services and adjusted-market data from comparable arrangements. The variable consideration will be allocated to the performance obligation to which it relates. At March 31, 2020, $7.0 million has been allocated to research services and rights granted under the co-exclusive license for each of the three co-development targets and $14.5 million has been allocated to the rights granted for each of the two independent Astellas targets.

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

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

The amount of the transaction price that is allocated to performance obligations that are unsatisfied or partially satisfied under the agreement as of March 31, 2020 was $47.3 million, which is recognized in deferred income.

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Note 4 — Other income, net

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


	Three months ended
	March 31,
	2020		2019

Foreign exchange gains	$	1,089	$	5,390
Other		(152)		40
	$	937	$	5,430

Note 5 — Loss per share

The dilutive effect of 93,106,607 and 103,848,778 stock options outstanding as of March 31, 2020 and 2019 respectively have been excluded from the diluted loss per share calculation for the three months ended March 31, 2020 and 2019 respectively, because they would have an antidilutive effect on the loss per share for the period.

Note 6 — Fair value measurements

Assets and liabilities measured at fair value on a recurring basis based on Level 1, Level 2, and Level 3 fair value measurement criteria as of March 31, 2020 are as follows (in thousands):


			Fair value measurements using
	March 31,		Level 1		Level 2		Level 3
	2020
Assets:
Corporate debt securities	$	108,002	$	108,002		—		—
Treasury bills		1,998		—		1,998		—
	$	110,000	$	108,002	$	1,998	$	—

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.

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Note 7 — Marketable securities

As of March 31, 2020, the Company has the following investments in marketable securities (in thousands):


				Gross		Gross		Aggregate
	Remaining	Amortized		Unrealized		Unrealized		Estimated
	Contractual Maturity	Cost		Gains		Losses		Fair Value
Cash equivalents:
Corporate debt securities	Less than 3 months		10,338		2		(3)		10,337
		$	10,338	$	2	$	(3)	$	10,337

Available-for-sale debt securities:
Corporate debt securities	Less than 3 months	$	13,684	$	7	$	(17)	$	13,674
Corporate debt securities	3 months to 1 year		76,635		8		(455)		76,188
Treasury bills	3 months to 1 year		1,991		7		—		1,998
Corporate debt securities	1 year to 2 years		18,238		3		(101)		18,140
		$	110,548	$	25	$	(573)	$	110,000

As of March 31, 2020 and December 31, 2019, the aggregate fair value of securities held by the Company in an unrealized loss position was $90.9 million and $2.0 million respectively, which consisted of 36 and 1 separate securities, respectively. No securities have been in an unrealized loss position for more than one year.

As of March 31, 2020, the securities in an unrealized loss position are not considered to be other than temporarily impaired because the impairments are not severe and have been for a short duration. The Company has considered potential impairments in light of COVID-19 and its impact on markets, and the Company has concluded that this impact is not other than temporary for the Company’s securities. The Company does not intend to sell the debt securities in an unrealized loss position and believes that it has the ability to hold the debt securities to maturity.

Note 8 — Other current assets

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


	March 31,		December 31,
	2020		2019
Corporate tax receivable	$	23,004	$	19,284
Prepayments		6,468		8,395
Clinical materials		952		1,459
Other current assets		908		1,809
	$	31,332	$	30,947

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Note 9 — Accrued expenses and other current liabilities

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


	March 31,		December 31,
	2020		2019
Accrued clinical and development expenditure	$	9,491	$	8,782
Accrued employee expenses		3,814		6,863
Other accrued expenditure		2,562		2,662
Accrued purchase commitments		2,500		5,000
Other		135		56
	$	18,502	$	23,363

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

Note 10 — Share-based compensation

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


	Three months ended
	March 31,
	2020		2019
Research and development	$	978	$	2,021
General and administrative		470		1,458
	$	1,448	$	3,479

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


	Three months ended
	March 31,
	2020		2019
Number of options over ordinary shares granted		10,229,280		10,807,200
Weighted average fair value of ordinary shares options	$	0.51	$	0.55
Number of additional options with a nominal exercise price granted		6,060,696		6,498,126
Weighted average fair value of options with a nominal exercise price	$	0.74	$	0.94

Note 11 — Stockholders’ equity

On January 24, 2020, the Company closed an underwritten public offering of 21,000,000 American Depository Shares (ADSs) which, together with the full exercise by the underwriters on February 7, 2020, of their option to purchase an additional 3,150,000 ADSs, generated net proceeds of $90.5 million.

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

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

Overview

We are a clinical-stage biopharmaceutical company focused on providing novel cell therapies to people with cancer. We are a leader in the development of T-cell therapies for solid tumors.

Our proprietary SPEAR (Specific Peptide Enhanced Affinity Receptor) T-cell platform enables us to identify cancer targets, find and genetically engineer T-cell receptors (‘‘TCRs’’) against those targets, and produce therapeutic candidates (‘‘SPEAR T-cells’’) for administration to patients. Using our affinity engineered TCRs, we aim to become the first company to have a TCR T-cell approved for the treatment of a solid tumor indication.

COVID-19 update

As the outbreak of coronavirus, SARS-CoV-2 (“COVID-19”) continues and evolves, we are focused on ensuring the safety of our work force and continuing, where possible, to treat patients with our cell therapies. We are also preparing to ensure that we can rapidly treat patients whose treatment has been delayed once the restrictions imposed as a result of the COVID-19 ease. We will continue to work with clinical sites to screen patients for eligibility across our trials. In particular:

●

our facilities in the U.S. and U.K. remain open to support manufacturing and delivery of our cell therapies and other critical scientific activities including certain research activities;

●

employees who are not supporting manufacturing and delivery of therapies to patients or prioritized research activities are working from home where feasible; and

●

many clinical sites are required to prioritize resources to treat COVID-19 patients and we are working with them to support that effort. As a result, many of the clinical sites may choose to delay their participation in our trials during the COVID-19 pandemic and, where delays occur, we will work with them to treat patients as soon as possible as sites return to running clinical trials.

Further details on the impact of COVID-19 on our business can be found in Part II — Item 1A Risk Factors.

Wholly-owned SPEAR T-cells

Clinical trials remain ongoing with our ADP-A2M4, ADP-A2AFP and ADP-A2M4CD8 SPEAR T-cell therapies.

ADP-A2M4—Multiple Indications: A Phase 1 clinical trial in urothelial, melanoma, head and neck, ovarian, NSCLC, esophageal and gastric cancers, synovial sarcoma and MRCLS has now completed enrollment. RECIST responses have previously been reported in patients with synovial sarcoma and head and neck cancer. A further update on the trial is scheduled to be presented at ASCO in May 2020. A radiation sub-study under this Phase 1 clinical trial continues to enroll patients and a partial response was reported in the first patient treated. A Phase 2 clinical trial has been initiated in synovial sarcoma and MRCLS indications. In addition, planning is ongoing for initiation of a clinical trial combining ADP-A2M4 with a PD-1 / PD-L1 pathway inhibitor in 2020.

ADP-A2AFP - Hepatocellular Carcinoma: We continue dosing patients in our Phase 1, open-label, dose-escalation study designed to evaluate the safety and anti-tumor activity of our alpha fetoprotein (“AFP”) therapeutic candidate for the treatment of

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hepatocellular carcinoma, or HCC. Patients are being treated in the expansion cohort with target doses of up to 10 billion SPEAR T-cells (range 1.2 to 10 billion), after the Safety Review Committee endorsed dose escalation. It was reported that the first patient treated at this target dose achieved a partial response with a decrease of 100% in target lesions.

ADP-A2M4CD8—SURPASS Trial: Enrollment has started in a Phase 1 trial for a next generation SPEAR T-cell, ADP-A2M4CD8. This next generation SPEAR T-cell utilizes the same engineered T-cell receptor as ADP-A2M4, but with the addition of a CD8α homodimer. The addition of the CD8α homodimer has been shown in vitro to increase cytokine release and SPEAR T-cell potency. A partial response was reported in the first patient treated.

Collaboration programs

Astellas co-development and co-commercialisation: We are collaborating with Astellas Pharma Inc (through its wholly-owned subsidiary Universal Cells Inc) in relation to up to three targets with the aim of co-developing T-cell therapy candidates directed to those targets. The collaboration leverages Adaptimmune’s target identification and validation capabilities for generating target-specific T-cell therapies. The collaboration will also utilize Astellas’ cell and gene editing platform. The collaboration is in the early stages. The parties have agreed on the target for the first collaboration program and discussions remain ongoing around the research plan for the program.

GSK collaboration: We are collaborating with GSK for the development, manufacture and commercialization of TCR therapeutic candidates. The first program was the NY-ESO SPEAR T-cell program, in relation to which GSK has now exercized its option to take an exclusive license. The second program has now completed. The third target program under the Collaboration and License Agreement remains ongoing. GSK is currently entitled to nominate a fourth target program and, upon satisfying other conditions, may have the right to nominate a fifth program under the agreement, in each case excluding our ongoing wholly-owned development programs.

Significant Events in the Three Months Ended March 31, 2020

On January 13, 2020, we entered into a co-development and co-commercialization agreement with Astellas Pharma, Inc. through its wholly-owned subsidiary Universal Cells Inc (the “Astellas Collaboration Agreement”). The Company received an upfront payment of $50.0 million in January 2020 under the agreement and will receive research funding of up to $7.5 million per year on a per collaboration target basis from the start of research programs. Additional milestones are possible under the agreement, but these are dependent on the success and progression of the collaboration programs.

On January 13, 2020, we also announced the appointment of Elliot Norry, M.D., as our Senior Vice President and Chief Medical Officer, together with certain other organizational changes to strengthen scientific and clinical development from early to late stage and to accelerate application of translational science learnings to therapeutic candidates and trials.

On January 24, 2020, we closed an underwritten public offering of 21,000,000 American Depository Shares (ADSs) which, together with the full exercise by the underwriters on February 7, 2020, of their option to purchase an additional 3,150,000 ADSs, generated net proceeds of $90.5 million.

Subsequent Events since March 31, 2020

On April 1, 2020, Gavin Wood was appointed as Chief Financial Officer. Michael Garone, who was serving as Interim Chief Financial Officer, stepped down on March 31, 2020.

On April 8, 2020 we announced that Giles Kerr, who has served on the Board since November 2016, will retire from office and has confirmed that he will not stand for re-election as a director at the Company’s Annual General Meeting to be held on May 29, 2020 (the “2020 AGM”) due to other time commitments. Mr. Kerr’s decision not to pursue re-election was not due to a disagreement with the Company. Mr. Kerr will continue to serve as a director of the Company and as a member of the Company’s Audit Committee and its Corporate Governance and Nominating Committee until the end of the 2020 AGM. On April 7, 2020, John Furey was appointed to replace Giles Kerr as a member of the Audit Committee effective May 29, 2020.

On April 27, 2020 we announced that the European Medicine Agency’s (EMA) Committee of Orphan Medicinal Products (COMP) had adopted a positive opinion for Orphan Drug Designation for ADP-A2M4 for the treatment of soft tissue sarcomas.

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Financial Operations Overview

Revenue

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

The GSK Collaboration Agreement

The GSK Collaboration and License Agreement consists of multiple performance obligations. GSK nominated its third target under the Collaboration and License Agreement in 2019, and the Company received $3.2 million following the nomination of the target. Development of products to this target continued in the three months ended March 31, 2020. The remaining revenue allocated to this performance obligation of $1.3 million is estimated to be recognized by the end of the first half of 2021 as the development progresses.

The Astellas Collaboration Agreement

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

The agreement consists of multiple performance obligations. The revenue allocated to each of the co-development targets of $7.0 million per target is recognized as the development progresses up until the completion of a Phase 1 trial for the products directed to the target. The revenue allocated to each of the research licenses for the targets being independently developed by Astellas of $14.5 million per target will be recognized when the associated licence commences, which is upon designation of a target by Astellas.

Research and Development Expenses

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

●

salaries for research and development staff and related expenses, including benefits;

●

costs for production of preclinical compounds and drug substances by contract manufacturers;

●

fees and other costs paid to contract research organizations in connection with additional preclinical testing and the performance of clinical trials;

●

costs associated with the development of a process to manufacture and supply our lentiviral vector and SPEAR T-cells for use in clinical trials;

●

costs to develop manufacturing capability at our U.S. facility for manufacture of SPEAR T-cells for use in clinical trials;

●

costs relating to facilities, materials and equipment used in research and development;

●

costs of acquired or in-licensed research and development which does not have alternative future use;

●

amortization and depreciation of property, plant and equipment and intangible assets used to develop our SPEAR T-cells; and

●

share-based compensation expenses;

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offset by:

●

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

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

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

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

●

the scope, rate of progress, and expense of our ongoing as well as any additional clinical trials and other research and development activities;

●

uncertainties in clinical trial enrollment rates;

●

future clinical trial results;

●

significant and changing government regulation;

●

the timing and receipt of any regulatory approvals; and

●

supply and manufacture of lentiviral vector and SPEAR T-cells for clinical trials

●

an allocation of indirect costs clearly related to research and development

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

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

General and Administrative Expenses

Our general and administrative expenses consist principally of:

●

salaries for employees other than research and development staff, including benefits;

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●

business development expenses, including travel expenses;

●

professional fees for auditors, lawyers and other consulting expenses;

●

costs of facilities, communication, and office expenses;

●

information technology expenses;

●

amortization and depreciation of property, plant and equipment and intangible assets not related to research and development activities; and

●

share-based compensation expenses.

Other Income, net

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

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

Taxation

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

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

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

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

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

Critical Accounting Policies and Significant Judgments and Estimates

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

Allocation of transaction price and determination of costs to complete

On January 13, 2020, the Company entered into a collaboration agreement with Astellas. We received $50.0 million as an upfront payment in January 2020.

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

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

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Results of Operations

Comparison of Three Months Ended March 31, 2020 and 2019

The following table summarizes the results of our operations for the three months ended March 31, 2020 and 2019, together with the changes to those items (in thousands):


	Three months ended
	March 31,
	2020		2019		Increase/decrease
Revenue	$	761		—	$	761	NA
Research and development expenses		(21,264)		(22,019)		755	(3)	%
General and administrative expenses		(9,261)		(11,773)		2,512	(21)	%
Total operating expenses		(30,525)		(33,792)		3,267	(10)	%
Operating loss		(29,764)		(33,792)		4,028	(12)	%
Interest income		730		952		(222)	(23)	%
Other income, net		937		5,430		(4,493)	83	%
Loss before income taxes		(28,097)		(27,410)		(687)	3	%
Income taxes		(70)		(2)		(68)	3,400	%
Loss for the period	$	(28,167)	$	(27,412)	$	(755)	3	%

Revenue

Revenue was $0.8 million in the three months ended March 31, 2020 compared to $nil for the three months ended March 31, 2019.

The revenue recognized for the three months ended March 31, 2020 relates to work performed on products to the third target nominated by GSK in 2019 under the Collaboration and License Agreement. No revenue has been recognized on the Astellas Collaboration Agreement in the three months ended March 31, 2020.

Future GSK revenues will depend on the progress of the third target program, the development of programs for additional targets, and GSK’s progress with the NY-ESO program, which are difficult to predict. We estimate that the remaining $1.3 million of revenue from the $3.2 million received following nomination of the third target may be fully recognized by the end of the first half of 2021; however, this is inherently difficult to predict, and the period could be shorter or longer.

Under the terms of the Astellas Collaboration Agreement, the revenue allocated to each of the co-development targets of $7.0 million per target is recognized as the development progresses up until the completion of a Phase 1 trial for the products directed to the target. The revenue allocated to each of the research license for the targets being independently developed by Astellas of $14.5 million will be recognized when the associated licence commences, which is upon designation of a target by Astellas.

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Research and Development Expenses

Research and development expenses decreased by 3% to $21.3 million for the three months ended March 31, 2020 from $22.0 million for the three months ended March 31, 2019.

Our research and development expenses comprise the following (in thousands):


	Three months ended
	March 31,
	2020		2019		Increase/decrease
Salaries, materials, consumables, depreciation of property, plant and equipment and other employee-related costs⁽¹⁾	$	15,384	$	16,689	$	(1,305)	(8)	%
Subcontracted expenditure		7,311		6,922		389	6	%
Manufacturing facility expenditure		1,687		1,548		139	9	%
Share-based compensation expense		978		2,021		(1,043)	(52)	%
In-process research and development costs		968		—		968	NA
Reimbursements receivable for research and development tax and expenditure credits		(5,064)		(5,161)		97	(2)	%
	$	21,264	$	22,019	$	(755)	(3)	%

(1)	These costs are not analyzed by project since employees may be engaged in multiple projects simultaneously.

The net decrease in our research and development expenses of $0.8 million for the three months ended March 31, 2020 compared to the same period in 2019 was primarily due to the following:

●

a decrease of $1.3 in salaries, materials, consumables, depreciation of property, plant and equipment and other employee-related costs, which is mainly driven by a decrease in the average number of employees engaged in research and development from 334 to 313;

●

an increase of $0.4 million in subcontracted expenditures, including clinical trial expenses, contract research organization (CRO) costs and subcontracted manufacturing costs, which is primarily driven by subcontracted clinical trial costs related to SPEARHEAD and SURPASS clinical trials in the three months ended March 31, 2020;

●

a decrease in share-based compensation expense of $1.0 million due to share option forfeitures; and

●

an increase of $1.0 million in in-process research and development costs, primarily due to work performed by Universal Cells on gene-edited cell lines under our amending existing agreement with Universal Cells

Our subcontracted costs for the three months ended March 31, 2020 were $7.3 million, compared to $6.9 million in the same period of 2019. This includes $4.7 million of costs directly associated with our ADP-A2M4, ADP-A2M4CD8, ADP-A2AFP and ADP-A2M10 SPEAR T-cells and $2.6 million of other development costs.

Our research and development expenses are highly dependent on the phases and progression of our research projects and will fluctuate depending on the outcome of ongoing clinical trials.

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General and Administrative Expenses

General and administrative expenses decreased by 21% to $9.3 million for the three months ended March 31, 2020 from $11.8 million in the same period in 2019. Our general and administrative expenses consist of the following:


	Three months ended
	March 31,
	2020		2019		Increase/decrease
Salaries, depreciation of property, plant and equipment and other employee-related costs	$	5,759	$	6,758	$	(999)	(15)	%
Share-based compensation expense		471		1,458		(987)	(68)	%
IT, facilties and other property costs		1,735		2,204		(469)	(21)	%
Professional fees		1,296		1,353		(57)	(4)	%
	$	9,261	$	11,773	$	(2,512)	(21)	%

The net decrease in our general and administrative expenses of $2.5 million for the three months ended March 31, 2020 compared to the same period in 2019 was primarily due to the following:

●

a decrease of $1.0 million in salaries, depreciation of property, plant and equipment and other employee-related costs, which is mainly driven by a decrease in the average number of employees engaged in general and administrative activities;

●

a decrease of $1.0 million in share-based compensation expense due to option forfeitures; and

●

a decrease of $0.5 million in IT, facilities and other property costs.

Other Income, Net

Other income, net was $0.9 million for the three months ended March 31, 2020 compared to $5.4 million for the three months ended March 31, 2019. Other income, net primarily relates to unrealized foreign exchange gains and losses on cash, cash equivalents and on intercompany loans held in U.S. dollars by our U.K. subsidiary, other than those of a long-term investment nature, where repayment is not planned or anticipated in the foreseeable. From July 1, 2019, the intercompany loan between the parent company, Adaptimmune Therapeutics Plc and its subsdiairy, Adaptimmune Limited, has been considered of a long-term investment nature as repayment is not planned or anticipated in the foreseeable future. It is Adaptimmune Therapeutics plc’s intent not to request payment of the intercompany loan for the foreseeable future. The foreign exchange gains or losses arising on the revaluation of intercompany loans of a long-term investment nature are reported within other comprehensive loss.

Income Taxes

Income taxes increased to a charge of $70,000 for the three months ended March 31, 2020 from a charge of $2,000 for the three months ended March 31, 2019. Income taxes arise in the United States due to our U.S. subsidiary generating taxable profits. We incur losses in the United Kingdom.

Liquidity and Capital Resources

Sources of Funds

Since our inception, we have incurred significant net losses and negative cash flows from operations. We financed our operations primarily through sales of equity securities, cash receipts under our collaboration arrangements, government grants and research and development tax and expenditure credits. From inception through to March 31, 2020, we have raised:

●

$605.3 million, net of issuance costs, through the issuance of shares, including $90.5 million raised through an underwritten public offering in January and February 2020;

●

$201.4 million through collaborative arrangements with GSK and Astellas; and

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$40.4 million in the form of reimbursable U.K. research and development tax credits and receipts from the U.K. RDEC Scheme.

We use a non-GAAP measure, Total Liquidity, which is defined as the total of cash and cash equivalents and marketable securities, to evaluate the funds available to us in the near-term. A description of Total Liquidity and reconciliation to cash and cash equivalents, the most directly comparable U.S. GAAP measure, are provided below under “Non-GAAP measures”.

As of March 31, 2020, we had cash and cash equivalents of $86.4 million and Total Liquidity of $196.4 million. We regularly assess Total Liquidity against our activities and make decisions regarding prioritization of those activities and deployment of Total Liquidity. We believe that our Total Liquidity will be sufficient to fund our operations, based upon our currently anticipated research and development activities and planned capital spending, into the second half of 2021.

Cash Flows

The following table summarizes the results of our cash flows for the three months ended March 31, 2020 and 2019 (in thousands).


		Three months ended
		March 31,
	2020		2019
Net cash provided by (used in) operating activities	$	16,857	$	(36,203)
Net cash (used in) provided by investing activities		(71,947)		17,656
Net cash provided by financing activities		91,444		36
Cash, cash equivalents and restricted cash		90,760		54,390

Operating Activities

Net cash provided by operating activities was $16.9 million for the three months ended March 31, 2020 compared to net cash used in operating activities of $36.2 million for the three months ended March 31, 2019. The net cash provided by operating activities has been significantly impacted by the receipt of a $50.0 million upfront payment from Astellas in January 2020.

Net cash provided by operating activities of $16.9 million for the three months ended March 31, 2020 comprised a net loss of $28.2 million, offset by non-cash items of $1.7 million and a net cash inflow of $43.3 million from changes in operating assets and liabilities. The non-cash items consisted primarily of depreciation expense on plant and equipment of $1.7 million, share-based compensation expense of $1.4 million and amortization of $0.2 million, which was partially offset by unrealized foreign exchange gains of $1.7 million.

Investing Activities

Net cash used in investing activities was $71.9 million for the three months ended March 31, 2020 compared to net cash provided by investing activities of $17.7 million for the three months ended March 31, 2019. The net cash (used in) provided by investing activities for the respective periods consisted of:

●

purchases of property and equipment of $0.2 million and $0.9 million for the three months ended March 31, 2020 and 2019, respectively;

●

purchases of intangible assets of $0.2 million and $0.2 million primarily relating to development of internal-use software for the three months ended March 31, 2020 and 2019, respectively; and

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cash outflows from investment in marketable securities of $98.0 million and $3.9 million for the three months ended March 31, 2020 and 2019, respectively, and cash inflows from maturity or redemption of marketable securities of $26.3 million and $22.7 million for the three months ended March 31, 2020 and 2019, respectively.

The Company invests surplus cash and cash equivalents in marketable securities. In the three months ended March 31, 2019, the investments in marketable securities were reduced to fund the Company’s ongoing operations. In the three months ended March 31, 2020, the Company invested proceeds from its underwritten public offering in the period in marketable securities.

Financing Activities

Net cash from financing activities of $91.4 million and $36,000 for the three months ended March 31, 2020 and 2019, respectively, consisted of net proceeds from an underwritten public offering of $90.5 million (net of issuance costs of $1.0 million) and proceeds from share option exercises of $0.9 million in the three months ended March 31, 2020. The net cash from financing activities in the three months ended March 31, 2019 consisted of proceeds from share option exercises.

Non-GAAP Measures

Total Liquidity (a non-GAAP financial measure)

Total Liquidity (a non-GAAP financial measure) is the total of cash and cash equivalents and marketable securities. Each of these components appears in the consolidated balance sheet. The U.S. GAAP financial measure most directly comparable to Total Liquidity is cash and cash equivalents as reported in the consolidated financial statements, which reconciles to Total Liquidity as follows (in thousands):