Kite Pharmaceuticals, Inc.
Kite Pharma, Inc. (Form: 10-Q, Received: 11/12/2015 17:27:45)

 

 

UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended September 30, 2015

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: 001-36508

 

KITE PHARMA, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

27-1524986

(State or Other Jurisdiction of
Incorporation or Organization)

 

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

2225 Colorado Avenue
Santa Monica, California

 

90404

(Address of Principal Executive Offices)

 

(Zip Code)

(310) 824-9999

(Registrant’s Telephone Number, Including Area Code)

 

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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files) .     Yes   x     No   ¨

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x    (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of November 6, 2015, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 44,180,559.

 

 

 


KITE PHARMA, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2015

INDEX

 

 

Page

Part I — Financial Information

2

 

Item 1. Condensed Consolidated Financial Statements - Unaudited

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

3

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to the Condensed Consolidated Financial Statements

6

 

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

25

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

 

Item 4. Controls and Procedures

32

 

Part II — Other Information

33

 

Item 1. Legal Proceedings

33

 

Item 1A. Risk Factors

33

 

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

60

 

Item 3. Defaults Upon Senior Securities

60

 

Item 4. Mine Safety Disclosures

60

 

Item 5. Other Information

60

 

Item 6. Exhibits

61

 

SIGNATURES

62

 

Trademarks and Trade names

We have common law, unregistered trademarks for Kite Pharma and eACT based on use of the trademarks in the United States. This Quarterly Report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

 

 


PART I — FINAN CIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

KITE PHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

SEPTEMBER   30, 2015

 

 

DECEMBER 31,

 

 

(UNAUDITED)

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

172,965

 

 

$

209,298

 

Marketable securities

 

195,596

 

 

 

157,742

 

Prepaid expenses and other current assets

 

12,911

 

 

 

1,330

 

Total current assets

 

381,472

 

 

 

368,370

 

Restricted cash

 

1,541

 

 

 

 

Property and equipment, net

 

20,329

 

 

 

2,256

 

Intangible assets, net

 

12,808

 

 

 

 

Goodwill

 

26,143

 

 

 

 

Other assets

 

8,521

 

 

 

127

 

Total assets

$

450,814

 

 

$

370,753

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

5,148

 

 

$

2,320

 

Deferred revenue

 

15,333

 

 

 

 

Accrued expenses and other current liabilities

 

8,789

 

 

 

4,405

 

Total current liabilities

 

29,270

 

 

 

6,725

 

Deferred revenue, less current portion

 

35,884

 

 

 

 

Contingent consideration

 

16,383

 

 

 

 

Other non-current liabilities

 

6,866

 

 

 

1,439

 

Total liabilities

 

88,403

 

 

 

8,164

 

COMMITMENTS AND CONTINGENCIES (NOTE 12)

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Preferred Stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and

   outstanding at September 30, 2015 and December 31, 2014

 

 

 

 

 

Common stock, $0.001 par value, 200,000,000 shares authorized, 43,980,523 and

   41,855,304 shares issued and outstanding, excluding 1,288,822 and 2,180,129

   shares subject to repurchase at September 30, 2015 and December 31, 2014,

   respectively

 

44

 

 

 

42

 

Additional paid-in capital

 

483,321

 

 

 

420,848

 

Accumulated other comprehensive income (loss)

 

472

 

 

 

(297

)

Accumulated deficit

 

(121,426

)

 

 

(58,004

)

Total stockholders' equity

 

362,411

 

 

 

362,589

 

Total liabilities and stockholders' equity

$

450,814

 

 

$

370,753

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

 

2


KITE PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

$

5,087

 

 

$

 

 

$

12,371

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

21,727

 

 

 

5,716

 

 

 

47,576

 

 

 

15,232

 

General and administrative

 

11,135

 

 

 

3,385

 

 

 

30,080

 

 

 

8,172

 

Total operating expenses

 

32,862

 

 

 

9,101

 

 

 

77,656

 

 

 

23,404

 

Loss from operations

 

(27,775

)

 

 

(9,101

)

 

 

(65,285

)

 

 

(23,404

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

342

 

 

 

61

 

 

 

1,307

 

 

 

129

 

Interest expense

 

(451

)

 

 

 

 

 

(456

)

 

 

(6,266

)

Other income (expense)

 

(49

)

 

 

(11

)

 

 

521

 

 

 

(10

)

Total other income (expense)

 

(158

)

 

 

50

 

 

 

1,372

 

 

 

(6,147

)

Loss before income taxes

 

(27,933

)

 

 

(9,051

)

 

 

(63,913

)

 

 

(29,551

)

Benefit from income taxes

 

491

 

 

 

 

 

 

491

 

 

 

 

Net loss

 

(27,442

)

 

 

(9,051

)

 

 

(63,422

)

 

 

(29,551

)

Series A preferred stock dividend

 

 

 

 

 

 

 

 

 

 

(1,089

)

Net loss attributable to common stockholders

$

(27,442

)

 

$

(9,051

)

 

$

(63,422

)

 

$

(30,640

)

Net loss per share, basic and diluted

$

(0.63

)

 

$

(0.24

)

 

$

(1.47

)

 

$

(1.76

)

Weighted-average shares outstanding, basic and diluted

 

43,817,798

 

 

 

38,330,026

 

 

 

43,171,632

 

 

 

17,383,846

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(27,442

)

 

$

(9,051

)

 

$

(63,422

)

 

$

(29,551

)

Foreign currency translation adjustments, net of tax

 

55

 

 

 

 

 

 

736

 

 

 

 

Unrealized gain (loss) on available-for-sale securities, net

 

77

 

 

 

(107

)

 

 

33

 

 

 

(107

)

Comprehensive loss

$

(27,310

)

 

$

(9,158

)

 

$

(62,653

)

 

$

(29,658

)

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

 

3


K ITE PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

January 1, 2015 to September 30, 2015

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

ADDITIONAL

 

 

 

 

 

 

OTHER

 

 

TOTAL

 

 

COMMON STOCK

 

 

PAID-IN

 

 

ACCUMULATED

 

 

COMPREHENSIVE

 

 

STOCKHOLDERS'

 

 

SHARES

 

 

AMOUNT

 

 

CAPITAL

 

 

DEFICIT

 

 

INCOME (LOSS)

 

 

EQUITY

 

Balance at January 1, 2015

 

41,855,304

 

 

$

42

 

 

$

420,848

 

 

$

(58,004

)

 

$

(297

)

 

$

362,589

 

Stock-based compensation for services

 

 

 

 

 

 

 

26,902

 

 

 

 

 

 

 

 

 

26,902

 

Stock option exercises

 

1,477,885

 

 

 

1

 

 

 

3,852

 

 

 

 

 

 

 

 

 

3,853

 

Issuance of common stock, net

 

522,750

 

 

 

1

 

 

 

26,663

 

 

 

 

 

 

 

 

 

26,664

 

Issuance of common stock related to acquisition

 

66,121

 

 

 

 

 

 

4,209

 

 

 

 

 

 

 

 

 

4,209

 

Common stock warrants exercised

 

10,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock purchase plan

 

47,857

 

 

 

 

 

 

847

 

 

 

 

 

 

 

 

 

847

 

Accumulated other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

769

 

 

 

769

 

Net loss, nine months ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

(63,422

)

 

 

 

 

 

(63,422

)

Balance at September 30, 2015

 

43,980,523

 

 

$

44

 

 

$

483,321

 

 

$

(121,426

)

 

$

472

 

 

$

362,411

 

  

See accompanying notes to unaudited condensed consolidated financial statements

 

 

 

4


KITE P HARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

  

 

NINE   MONTHS ENDED SEPTEMBER 30,

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(63,422

)

 

$

(29,551

)

Adjustment to reconcile net loss to net cash from operating activities

 

 

 

 

 

 

 

Depreciation and amortization

 

2,897

 

 

 

150

 

Stock-based compensation

 

26,902

 

 

 

10,635

 

Non-cash interest expense on convertible notes

 

 

 

 

6,113

 

Deferred rent

 

1,178

 

 

 

55

 

Loss on disposal of assets

 

 

 

 

10

 

Gain on sale of available for sale securities

 

(1

)

 

 

 

Deferred tax benefit recorded in connection with currency translation

 

(491

)

 

 

 

Gain on adjustment of contingent consideration

 

(580

)

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Deferred revenue

 

51,217

 

 

 

 

Prepaid expenses and other current assets

 

(8,643

)

 

 

(897

)

Other assets

 

(8,391

)

 

 

(80

)

Accounts payable

 

2,578

 

 

 

621

 

Accrued expenses and other current liabilities

 

3,574

 

 

 

510

 

Due to related party

 

72

 

 

 

16

 

Net cash provided by (used in) operating activities

 

6,890

 

 

 

(12,418

)

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

(155,636

)

 

 

(1,112,423

)

Sales and maturities of marketable securities

 

117,816

 

 

 

995,944

 

Amounts used to secure facilities

 

(1,540

)

 

 

 

Purchase of property and equipment

 

(18,710

)

 

 

(1,499

)

Net cash paid related to acquisition of T-Cell Factory, B.V.

 

(14,690

)

 

 

 

Net cash used in investing activities

 

(72,760

)

 

 

(117,978

)

Cash flows from financing activities

 

 

 

 

 

 

 

Principal payments on capital lease obligations

 

(24

)

 

 

 

Initial public offering costs

 

 

 

 

(12,497

)

Proceeds from issuance of common stock

 

26,664

 

 

 

146,625

 

Proceeds from exercise of stock options

 

2,780

 

 

 

2,933

 

Proceeds from issuance of convertible notes

 

 

 

 

50,000

 

Net cash provided by financing activities

 

29,420

 

 

 

187,061

 

Effect of exchange rate changes on cash

 

117

 

 

 

 

Net change in cash and cash equivalents

 

(36,333

)

 

 

56,665

 

Cash and cash equivalents at beginning of period

 

209,298

 

 

 

22,357

 

Cash and cash equivalents at end of period

$

172,965

 

 

$

79,022

 

Supplemental schedule of cash flows information:

 

 

 

 

 

 

 

Cash paid for interest

$

2

 

 

$

153

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

Conversion of convertible notes and accrued interest into equity

$

 

 

$

50,501

 

Discount from conversion of securities into equity

$

 

 

$

5,612

 

Conversion of convertible securities into equity

$

 

 

$

2,525

 

Employee stock purchase plan shares issued

$

847

 

 

$

 

Tenant improvement allowance receivable

$

2,614

 

 

$

 

Issuance of stock to purchase T-Cell Factory, B.V.

$

4,209

 

 

$

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

5


KITE PHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

 

NOTE 1—BUSINESS AND NATURE OF OPERATIONS

Nature of Operations

Kite Pharma, Inc. (the “Company”) was incorporated on June 1, 2009 in the State of Delaware. The Company is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient’s own immune system to target and kill cancer cells. The Company is developing multiple product candidates using its engineered autologous cell therapy (“eACT”), which involves the genetic engineering of T cells to express either chimeric antigen receptors (“CARs”) or T cell receptors (“TCRs”).

The Company’s headquarters and operations are in Santa Monica, California. Since commencing operations, the Company has devoted substantially all of its efforts to securing intellectual property rights, performing research and development activities, including clinical trials, in collaboration with the Surgery Branch of the National Cancer Institute (“NCI”), hiring personnel, and raising capital to support and expand these activities. On March 17, 2015, the Company acquired T-Cell Factory, B.V. (“TCF”), a Dutch company, for the opportunity to significantly expand the Company’s pipeline of TCR-based product candidates. TCF has been renamed Kite Pharma EU B.V. (“Kite Pharma EU”).

 

NOTE 2—BASIS OF PRESENTATION AND MANAGEMENT PLANS

The Company has not generated any revenue from the sale of products since its inception. The Company has experienced net losses since its inception and has an accumulated deficit of $121.4 million and $58.0 million as of September 30, 2015 and December 31, 2014, respectively. The Company expects to incur losses and have negative net cash flows from operating activities as it expands its portfolio and engages in further research and development activities, particularly conducting preclinical studies and clinical trials.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company’s management, the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. Amounts formerly included in the due to related party caption and the options early exercise liability captions have been reclassified to conform to the current period’s classification under other current liabilities. Additionally, amounts formerly included in the other assets caption that related to construction in progress have been reclassified to the current period’s classification under property and equipment. The interim results for the periods ended September 30, 2015 are not necessarily indicative of results for the full 2015 fiscal year or any other future interim periods.

The success of the Company depends on its ability to develop its technologies to the point of U.S. Food and Drug Administration (“FDA”) approval and subsequent revenue generation or through the sale, merger, or other transfer of all or substantially all of the Company’s assets and, accordingly, to raise enough capital to finance these developmental efforts. In the future, management will need to raise additional capital to finance the continued operating and capital requirements of the Company. Any amounts raised will be used to further develop the Company’s technologies, acquire additional product licenses and for other working capital purposes. There can be no assurances that the Company will be able to secure such additional financing, or if available, that it will be sufficient to meet its needs. If the Company cannot obtain adequate working capital, it will be forced to curtail its planned business operations.

 

NOTE 3—SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist primarily of money market funds and bank money market accounts and are stated at cost, which approximates fair value.

6


Restricted Cash

The Company has a certificate of deposit that is posted as secured collateral in connection with a letter of credit relating to the Company’s lease of its commercial manufacturing facility. Amounts related to the certificate of deposit were reported as restricted cash and totaled $1.5 million at September 30, 2015.

C oncentration of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents and marketable securities. The primary objectives for the Company’s investment portfolio are the preservation of capital and the maintenance of liquidity. The Company does not enter into any investment transaction for trading or speculative purposes.

The Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer. The Company maintains cash balances in excess of amounts insured by the FDIC and concentrated within a limited number of financial institutions. The accounts are monitored by management to mitigate the risk.

Foreign Currencies

As a result of a business combination, the Company now operates in multiple currencies. Related to the wholly-owned subsidiary, Kite Pharma EU, the Company has determined that based on the nature of the transactions occurring within this entity, the functional currency of the subsidiary is the Euro, and accordingly, any net assets of Kite Pharma EU, including goodwill and identifiable intangible assets, will be translated into U.S. dollars at the rates prevailing as of the balance sheet date. The equity of Kite Pharma EU will be translated into U.S. dollars at the historical rate at which such equity was recorded. Any translation impact will be recognized in other comprehensive income for the period. The operating results of Kite Pharma EU are translated into U.S. dollars using the average exchange rates for the period correlating with those operating results.

Business Combinations

For business combinations the Company utilizes the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. These standards require that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The allocation of the purchase price is dependent upon certain valuations and other studies. Acquisition costs are expensed as incurred. The Company recognizes separately from goodwill the fair value of assets acquired and the liabilities assumed. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the acquisition date fair values of the assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may retroactively record adjustments to the fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations.

Goodwill and Other Intangible Assets

Certain intangible assets were acquired as part of a business combination, and have been capitalized at their acquisition date fair value. Acquired definite life intangible assets are amortized using the straight line method over their respective estimated useful lives, which are evaluated whenever events or circumstances would indicate that an adjustment to the estimated useful lives would be appropriate.  The Company will additionally test its goodwill and indefinite life intangible assets for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill and other intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances. The Company tests its goodwill for impairment annually during the fourth quarter and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

7


Consolidation

The Company’s condensed consolidated financial statements include the accounts of its subsidiary, Kite Pharma EU. Intercompany balances and transactions have been eliminated during consolidation.

Patent Costs

The costs related to acquiring patents and to prosecuting and maintaining intellectual property rights are charged to general and administrative expense as incurred due to the uncertainty surrounding the drug development process and the uncertainty of future benefits. Expenses related to patents were $27,549 and $146,077 for the three months ended September 30, 2015 and 2014, respectively and were $366,894 and $299,046 for the nine months ended September 30, 2015 and 2014, respectively.  

Deferred Offering Costs

The Company accounts for costs directly incurred in the issue of equity shares such as underwriting, accounting and legal fees and printing costs as deferred offering costs under current assets on the balance sheet. At the closing of the equity financing, the costs are recorded as a reduction of the proceeds. Financing costs incurred in connection with the Company’s debt securities are capitalized at the inception of the notes and amortized to interest expense over the expected life of the respective note.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following as of September 30, 2015 and December 31, 2014 (in thousands):

 

 

SEPTEMBER 30,

2015

 

 

DECEMBER 31,

2014

 

Accrued compensation costs

$

3,876

 

 

$

2,233

 

Deferred tax liability - short term

 

1,121

 

 

 

 

Accrued clinical expenses

 

1,301

 

 

 

 

Stock option early exercise liability

 

940

 

 

 

1,273

 

Accrued research and development costs

 

261

 

 

 

569

 

Tenant improvement liabilities - short term

 

300

 

 

 

 

Accrued patent expense reimbursement

 

145

 

 

 

126

 

Accrued legal expenses

 

100

 

 

 

 

Accrued related party costs

 

75

 

 

 

3

 

Accrued other expense

 

670

 

 

 

201

 

Total accrued expenses and other current liabilities

$

8,789

 

 

$

4,405

 

 

Revenues

On December 31, 2014, the Company entered into a research and collaboration and license agreement with Amgen to develop and commercialize CAR-based product candidates directed against a number of Amgen cancer targets (the “Amgen Agreement”).To date, revenue has been limited to a portion of the upfront payment the Company received under the Amgen Agreement, reimbursed research and development costs relating to the Amgen targets and a portion of the upfront payment the Company received under a research, development and commercialization agreement with the Leukemia & Lymphoma Society, Inc. (“LLS”) ; see Note 6 – License and Collaboration Agreements for more information. The Company received an upfront payment of $60.0 million from Amgen in February 2015. Amgen will fund the research and development costs for all programs with certain limitations through any investigational new drug application (“IND”) filing. Each company will then be responsible for clinical development and commercialization of their respective therapeutic candidates, including all related expenses. The Company may be responsible for the manufacturing and processing of Amgen program product candidates for a certain period following the completion of any Phase 2 clinical trials under a separately negotiated supply agreement, should Amgen choose not to transition manufacturing to itself or to a mutually agreed upon designee of Amgen.

The Company applied the FASB Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, in evaluating the appropriate accounting for the Amgen Agreement. In accordance with this guidance, the Company concluded that the Amgen Agreement should be accounted for as a single unit of accounting and recognize the Amgen Agreement consideration in the same manner as the final deliverable, which is research service. The $60.0 million upfront payment was recorded as deferred revenue and is being recognized over a four-year period, which is the estimated period of performance for the research service under this agreement. In addition, the Amgen research funding relating to Amgen targets, which is due as the related services are performed under the Amgen Agreement, is recorded as revenue on a time and material basis, with the corresponding cost of revenue recorded as research and development expense in the condensed consolidated statements of operations.

8


Under certain circumstances, the Company may be required to reimburse Amgen for res earch and development services for Company targets. The Company will defer the recognition of revenue related to research and development services billed until the potential reimbursement contingency has lapsed. Any costs reimbursed by Amgen that relate to a Company program that progresses to an IND filing are recorded as deferred revenue until either an IND is filed and we are required to reimburse Amgen for such expenses, or the program ends without an IND filing, at which point the revenue would be recog nized.

During the three and nine months ended September 30, 2015, the Company recognized $5.0 million and $12.3 million of revenue under the Amgen Agreement, respectively. As of September 30, 2015, the Company had deferred revenue relating to the Amgen Agreement of $50.8 million.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, legal, investor relations, facilities, business development and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to corporate matters, sublicense royalties, insurance, public company expenses relating to maintaining compliance with NASDAQ listing rules and SEC requirements, insurance and investor relations costs, and fees for accounting and consulting services. General and administrative costs are expensed as incurred, and the Company accrues for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from its service providers, and adjusting its accruals as actual costs become known.

Research and Development

Research and development costs are expensed as incurred. Expenses related to collaborative research and development activities approximate the revenue recognized under these agreements. Research and development costs consist of salaries and benefits, including associated stock-based compensation, laboratory supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities on our behalf. Clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from its external service providers. The Company adjusts its accrual as actual costs become known. Where contingent milestone payments are due to third parties under research and development arrangements or license agreements, the milestone payment obligations are expensed when the milestone results are achieved.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the required service period, which is generally equal to the vesting period. Stock-based compensation is recognized only for those awards that are ultimately expected to vest. Common stock, stock options, and warrants or other equity instruments issued to non-employees, including consultants and members of the Company’s Scientific Advisory Board as consideration for goods or services received by the Company, are accounted for based on the fair value of the equity instruments issued unless the fair value of the consideration received can be more reliably measured. The fair value of stock options is determined using the Black-Scholes option-pricing model. The fair value of any options issued to non-employees is marked to market each period and recorded as expense over the vesting period. Proceeds from options exercised by employees prior to vesting pursuant to an early exercise provision, the related shares of which the Company has the option to repurchase prior to the vesting date should employment of the early exercised option holder be terminated, are recognized as a liability until the shares vest.

Net Loss per Common Share

Basic net loss per share is computed by dividing the net loss attributable to common shareholders by the weighted-average number of common shares outstanding. Diluted net loss per share is computed similarly to basic net loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In addition, the net loss attributable to common stockholders is adjusted for Series A Preferred Stock dividends for the periods in which Series A Preferred Stock is outstanding.

For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive.

9


As of September 30 , 2015 and 2014, p otentially dilutive securities include:

 

 

SEPTEMBER 30,

 

 

2015

 

 

2014

 

Warrants to purchase common stock

 

148,444

 

 

 

159,049

 

Unvested early exercise options

 

1,288,822

 

 

 

2,187,941

 

Options to purchase common stock

 

5,395,079

 

 

 

4,031,032

 

Total

 

6,832,345

 

 

 

6,378,022

 

  

The unvested early exercised options represent stock options that were exercised pursuant to an early exercise provision in the option agreements of certain employees. The Company has the option to repurchase these shares if they do not vest prior to the termination of these employees.

The following table details those securities which have been excluded from the computation of potentially dilutive securities as their exercise prices are greater than the fair market price per common share as of September 30, 2015 and 2014, respectively.

 

 

SEPTEMBER 30,

 

 

2015

 

 

2014

 

Options to purchase common stock

 

1,329,500

 

 

 

 

 

Amounts in the tables above reflect the common stock equivalents of the noted instruments.  

The following table summarizes the calculation of unaudited basic and diluted net loss per common share for the three and nine months ended September 30, 2015 and 2014 (in thousands, except share and per share amounts):

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

SEPTEMBER 30,

 

 

SEPTEMBER 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(27,442

)

 

$

(9,051

)

 

$

(63,422

)

 

$

(29,551

)

Series A preferred stock dividends

 

 

 

 

 

 

 

 

 

 

(1,089

)

Net loss attributable to common shareholders

$

(27,442

)

 

$

(9,051

)

 

$

(63,422

)

 

$

(30,640

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

45,155,462

 

 

 

40,521,224

 

 

 

44,856,506

 

 

 

18,909,025

 

Less: weighted-average unvested common shares

   subject to repurchase

 

(1,337,664

)

 

 

(2,191,198

)

 

 

(1,684,874

)

 

 

(1,525,179

)

Weighted-average shares used to compute net loss per

   share attributable to common stockholders, basic

   and diluted

 

43,817,798

 

 

 

38,330,026

 

 

 

43,171,632

 

 

 

17,383,846

 

Net loss per common share attributable to common

   stockholders, basic and diluted

$

(0.63

)

 

$

(0.24

)

 

$

(1.47

)

 

$

(1.76

)

 

Recent Accounting Pronouncements

In January 2015, a new standard was issued which eliminates the concept of extraordinary items, which previously were defined as events or transactions that are distinguished from other transactions by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification affects the presentation of the income statement, and management believes the change simplifies the presentation. The standard is effective for fiscal years and interim periods beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not believe the adoption of this standard will have a material impact on its financial position, results of operation or related financial statement disclosures.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on the recognition of revenue from customers that supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The new standard allows

10


for two methods of adoption: (a) full retrospective adoption, meaning the standard is applied to all periods presented, o r (b) modified retrospective adoption, meaning the cumulative effect of applying the new standard is recognized as an adjustment to the opening retained earnings balance. On April 29, 2015, the FASB issued an exposure draft of a proposed Accounting Standar ds Update that would delay by one year the effective date of this guidance, but also permits entities to adopt one year earlier if they choose (i.e., the original effective date). The proposal will be subject to the FASB’s due process requirement, which in cludes a period for public comments. The Company is evaluating the alternative transition methods and the potential effects of the adoption of this update on its financial statements. The amended guidance as currently issued will be effective for the Compa ny starting in 2018.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. Under this standard, if a cloud computing arrangement includes a software license, the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. The new standard will be effective for us on January 1, 2016. The adoption of this standard is not expected to have an impact on our financial position or results of operations.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The new standard requires that an acquiror recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and sets forth new disclosure requirements related to the adjustments. The new standard will be effective for us on January 1, 2016. The impact of the adoption of this standard will not have a material impact on our financial position or results of operations.

 

 

NOTE 4 FAIR VALUE MEASUREMENTS AND INVESTMENTS IN MARKETABLE SECURITIES

The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and provides disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1 :

Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2 :

Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3 :

Unobservable inputs that reflect the reporting entity’s own assumptions.

The carrying amounts of the Company’s prepaid expenses, other current assets, accounts payable and accrued liabilities are generally considered to be representative of their fair value because of the short nature of these instruments. No transfers between levels have occurred during the periods presented.

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 is as follows (in thousands):

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Quoted Prices

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

in Active

 

 

Other

 

 

Significant

 

 

 

Balance as of

 

 

Markets for

 

 

Observable

 

 

Unobservable

 

 

 

September 30,

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

 

 

2015

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

$

1,541

 

 

$

1,541

 

 

$

 

 

$

 

Money market funds (1)

 

 

79,470

 

 

 

79,470

 

 

 

 

 

 

 

Corporate debt securities (2)

 

 

112,750

 

 

 

 

 

 

112,750

 

 

 

 

Government sponsored entities

 

 

84,823

 

 

 

 

 

 

84,823

 

 

 

 

Total assets

 

$

278,584

 

 

$

81,011

 

 

$

197,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

16,383

 

 

$

 

 

$

 

 

$

16,383

 

 

(1)

Included within cash and cash equivalents on the Company’s condensed consolidated balance sheet.

11


(2)

$2.0 million of corporate debt securities had an original maturity of less than 90 days, and were i ncluded within cash and cash equivalents on the Company’s condensed consolidated balance sheet.

The Company’s investments in money market funds are valued based on publicly available quoted market prices for identical securities as of September 30, 2015. The Company determines the fair value of corporate bonds and other government-sponsored enterprise related securities with the aid of valuations provided by third parties using proprietary valuation models and analytical tools. These valuation models and analytical tools use market pricing or prices for similar instruments that are both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers.

Additionally, the Company has incurred contingent consideration obligations in connection with the acquisition of Kite Pharma EU.  These contingent consideration obligations are recorded at their estimated fair value, and are revalued when an event takes place or information becomes available that would indicate that the value of these obligations has changed, until such time that the contingencies related to these obligations are resolved. The value of the contingent consideration is accreted every reporting period based on the passage of time, using the discount rates used during their initial determination as of the acquisition date with a corresponding charge to interest expense. During the three months ended September 30, 2015 the Company recorded $0.5 million as interest expense related to contingent consideration accretion, and there were no other changes in the fair value of the contingent consideration as of September 30, 2015. The fair value measurements of these obligations are based on significant unobservable inputs related to sales and development milestones related to the Kite Pharma EU business combination and are reviewed periodically by management in our R&D organization. These inputs include the estimated probabilities and timing of achieving specified development and sales milestones, as well as the discount rate used to determine the present value of these milestones. Significant changes that would increase or decrease the probabilities or timing of achieving the development and sales milestones would result in a corresponding increase or decrease in the fair value of the contingent consideration obligations, which would be recognized in other income (expense) in the condensed consolidated statements of operations. A reduction to contingent consideration was recognized as other income in the condensed consolidated statements of operations during the three months ended June 30, 2015. See Note 13 – T-Cell Factory Acquisition for further discussion.

Investments classified as available-for-sale at September 30, 2015 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Aggregate

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Maturity (in years)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities (1)

 

1 year or less

 

$

62,464

 

 

$

15

 

 

$

(29

)

 

$

62,450

 

Corporate debt securities

 

1-2 years

 

 

26,487

 

 

 

39

 

 

 

(9

)

 

 

26,517

 

Corporate debt securities

 

More than 2 years

 

 

23,767

 

 

 

38

 

 

 

(21

)

 

 

23,784

 

Government sponsored entities

 

1 year or less

 

 

48,965

 

 

 

13

 

 

 

(1

)

 

 

48,977

 

Government sponsored entities

 

1-2 years

 

 

30,602

 

 

 

34

 

 

 

 

 

 

30,636

 

Government sponsored entities

 

More than 2 years

 

 

5,210

 

 

 

 

 

 

(1

)

 

 

5,209

 

Total available-for-sale securities

 

 

 

$

197,495

 

 

$

139

 

 

$

(61

)

 

$

197,573

 

 

(1)

$2.0 million of corporate debt securities had an original maturity of less than 90 days, and were included within cash and cash equivalents on the Company’s condensed consolidated balance sheet.

The Company recognizes realized gains or losses on sales or maturities of available-for-sale securities as net interest income.  Unrealized gains and losses on available-for-sale securities are included as a component of comprehensive income (loss).   At September 30, 2015, the aggregate fair value of securities held by the Company in an unrealized loss position was $66.1 million, which consisted of 56 securities. These securities have not been in a continuous unrealized loss position for more than 12 months. The Company does not intend to sell these investments and it is not likely that the Company will be required to sell these investments before recovery of their amortized cost basis which may be at maturity. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

 

 

12


NOTE 5 —PROPERTY AND EQUIPMENT

Property and equipment, consists of the following as of September 30, 2015 and December 31, 2014 (in thousands):

 

 

SEPTEMBER 30,

 

 

DECEMBER 31,

 

 

2015

 

 

2014

 

Laboratory equipment

$

7,964

 

 

$

1,362

 

Computer equipment and software

 

515

 

 

 

282

 

Office equipment and furniture

 

1,116

 

 

 

377

 

Leasehold improvements

 

3,298

 

 

 

334

 

Construction in progress

 

8,588

 

 

 

163

 

 

 

21,481

 

 

 

2,518

 

Less: accumulated depreciation and amortization

 

(1,152

)

 

 

(262

)

Property and equipment, net

$

20,329

 

 

$

2,256

 

 

Depreciation and amortization expense was $513,958 and $73,697 for the three months ended September 30, 2015 and 2014, respectively and was $916,868 and $150,000 for the nine months ended September 30, 2015 and 2014, respectively. The net book value of assets under capital leases at September 30 , 2015 and December 31, 2014 was $81,612 and $77,958, respectively, net of accumulated depreciation of $43,233 and $18,071, respectively .

 

 

NOTE 6—LICENSE AND COLLABORATION AGREEMENTS

CAIX License Agreement

In February 2011, the Company entered into a license agreement with The Regents of the University of California (the “Regents”) (the “UCLA License Agreement”) to acquire the exclusive rights to develop and commercialize GM-CAIX, an antigen believed to have use in the field of, but not limited to, cancer immunotherapy (the “Licensed Product”). The Regents is the governing body of the University of California.

Upon execution of the UCLA License Agreement, the Company made an aggregate one-time cash payment to the Regents of $10,000 which was expensed as research and development expense and agreed to reimburse the Regents for past patent expenses totaling $166,000 in 24 monthly installments commencing on February 9, 2013. Additionally, the Company issued to the Regents 27,400 shares of common stock, par value $0.001 per share, valued at $10,412. The Company is required to make performance-based cash payments upon successful completion of clinical and regulatory milestones relating to the Licensed Product in the United States, Europe and Japan. The aggregate potential milestone payments are $2.2 million, of which $2.0 million is due only after marketing approval in the United States, Europe and Japan. The first milestone payment will be due upon the dosing of the first patient in the first Phase 2 clinical study of a Licensed Product in the United States. The Company was not required to make any milestone payments for the nine months ended September 30, 2015 and 2014 and does not expect to make any milestone payments during 2015.

Cooperative Research and Development Agreement with the NCI

In August 2012, the Company entered into a Cooperative Research and Development Agreement (the “CRADA”) with the U.S. Department of Health and Human Services, as represented by the NCI for the research and development of novel engineered peripheral blood autologous T cell therapeutics for the treatment of multiple cancer indications. This collaboration with the Surgery Branch at the NCI, provides the Company with access to inventions resulting from the CRADA work relating to the current and future clinical product pipeline of autologous peripheral blood T cells, engineered with the NCI’s proprietary tumor-specific TCRs and CARs, directed to multiple hematological and solid tumor types. The CRADA will help support the development of certain technologies licensed from the National Institutes of Health (“NIH”). Pursuant to the CRADA, the NCI will provide scientific staff and other support necessary to conduct research and related activities as described in the CRADA.

On February 24, 2015, the Company amended the CRADA by expanding the research plan to include (1) the research and development of the next generation of TCR-based product candidates that are engineered to recognize neo-antigens, which are specific to the unique genetic profile of a patient’s own tumor, (2) the optimization of new methods to manufacture this next generation of TCR-based product candidates and (3) the advancement of CAR-based product candidates for the treatment of clear cell renal cell carcinoma and TCR-based product candidates for the treatment of certain epithelial tumors such as lung and colorectal cancer. To support the additional research activities under the amended CRADA, beginning in the first quarter of 2015, the Company’s quarterly payments to the NCI increased from $250,000 to $750,000.

13


The CRADA has a five-year term commencing August 31, 2012 and expiring on August 30, 2017. Total expense s recognized under the CRADA were $750,000 and $250,000 for the three months ended September 30 , 2015 and 2014, respectively, and were $ 1 , 91 6,667 and $ 75 0,00 0 for the nine months ended September 30 , 2015 and 201 4 , respectively .

Pursuant to the terms of the CRADA, the Company has agreed to hold the NCI harmless and to indemnify the NCI from all liabilities, demands, damages, expenses and losses arising out of the Company’s use for any purpose of the data generated, materials produced or inventions discovered in whole or in part by NCI employees under the CRADA, unless due to their negligence or willful misconduct. The CRADA may be terminated at any time upon the mutual written consent of the Company and NCI. The Company or NCI may unilaterally terminate the CRADA at any time by providing written notice at least 60 days before the desired termination date.

Pursuant to the terms of the CRADA, the Company has an option to elect to negotiate an exclusive or nonexclusive commercialization license to any inventions discovered in the performance of the CRADA, whether solely by an NCI employee or jointly with a Company employee for which a patent application has been filed.

The parties jointly own any inventions and materials that are jointly produced by employees of both parties in the course of performing activities under the CRADA.

2013 NIH License Agreement

Pursuant to a patent license agreement with the NIH, dated April 11, 2013, the Company holds an exclusive, worldwide license to certain intellectual property, including intellectual property related to a CAR-based product candidate that targets the EGFRvIII antigen for the treatment of brain cancer and head and neck cancer, and a TCR-based product candidate that targets the SSX2 CTA for the treatment of head and neck cancer, hepatocellular carcinoma, melanoma, prostate cancer, and sarcoma. The Company has a co-exclusive license to intellectual property related to these product candidates for the treatment of certain other cancers. The Company may require an additional license relating to the EGFRvIII scFv target binding site from a third-party in order to commercialize a CAR-based product candidate that targets the EGFRvIII antigen.  

Pursuant to the terms of the NIH License, the Company paid the NIH one-time cash payments in the aggregate amount of $200,000. The Company reimbursed the NIH for past patent expenses in the aggregate amount of approximately $58,000, with half of this amount paid during 2013 and the balance paid in May 2014.

The Company is also required to pay the NIH minimum annual royalties in the amount of $20,000. The first minimum annual royalty payment is payable on the date that is 60 days following the expiration of the CRADA, and thereafter shall be payable on each January 1st.

The Company is also required to make performance-based cash payments upon successful completion of clinical and regulatory benchmarks relating to the products covered by the NIH license (the “Licensed Products”). The aggregate potential clinical and regulatory benchmark payments for each Licensed Product are $4.0 million, of which $3.0 million is due only after marketing approval in the United States, Europe, Japan, China or India. The first benchmark payment of $50,000 will be due upon the commencement of the first company sponsored human clinical study of a Licensed Product in the United States. The Company was not required to make any benchmark payments during 2014 or in the nine months ended September 30, 2015.

In addition, the Company must also pay the NIH royalties on net sales of Licensed Products at rates in the mid-single digits. The Company is also required to pay NIH benchmark payments based upon aggregate net sales of Licensed Products, which amount will equal up to $7.0 million following aggregate net sale of $1.0 billion. To the extent the Company enters into a sublicensing agreement relating to the Licensed Products, the Company is required to pay the NIH a percentage of all consideration received from a sublicensee, which percentage will decrease based on the stage of development of the Licensed Products at the time of the sublicense. Pursuant to an amendment dated October 1, 2015, any such sublicense payment will be subject to a cap.

The license will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. None of the applications included in the NIH licensed patent rights have issued yet. Any patents issuing from these applications will have a base expiration date no earlier than 2031. The NIH may terminate or modify the NIH license in the event of a material breach, including if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the license, or any portion thereof, at its sole discretion at any time upon 60 days written notice to the NIH. In addition, the NIH has the right to require the Company to sublicense the rights to the product candidates covered by this license upon certain conditions, including if the Company is not reasonably satisfying required health and safety needs or if the Company is not satisfying requirements for public use as specified by federal regulations.

14


Cabaret License

On December 12, 2013, the Company entered into an exclusive, worldwide license agreement, including the right to grant sublicenses, with Cabaret Biotech Ltd. (“Cabaret”) and Dr. Zelig Eshhar relating to certain intellectual property and know-how (the “Licensed IP”) owned or controlled by Cabaret (the “Cabaret License”) for use in the treatment of oncology and such other fields as may be agreed to by the parties. Should Cabaret propose to enter into an agreement with a third party relating to the use of the Licensed IP outside of oncology (the “Additional Indications”), then Cabaret shall notify the Company in writing and the Company shall have a 60-day right of first negotiation to acquire a license to the Licensed IP in such Additional Indications.

Pursuant to the Cabaret License, the Company made a one-time cash payment to Dr. Eshhar in the amount of $25,000 and reimbursed Dr. Eshhar for past patent expenses totaling $350,000. The Company shall be required to make cash milestone payments upon successful completion of clinical and regulatory milestones in the United States and certain major European countries relating to each product covered by the Cabaret License (each, a “Cabaret Licensed Product”). The aggregate potential milestone payments are $3.9 million for each of the first two Cabaret Licensed Products, of which $3.0 million is due only after marketing approval in the United States and at least one major European country. Thereafter, for each subsequent Cabaret Licensed Product such aggregate milestone payments shall be reduced to $2.7 million. The first milestone payment was due upon the acceptance of an IND application by the FDA for the first Cabaret Licensed Product, and was paid by the Company during the first quarter of 2015. The Company has also agreed to pay Cabaret royalties on net sales of Cabaret Licensed Products at rates in the mid-single digits. Prior to the first commercial sale of a Cabaret Licensed Product, the Company will pay Cabaret an annual license fee equal to $30,000. To the extent the Company enters into a sublicensing agreement relating to a Cabaret Licensed Product, the Company is required to pay Cabaret a percentage of all non-royalty income received as well as payment on Cabaret’s behalf of any applicable taxes due, which percentage will decrease based upon the stage of development of the Cabaret Licensed Product at the time of sublicensing.

The Company has agreed to defend, indemnify and hold Dr. Eshhar, Cabaret, its affiliates, directors, officers, employees and agents, and if applicable certain other parties, harmless from all losses, liabilities, damages and expenses (including attorneys’ fees and costs) incurred as a result of any claim, demand, action or proceeding to the extent resulting from (a) any breach of the Cabaret License by the Company or its sublicensees, (b) the gross negligence or willful misconduct of the Company or its sublicensees in the performance of its obligations under this Cabaret License, or (c) the manufacture, development, use or sale of Cabaret Licensed Products by the Company or its sublicensees, except in each case to the extent arising from the gross negligence or willful misconduct of Cabaret or Dr. Eshhar or the breach of this Agreement by Dr. Eshhar or Cabaret.

The Cabaret License expires on a product-by-product and country-by-country basis on the date on which the Company, its affiliates and sublicensees permanently cease to research, develop, sell and commercialize the Cabaret Licensed Products in such country. Either party may terminate the Cabaret License in the event of a material breach of the agreement that remains uncured following the date that is 60 days from the date that the breaching party is provided with written notice by the non-breaching party. Additionally, the Company may terminate the Cabaret License at its sole discretion at any time upon 30 days written notice to Cabaret and Dr. Eshhar, provided, however, that if the Company elects to terminate the Cabaret License for convenience at any time prior to the third anniversary of the Cabaret License, then the Company will be obligated to pay Cabaret a termination fee equal to $500,000.

Due to the receipt of the $60.0 million upfront license payment from Amgen in connection with the Amgen Agreement, in April 2015 the Company paid $13.8 million to Cabaret as a sublicense fee, which includes $1.8 million of applicable taxes paid on Cabaret’s behalf as required under the Cabaret License. As of September 30, 2015, a $3.4 million deferred asset was recorded under the other current assets caption on the balance sheet, and an $8.0 million non-current deferred asset was recorded under the other assets caption of the balance sheet. Both of these amounts will be recognized as sublicense fee expense within general and administrative expense on a straight line basis over the same period as the license income. For the three and nine month period ended September 30, 2015 the Company recorded $0.9 million and $2.3 million in sublicense fee expense related to the Cabaret license.

May 2014 NIH License Agreement

Pursuant to a patent license agreement with the NIH, dated May 29, 2014, the Company holds an exclusive, worldwide license to certain intellectual property related to TCR-based product candidates that target the NY-ESO-1 antigen for the treatment of any NY-ESO-1 expressing cancers. As of the date of the license, NY-ESO-1 expressing tumors can be found in the following cancers: sarcoma, urothelial carcinoma, esophageal carcinoma, non-small cell lung cancer, breast carcinoma, ovarian carcinoma, prostate carcinoma, multiple myeloma, hepatocellular carcinoma, gastric cancer, head and neck cancer, pancreatic carcinoma, brain cancer, colorectal carcinoma and melanoma.

Pursuant to the terms of this license, the Company is required to pay the NIH a cash payment in the aggregate amount of $150,000, two-thirds of which was due and paid within sixty days of the date of the agreement and one-third of which will be payable upon the earlier to occur of (1) 18 months from the date of execution of the license and (2) the termination of the license. The Company also agreed to reimburse the NIH for past patent expenses in the aggregate amount of approximately $30,000.

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The terms of this license also requires the Company to pay the NIH minimum annual royalties i n the amount of $20,000. The first minimum annual royalty payment is payable on the date that is 60 days following the expiration of the CRADA, and thereafter is payable on each January 1. The Company is also required to make performance-based payments upo n successful completion of clinical and regulatory benchmarks relating to the licensed products. The aggregate potential benchmark payments for each licensed product are $4.0 million, of which aggregate payments of $3.0 million are due only after marketing approval in the United States or in Europe, Japan, China or India. The first benchmark payment of $50,000 will be due upon the commencement of the Company’s first sponsored human clinical study.

In addition, the Company is required to pay the NIH one-time benchmark payments following aggregate net sales of up to $1.0 billion of licensed products. The aggregate potential amount of these benchmark payments is $7.0 million. The Company must also pay the NIH royalties on net sales of products covered by the license at rates in the mid-single digits. To the extent the Company enters into a sublicensing agreement relating to a licensed product, the Company is required to pay the NIH a percentage of all consideration received from a sublicensee, which percentage will decrease based on the stage of development of the licensed product at the time of the sublicense. Pursuant to an amendment dated October 1, 2015, any such sublicense payment will be subject to a cap.

The license will expire upon expiration of the last patent contained in the licensed patent rights. None of the applications included in the NIH licensed patent rights have been issued yet. Any patents issuing from these applications will have a base expiration date no earlier than 2031. The NIH may terminate or modify the NIH license in the event of a material breach, including if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the license, or any portion thereof, at its sole discretion at any time upon 60 days written notice to the NIH. In addition, the NIH has the right to require the Company to sublicense the rights to the product candidates covered by this license upon certain conditions, including if the Company is not reasonably satisfying required health and safety needs or if the Company is not satisfying requirements for public use as specified by federal regulations.

December 2014 NIH License Agreement

Pursuant to a patent license agreement with the NIH, dated December 31, 2014, the Company holds an exclusive, worldwide license to certain intellectual property related to TCR-based product candidates that target HPV antigens E6 and E7 of the HPV subtype 16.

Pursuant to the terms of this license, the Company paid the NIH a cash payment in the aggregate amount of $350,000 in February 2015, which was accrued and expensed as of December 31, 2014. The Company also agreed to reimburse the NIH for past patent expenses in the aggregate amount of approximately $42,000.

The terms of this license also require the Company to pay the NIH minimum annual royalties in the amount of $20,000. The first minimum annual royalty payment is payable on the date that is 60 days following the expiration of the CRADA, and thereafter is payable within 30 days of January 1.

The Company is also required to make performance-based payments upon successful completion of clinical and regulatory benchmarks relating to the licensed products. The aggregate potential benchmark payments for each licensed product are $6.0 million, of which aggregate payments of $5.0 million are due only after marketing approval in the United States or in Europe, Japan, China or India. The first benchmark payment of $50,000 will be due upon the commencement of the Company’s first sponsored Phase 1 clinical trial.

In addition, the Company is required to pay the NIH one-time benchmark payments following aggregate net sales of up to $1.0 billion of licensed products. The aggregate potential amount of these benchmark payments is $7.0 million. The Company must also pay the NIH royalties on net sales of products covered by this license at rates in the mid-single digits. To the extent the Company enters into a sublicensing agreement relating to a licensed product, the Company is required to pay the NIH a percentage of all consideration received from a sublicensee, which percentage will decrease based on the stage of development of the licensed product at the time of the sublicense. Any such sublicense payment is subject to a certain cap.

The license will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. None of the applications included in the NIH licensed patent rights have issued yet. Any patents issuing from these applications will have a base expiration date no earlier than 2034. The NIH may terminate or modify the license in the event of a material breach, including if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the license, or any portion thereof, at its sole discretion at any time upon 60 days written notice to the NIH. In addition, the NIH has the right to require the Company to sublicense the rights to the product candidates covered by the license upon certain conditions, including if the Company is not reasonably satisfying required health and safety needs or if the Company is not satisfying requirements for public use as specified by federal regulations.

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Amgen Research Collaboration and License Agreement

On December 31, 2014, the Company entered into a research collaboration and license agreement with Amgen to develop and commercialize CAR-based product candidates directed against a number of Amgen cancer targets. Under the terms of the Amgen Agreement, the Company and Amgen will jointly create preclinical development plans through IND filing with the FDA for the research and development of CAR-based product candidates that target certain antigens expressed on the cell surface of various cancers. The Company and Amgen expect to progress multiple Amgen programs, each consisting of the development of one or more CAR-based product candidates directed against a certain Amgen selected cancer target. The Company and Amgen also expect to progress multiple Company programs, each consisting of the development of one or more CAR-based product candidates directed against a certain Company selected cancer target. Under certain circumstances, the collaboration may be expanded to include the research and development of other product candidates.

The Company received an upfront payment of $60.0 million from Amgen in February 2015 as partial consideration for the rights granted to Amgen by the Company for access to the Company platform technology and the Company undertaking preclinical development under certain programs.   Amgen will fund the research and development costs for all programs with certain limitations through any IND filing. The Company will reimburse Amgen for the research and development costs for any Company program that progresses to an IND filing, to the extent that Amgen had previously paid the Company for any such researc