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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________________________
FORM 10-Q
________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
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: 001-38693
________________________________________________________
Allogene Therapeutics, Inc.
(Exact Name of Registrant as Specified in its Charter)
________________________________________________________
Delaware82-3562771
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
210 East Grand Avenue, South San Francisco, California 94080
(Address of principal executive offices including zip code)
Registrant’s telephone number, including area code: (650) 457-2700
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareALLOThe Nasdaq Stock Market LLC
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated filer
Non-accelerated filerSmaller 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 standards 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 October 31, 2022, the registrant had 144,210,154 shares of common stock, $0.001 par value per share, outstanding.



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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
ALLOGENE THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$74,357 $173,314 
Short-term investments477,872 283,988 
Prepaid expenses and other current assets16,832 14,021 
Total current assets569,061 471,323 
Long-term investments85,108 352,179 
Operating lease right-of-use asset85,245 58,030 
Property and equipment, net114,442 122,990 
Restricted cash10,292 10,292 
Other long-term assets9,378 5,815 
Equity method investment14,046 18,005 
Total assets$887,572 $1,038,634 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$11,045 $10,255 
Accrued and other current liabilities36,938 37,496 
Deferred revenue889 423 
Total current liabilities48,872 48,174 
Lease liability, non-current96,706 69,929 
Other long-term liabilities2,033 4,125 
Total liabilities147,611 122,228 
Commitments and Contingencies (Notes 6 and 7)
Stockholders’ equity:
Preferred stock, $0.001 par value: 10,000,000 shares authorized as of September 30, 2022 and December 31, 2021; no shares were issued and outstanding as of September 30, 2022 and December 31, 2021
  
Common stock, $0.001 par value: 400,000,000 shares authorized as of September 30, 2022 and 200,000,000 shares authorized as of December 31, 2021; 144,031,588 and 142,623,065 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
144 142 
Additional paid-in capital1,893,908 1,822,179 
Accumulated deficit(1,141,133)(903,348)
Accumulated other comprehensive loss(12,958)(2,567)
Total stockholders’ equity739,961 916,406 
Total liabilities and stockholders’ equity$887,572 $1,038,634 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALLOGENE THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Collaboration revenue - related party$49 $49 $196 $38,438 
Operating expenses:
Research and development63,641 58,720 180,968 166,193 
General and administrative18,897 18,999 58,303 54,144 
Total operating expenses82,538 77,719 239,271 220,337 
Loss from operations(82,489)(77,670)(239,075)(181,899)
Other income (expense), net:
    Interest and other income, net1,002 393 1,809 1,528 
    Other expenses(1,661)(909)(519)(1,766)
Total other income (expense), net(659)(516)1,290 (238)
Net loss(83,148)(78,186)(237,785)(182,137)
Other comprehensive loss:
Net unrealized loss on available-for-sale investments(1,486)(64)(10,391)(666)
Net comprehensive loss$(84,634)$(78,250)$(248,176)$(182,803)
Net loss per share, basic and diluted$(0.58)$(0.57)$(1.67)$(1.35)
Weighted-average number of shares used in computing net loss per share, basic and diluted143,661,721 137,025,698 142,809,469 134,690,310 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALLOGENE THERAPEUTICS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)


Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders’ Equity
SharesAmount
Balance - December 31, 2021142,623,065 $142 $1,822,179 $(903,348)$(2,567)$916,406 
Issuance of common stock upon exercise of stock options and vesting of RSUs
715,961 1 282 — — 283 
Vesting of early exercised common stock
— — 1,228 — — 1,228 
Stock-based compensation— — 22,315 — — 22,315 
Employee stock purchase plan230,876 — 1,530 — — 1,530 
Net loss— — — (79,850)— (79,850)
Net unrealized loss on available-for-sale investments
— — — — (6,682)(6,682)
Balance - March 31, 2022143,569,902 143 1,847,534 (983,198)(9,249)855,230 
Issuance of common stock upon exercise of stock options and vesting of RSUs
153,269 1 24 — — 25 
Vesting of early exercised common stock
— — 813 — — 813 
Stock-based compensation— — 22,891 — — 22,891 
Employee stock purchase plan— — — — —  
Net loss— — — (74,787)— (74,787)
Net unrealized loss on available-for-sale investments
— — — — (2,223)(2,223)
Balance - June 30, 2022143,723,171 144 1,871,262 (1,057,985)(11,472)801,949 
Issuance of common stock upon exercise of stock options and vesting of RSUs
177,678 — 135 — — 135 
Vesting of early exercised common stock
— — 432 — — 432 
Stock-based compensation— — 21,148 — — 21,148 
Employee stock purchase plan130,739 — 931 — — 931 
Net loss— — — (83,148)— (83,148)
Net unrealized loss on available-for-sale investments
— — — — (1,486)(1,486)
Balance - September 30, 2022144,031,588 $144 $1,893,908 $(1,141,133)$(12,958)$739,961 





The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.





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ALLOGENE THERAPEUTICS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)


Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Total
Stockholders’
Equity
SharesAmount
Balance - December 31, 2020140,474,305 $140 $1,725,552 $(646,343)$268 $1,079,617 
Issuance of common stock upon exercise of stock options and vesting of RSUs
897,744 1 4,059 — — 4,060 
Vesting of early exercised common stock
— — 710 — — 710 
Stock-based compensation— — 16,792 — — 16,792 
Employee stock purchase plan98,026 — 1,984 — — 1,984 
Net loss— — — (33,015)— (33,015)
Net unrealized loss on available-for-sale investments
— — — — (369)(369)
Balance - March 31, 2021141,470,075 $141 $1,749,097 $(679,358)$(101)$1,069,779 
Issuance of common stock upon exercise of stock options and vesting of RSUs
650,656 1 3,213 — — 3,214 
Vesting of early exercised common stock
— — 854 — — 854 
Stock-based compensation— — 21,134 — — 21,134 
Employee stock purchase plan— — — — —  
Net loss— — — (70,936)— (70,936)
Net unrealized loss on available-for-sale investments
— — — — (233)(233)
Balance - June 30, 2021142,120,731 $142 $1,774,298 $(750,294)$(334)$1,023,812 
Issuance of common stock upon exercise of stock options and vesting of RSUs
229,918 — 750 — — 750 
Vesting of early exercised common stock
— — 1,142 — — 1,142 
Stock-based compensation— — 20,856 — — 20,856 
Employee stock purchase plan89,180 — 1,632 — — 1,632 
Net loss— — — (78,186)— (78,186)
Net unrealized loss on available-for-sale investments
— — — — (64)(64)
Balance - September 30, 2021142,439,829 $142 $1,798,678 $(828,480)$(398)$969,942 





The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALLOGENE THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net loss$(237,785)$(182,137)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation66,354 58,782 
Depreciation and amortization11,227 6,212 
Net amortization/accretion on investment securities2,735 5,361 
Non-cash rent expense2,193 2,622 
Share of loss from equity method investment3,959 1,766 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets(2,811)(2,153)
Other long-term assets(3,211)(991)
Accounts payable1,930 1,277 
Accrued and other current liabilities(1,388)6,420 
Deferred revenue466 (38,627)
Other long-term liabilities(2,092)2,092 
Net cash used in operating activities(158,423)(139,376)
Cash flows from investing activities:
Purchases of property and equipment(3,499)(20,710)
Purchase of stock in equity method investment (15,938)
Proceeds from maturities of investments260,379 645,854 
Purchase of investments(200,318)(474,801)
Net cash provided by investing activities56,562 134,405 
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options443 8,024 
Proceeds from issuance of common stock under the employee stock purchase plan2,461 3,617 
Net cash provided by financing activities2,904 11,641 
Net change in cash, cash equivalents and restricted cash(98,957)6,670 
Cash, cash equivalents and restricted cash — beginning of period183,606 192,800 
Cash, cash equivalents and restricted cash — end of period$84,649 $199,470 
Non-cash investing activities:
Right-of-use asset obtained in exchange for lease liability$31,361 $ 
Supplemental disclosure:
Cash paid for amounts included in the measurement of lease liabilities$(6,605)$(4,058)
Cash received for amounts related to tenant improvement allowances$325 $1,111 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALLOGENE THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
1.          Description of Business
Allogene Therapeutics, Inc. (the Company or Allogene) was incorporated on November 30, 2017 in the State of Delaware and is headquartered in South San Francisco, California. Allogene is an immuno-oncology company pioneering the development and commercialization of genetically engineered allogeneic T cell therapies for the treatment of cancer. The Company is developing a pipeline of off-the-shelf T cell product candidates that are designed to target and kill cancer cells.

Need for Additional Capital

The Company has sustained operating losses and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities as well as the ability to commercialize the Company's product candidates.

The Company had cash and cash equivalents and investments of $637.3 million as of September 30, 2022. Since inception through September 30, 2022, the Company has incurred cumulative net losses of $1.1 billion. Management expects to incur additional losses in the future to fund its operations and conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan.
The Company intends to raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidates. The Company expects that its cash and cash equivalents and investments will be sufficient to fund its operations for a period of at least one year from the date the accompanying unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (SEC).
The Company cannot at this time predict the specific extent, duration, or full impact that the ongoing COVID-19 pandemic will have on its financial condition and operations. The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain. If business conditions, financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.
2.         Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the Company’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany balances and transactions have been eliminated during consolidation.
The condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity as of September 30, 2022 and 2021, the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, and the financial data and other financial information disclosed in the notes to the condensed consolidated financial statements are unaudited. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any other future annual or interim period. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2022.
Use of Estimates
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The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include but are not limited to the fair value of stock options, fair value of investments, income tax uncertainties, and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.
Significant Accounting Policies
There have been no significant changes to the accounting policies during the three and nine months ended September 30, 2022, as compared to the significant accounting policies described in Note 1 of the “Notes to Financial Statements” in the Company’s audited financial statements included in its Annual Report.
Recently Adopted Accounting Pronouncements
There have been no new accounting pronouncements issued or effective that are expected to have a material impact on the Company's condensed financial statements.
Recent Accounting Pronouncements Not Yet Adopted
The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company's condensed consolidated financial statements.
3.         Fair Value Measurements
The Company measures and reports its cash equivalents, restricted cash, and investments at fair value.
Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1. Investments are measured at fair value based on inputs including quoted prices that are derived from observable market data and are classified as Level 2 inputs, except for investments in U.S. treasury securities which are classified as Level 1.
There were no Level 3 assets or liabilities as of September 30, 2022 and as of December 31, 2021.
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Financial assets subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of September 30, 2022 and as of December 31, 2021 are presented in the following tables: 

September 30, 2022
Level 1Level 2Level 3Fair Value
(In thousands)
Financial Assets:
Money market funds (1)$19,225 $ $ $19,225 
Commercial paper 17,987  17,987 
Corporate bonds 168,517  168,517 
U.S. treasury securities332,334   332,334 
U.S. agency securities 44,142  44,142 
Total financial assets$351,559 $230,646 $ $582,205 

December 31, 2021
Level 1Level 2Level 3Fair Value
(In thousands)
Financial Assets:
Money market funds (1)$115,867 $ $ $115,867 
Commercial paper 58,976  58,976 
Corporate bonds 223,474  223,474 
U.S. treasury securities303,016   303,016 
U.S. agency securities 50,701  50,701 
Total financial assets$418,883 $333,151 $ $752,034 
(1)Included within cash and cash equivalents on the Company’s condensed consolidated balance sheets

4.         Financial Instruments
The fair value and amortized cost of cash equivalents and available-for-sale securities by major security type as of September 30, 2022 and as of December 31, 2021 are presented in the following tables:

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September 30, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
(In thousands)
Money market funds$19,225 $ $ $19,225 
Commercial paper17,995  (8)17,987 
Corporate bonds172,278  (3,761)168,517 
U.S. treasury securities339,145 1 (6,812)332,334 
U.S. agency securities46,076  (1,934)44,142 
Total cash equivalents and investments$594,719 $1 $(12,515)$582,205 
Classified as:
Cash equivalents$19,225 
Short-term investments477,872 
Long-term investments85,108 
Total cash equivalents and investments$582,205 
December 31, 2021
Amortized CostUnrealized GainsUnrealized LossesFair Value
(In thousands)
Money market funds$115,867 $ $ $115,867 
Commercial paper58,981 2 (7)58,976 
Corporate bonds224,092 29 (647)223,474 
U.S. treasury securities304,142 2 (1,128)303,016 
U.S. agency securities51,075  (374)50,701 
Total cash equivalents and investments$754,157 $33 $(2,156)$752,034 
Classified as:
Cash equivalents$115,867 
Short-term investments283,988 
Long-term investments352,179 
Total cash equivalents and investments$752,034 
As of September 30, 2022, the remaining contractual maturities of available-for-sale securities were less than 2 years. There have been no significant realized losses on available-for-sale securities for the periods presented. As of September 30, 2022, unrealized losses on available-for-sale securities are not attributed to credit risk. The Company believes that it is more likely than not that investments in an unrealized loss position will be held until maturity and all interest and principal will be received. The Company believes that an allowance for credit losses is unnecessary because the unrealized losses on certain of the Company’s available-for-sale securities are due to market factors. As of September 30, 2022 and December 31, 2021, securities with a fair value of $153.7 million and zero, respectively, were in a continuous net unrealized loss position for more than 12 months. To date, the Company has not recorded any impairment charges on available-for-sale securities.
As of September 30, 2022 and December 31, 2021, the Company recognized $1.5 million and $1.9 million, respectively, of accrued interest receivable from available-for-sale securities within prepaid expenses and other current assets on the consolidated balance sheets.
5.         Balance Sheet Components
Property and Equipment, Net
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Property and Equipment consist of the following:
September 30,
2022
December 31,
2021
(In thousands)
Leasehold improvements$108,412 $108,353 
Laboratory equipment31,443 29,666 
Computer equipment and purchased software5,033 4,373 
Furniture and fixtures3,976 3,920 
Construction in progress166 39 
Total149,030 146,351 
Less: accumulated depreciation(34,588)(23,361)
Total property and equipment, net$114,442 $122,990 

6.         License and Collaboration Agreements
Asset Contribution Agreement with Pfizer
In April 2018, the Company entered into an Asset Contribution Agreement (the Pfizer Agreement) with Pfizer pursuant to which the Company acquired certain assets, including certain contracts and intellectual property for the development and administration of chimeric antigen receptor (CAR) T cells for the treatment of cancer. The Company is required to make milestone payments upon successful completion of regulatory and sales milestones on a target-by-target basis for the targets, including CD19 and B-cell maturation antigen (BCMA), covered by the Pfizer Agreement. The aggregate potential milestone payments upon successful completion of various regulatory milestones in the United States and the European Union are $30.0 million or $60.0 million, depending on the target, with aggregate potential regulatory and development milestones of up to $840.0 million, provided that the Company is not obligated to pay a milestone for regulatory approval in the European Union for an anti-CD19 allogeneic CAR T cell product, to the extent Servier has commercial rights to such territory. The aggregate potential milestone payments upon reaching certain annual net sales thresholds in North America, Europe, Asia, Australia and Oceania (the Territory) for a certain number of targets covered by the Pfizer Agreement are $325.0 million per target. The sales milestones in the foregoing sentence are payable on a country-by-country basis until the last to expire of any Pfizer Royalty Term, as described below, for any product in such country in the Territory. In October 2019, the Territory was expanded to all countries in the world. No milestone or royalty payments were made in the three and nine months ended September 30, 2022 or 2021.
Pfizer is also eligible to receive, on a product-by-product and country-by-country basis, royalties in single-digit percentages on annual net sales for products covered by the Pfizer Agreement or that use certain Pfizer intellectual property and for which an investigational new drug application (IND) is first filed on or before April 6, 2023. The Company’s royalty obligation with respect to a given product in a given country begins upon the first sale of such product in such country and ends on the later of (i) expiration of the last claim of any applicable patent or (ii) 12 years from the first sale of such product in such country.
Research Collaboration and License Agreement with Cellectis
As part of the Pfizer Agreement, Pfizer assigned to the Company a Research Collaboration and License Agreement (the Original Cellectis Agreement) with Cellectis S.A. (Cellectis). On March 8, 2019, the Company entered into a License Agreement (the Cellectis Agreement) with Cellectis.  In connection with the execution of the Cellectis Agreement, on March 8, 2019, the Company and Cellectis also entered into a letter agreement (the Letter Agreement), pursuant to which the Company and Cellectis agreed to terminate the Original Cellectis Agreement. The Original Cellectis Agreement included a research collaboration to conduct discovery and pre-clinical development activities to generate CAR T cells directed at targets selected by each party, which was completed in June 2018.
Pursuant to the Cellectis Agreement, Cellectis granted to the Company an exclusive, worldwide, royalty-bearing license, on a target-by-target basis, with sublicensing rights under certain conditions, under certain of Cellectis’s intellectual property, including its TALEN and electroporation technology, to make, use, sell, import, and otherwise exploit and commercialize CAR T products directed at certain targets, including BCMA, FLT3, DLL3 and CD70 (the Allogene Targets), for human oncologic therapeutic, diagnostic, prophylactic and prognostic purposes. In addition, certain Cellectis intellectual property rights granted by Cellectis to the Company and to Servier pursuant to the Exclusive License and Collaboration Agreement by and between
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Servier and Pfizer, dated October 30, 2016, which Pfizer assigned to the Company in April 2018, will survive the termination of the Original Cellectis Agreement.
Pursuant to the Cellectis Agreement, the Company granted Cellectis a non-exclusive, worldwide, royalty-free, perpetual and irrevocable license, with sublicensing rights under certain conditions, under certain of the Company's intellectual property, to make, use, sell, import and otherwise commercialize CAR T products directed at certain targets (the Cellectis Targets).
The Cellectis Agreement provides for development and sales milestone payments by the Company of up to $185.0 million per product that is directed against an Allogene Target, with aggregate potential development and sales milestone payments totaling up to $2.8 billion. Cellectis is also eligible to receive tiered royalties on annual worldwide net sales of any products that are commercialized by the Company that contain or incorporate, are made using or are claimed or covered by, Cellectis intellectual property licensed to the Company under the Cellectis Agreement (the Allogene Products), at rates in the high single-digit percentages. Such royalties may be reduced, on a licensed product-by-licensed product and country-by-country basis, for generic entry and for payments due under licenses of third party patents. Pursuant to the Cellectis Agreement, and subject to certain exceptions, the Company is required to indemnify Cellectis against all third party claims related to the development, manufacturing, commercialization or use of any Allogene Product or arising out of the Company’s material breach of the representations, warranties or covenants set forth in the Cellectis Agreement, and Cellectis is required, subject to certain exceptions, to indemnify the Company against all third party claims related to the development, manufacturing, commercialization or use of CAR T products directed at Cellectis Targets or arising out of Cellectis’s material breach of the representations, warranties or covenants set forth in the Cellectis Agreement.
The royalties are payable, on a licensed-product-by-licensed-product and country-by-country basis, until the later of (i) the expiration of the last to expire of the licensed patents covering such product; (ii) the loss of regulatory exclusivity afforded such product in such country, and (iii) the tenth anniversary of the date of the first commercial sale of such product in such country; however, in no event shall such royalties be payable, with respect to a particular licensed product, past the twentieth anniversary of the first commercial sale for such product.
Depending on the Cellectis Target, the Company has a right of first refusal or right of first negotiation to purchase or license from Cellectis rights to develop and commercialize products against such Cellectis Targets.
Under the Cellectis Agreement, the Company has certain diligence obligations to progress the development of CAR T product candidates and to commercialize one CAR T product per Allogene Target in one major market country where the Company has received regulatory approval. If the Company materially breaches any of its diligence obligations and fails to cure within 90 days, then with respect to certain targets, such target will cease to be an Allogene Target and instead will become a Cellectis Target.
Unless earlier terminated in accordance with its terms, the Cellectis Agreement will expire on a product-by-product and country-by-country basis, upon expiration of all royalty payment obligations with respect to such licensed product in such country. The Company has the right to terminate the Cellectis Agreement at will upon 60 days’ prior written notice, either in its entirety or on a target-by-target basis. Either party may terminate the Cellectis Agreement, in its entirety or on a target-by-target basis, upon 90 days’ prior written notice in the event of the other party’s uncured material breach. The Cellectis Agreement may also be terminated by the Company upon written notice at any time in the event that Cellectis becomes bankrupt or insolvent or upon written notice within 60 days of a consummation of a change of control of Cellectis.
All costs the Company incurred in connection with this agreement were recognized as research and development expenses. For the three and nine months ended September 30, 2022, zero costs were incurred related to the achievement of a clinical development milestone under this agreement. For the three and nine months ended September 30, 2021, $5.0 million and $10.0 million, respectively, in costs were incurred related to the achievement of a clinical development milestone under this agreement.
License and Collaboration Agreement with Servier
As part of the Pfizer Agreement, Pfizer assigned to the Company an Exclusive License and Collaboration Agreement (the Servier Agreement), with Les Laboratoires Servier SAS and Institut de Recherches Internationales Servier SAS (collectively, Servier) to develop, manufacture and commercialize certain allogeneic anti-CD19 CAR T cell product candidates, including UCART19, in the United States with the option to obtain the rights over additional anti-CD19 product candidates and for allogeneic CAR T cell product candidates directed against one additional target. In October 2019, the Company agreed to waive its rights to the one additional target.
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Under the Servier Agreement, the Company has an exclusive license to develop, manufacture and commercialize UCART19, ALLO-501 and ALLO-501A in the field of anti-tumor adoptive immunotherapy in the United States, with an exclusive option to obtain the same rights for additional product candidates in the United States and, if Servier does not elect to pursue development or commercialization of those product candidates in certain markets outside of the United States pursuant to its license, outside of the United States as well. The Company is not required to make any additional payments to Servier to exercise an option. If the Company opts-in to another product candidate, Servier has the right to obtain rights to such product candidate outside the United States and to share development costs for such product candidate.
Under the Servier Agreement, the Company is required to use commercially reasonable efforts to develop and obtain marketing approval in the United States in the field of anti-tumor adoptive immunotherapy for at least one product directed against CD19, and Servier is required to use commercially reasonable efforts to develop and obtain marketing approval in the European Union, and one other country in a group of specified countries outside of the European Union and the United States, in the field of anti-tumor adoptive immunotherapy for at least one allogeneic adaptive T cell product directed against a certain Company-selected target.
For product candidates that the Company is co-developing with Servier, including UCART19, ALLO-501 and ALLO-501A, the Company is responsible for 60% of the specified development costs and Servier is responsible for the remaining 40% of the specified development costs under the applicable global research and development plan. Subject to certain restrictions, each party has the right to conduct activities that are specific to its territory outside the global research and development plan at such party’s sole expense. In addition, each party is solely responsible for commercialization activities in its territory at such party’s sole expense.
The Company is required to make milestone payments to Servier upon successful completion of regulatory and sales milestones. The Servier Agreement provides for aggregate potential payments by the Company to Servier of up to $137.5 million upon successful completion of various regulatory milestones, and aggregate potential payments by the Company to Servier of up to $78.0 million upon successful completion of various sales milestones. Similarly, Servier is required to make milestone payments upon successful completion of regulatory and sales milestones for products directed at the Allogene-target covered by the Servier Agreement that achieves such milestones. The total potential payments that Servier is obligated to make to the Company under the Servier Agreement upon successful completion of regulatory and sales milestones are $42.0 million and €70.5 million ($69.1 million), respectively. The foregoing milestones are subject to certain adjustments if the Company obtains rights for certain products outside of the United States upon Servier’s election not to pursue such rights.
Each party is also eligible to receive tiered royalties on annual net sales in countries within the paying party’s respective territory of any licensed products that are commercialized by such party that are directed at the targets licensed by such party under the Servier Agreement. The royalty rates are in a range from the low tens to the high teen percentages. Such royalties may be reduced for interchangeable drug entry, expiration of patent rights and amounts paid pursuant to licenses of third-party patents. The royalty obligation for each party with respect to a given licensed product in a given country in each party’s respective territory (the Servier Royalty Term) begins upon the first commercial sale of such product in such country and ends after a defined number of years.
Unless earlier terminated in accordance with the Servier Agreement, the Servier Agreement will continue, on a licensed product-by-licensed product and country-by-country basis, until the Servier Royalty Term with respect to the sale of such licensed product in such country expires.
For the three and nine months ended September 30, 2022, the Company recorded $3.8 million and $20.4 million, respectively, of net cost recoveries under the cost-sharing terms of the Servier Agreement as a reduction to research and development expenses. For the three and nine months ended September 30, 2021, the Company recorded $5.1 million and $13.2 million, respectively, of net cost recoveries. As of September 30, 2022 and December 31, 2021, amounts due from Servier of $4.3 million and $4.1 million, respectively, were recorded in other current assets in the accompanying condensed consolidated balance sheets.
On September 15, 2022, Servier sent a notice of discontinuation (Discontinuation) of its involvement in the development of all licensed products directed against CD19, including UCART19, ALLO-501 and ALLO-501A (collectively, CD19 Products), pursuant to the Servier Agreement. Servier’s Discontinuation provides the Company with the right to elect a license to the CD19 Products outside of the United States (Ex-US Option) and does not otherwise affect the Company's current exclusive license for the development and commercialization of CD19 Products in the United States.
Research Collaboration and License Agreement with Notch
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On November 1, 2019, the Company entered into a Collaboration and License Agreement (the Notch Agreement) with Notch Therapeutics Inc. (Notch), pursuant to which Notch granted to Allogene an exclusive, worldwide, royalty-bearing, sublicensable license under certain of Notch’s intellectual property to develop, make, use, sell, import, and otherwise commercialize therapeutic gene-edited T cell and/or natural killer (NK) cell products from induced pluripotent stem cells directed at certain CAR targets for initial application in non-Hodgkin lymphoma, acute lymphoblastic leukemia and multiple myeloma. In addition, Notch has granted Allogene an option to add certain specified targets to its exclusive license in exchange for an agreed per-target option fee.
The Notch Agreement includes a research collaboration to conduct research and pre-clinical development activities to generate engineered cells directed to Allogene’s exclusive targets, which will be conducted in accordance with an agreed research plan and budget under the oversight of a joint development committee. Allogene will reimburse Notch’s costs incurred in accordance with such plan and budget. The term of the research collaboration will expire upon the earlier of (i) the fifth anniversary of the date of the Notch Agreement, (ii) at Allogene’s election, following the joint development committee’s determination that for each exclusive target, Notch has met certain success criteria, or (iii) the joint development committee’s determination that the research collaboration cannot be reasonably pursued against any exclusive target due to technical infeasibility or safety issues.
In connection with the execution of the Notch Agreement, Allogene made an upfront payment to Notch of $10.0 million in return for a license to access Notch's technology in order to conduct research pursuant to the Notch Agreement. In addition, Allogene made a $5.0 million investment in Notch’s series seed convertible preferred stock, resulting in Allogene having a 25% ownership interest in Notch’s outstanding capital stock on a fully diluted basis immediately following the investment. In connection with this investment, an Allogene representative serves on the Notch Board of Directors. In February 2021, the Company made an additional $15.9 million investment in Notch's Series A preferred stock. In October 2021, the Company made an additional $1.8 million investment in Notch's common stock. Immediately following this transaction, the Company's share in Notch was 23.0% on a voting interest basis. The Company did not have a controlling interest in Notch as of September 30, 2022, and continued to account for its investment in Notch as an equity method investment.
Under the Notch Agreement, Notch will be eligible to receive up to $7.25 million upon achieving certain agreed research milestones, up to $4.0 million per exclusive target upon achieving certain pre-clinical development milestones, and up to $283.0 million per exclusive target and cell type (i.e., T cell or NK cell) upon achieving certain clinical, regulatory and commercial milestones. Notch is also entitled to receive tiered royalties in the mid to high single digit range on Allogene’s sales of licensed products, subject to certain reductions, for a term, on a country-by-country and product-by-product basis, commencing on first commercial sale of such product in such country and continuing until the latest of (i) the date upon which there is no valid claim of the licensed patents in such country of sale that covers such product, (ii) the expiration of applicable data or other regulatory exclusivity in such country of sale or (iii) a defined period from the first commercial sale of such product in such country.
The terms of the Notch Agreement will continue on a product-by-product and country-by-country basis until Allogene’s payment obligations with respect to such product in such country have expired. Following such expiration, Allogene’s license with respect to such product and country shall be perpetual, irrevocable, fully paid up and royalty-free. Allogene may terminate the Collaboration Agreement in whole or on a product-by-product basis upon ninety days’ prior written notice to Notch. Either party may also terminate the Collaboration Agreement with written notice upon material breach by the other party, if such breach has not been cured within a defined period of receiving such notice, or in the event of the other party’s insolvency.
For the three and nine months ended September 30, 2022, the Company recorded $1.0 million and $2.8 million, respectively, in collaboration costs as research and development expenses. For the three and nine months ended September 30, 2021, the Company recorded $0.8 million and $3.9 million, respectively, in collaboration costs as research and development expenses.
Strategic Alliance with The University of Texas MD Anderson Cancer Center
On October 6, 2020, the Company entered into a strategic five-year collaboration agreement with The University of Texas MD Anderson Cancer Center (MD Anderson) for the preclinical and clinical investigation of allogeneic CAR T cell product candidates. The Company and MD Anderson are collaborating on the design and conduct of preclinical and clinical studies with oversight from a joint steering committee.
Under the terms of the agreement, the Company has committed up to $15.0 million of funding for the duration of the agreement. Payment of this funding is contingent on mutual agreement to study orders in order for any study to be included under the alliance. The Company made an upfront payment of $3.0 million to MD Anderson in the year ended December 31, 2020. The Company is obligated to make further payments to MD Anderson each year upon the anniversary of the agreement
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effective date through the duration of the agreement term. These costs are expensed to research and development as MD Anderson renders the services under the strategic alliance.
The agreement may be terminated by either party for material breach by the other party. Individual studies may be terminated for, among other things, material breach, health and safety concerns or where the institutional review board, the review board at the clinical site with oversight of the clinical study, requests termination of any study. Where any legal or regulatory authorization is finally withdrawn or terminated, the relevant study will also terminate automatically.
For the three and nine months ended September 30, 2022, the Company recorded $0.2 million and $1.1 million in collaboration costs as research and development expenses. For the three and nine months ended September 30, 2021, the Company recorded $0.4 million and $0.8 million, respectively, in collaboration costs as research and development expenses.
Joint Venture and License Agreement with Allogene Overland Biopharm (CY) Limited
On December 14, 2020, the Company entered into a License Agreement with Allogene Overland Biopharm (CY) Limited (Allogene Overland), a joint venture established by the Company and Overland Pharmaceuticals (CY) Inc. (Overland), pursuant to a Share Purchase Agreement, dated December 14, 2020, for the purpose of developing, manufacturing and commercializing certain allogeneic CAR T cell therapies for patients in greater China, Taiwan, South Korea and Singapore (the JV Territory).

Pursuant to the Share Purchase Agreement, the Company acquired Seed Preferred Shares in Allogene Overland representing 49% of Allogene Overland's outstanding stock as partial consideration for the License Agreement, and Overland acquired Seed Preferred Shares representing 51% of Allogene Overland's outstanding stock for $117.0 million in upfront and certain quarterly cash payments, to support operations of Allogene Overland. As of September 30, 2022, the Company and Overland are the sole equity holders in Allogene Overland. The Company received $40 million from Allogene Overland as partial consideration for the License Agreement.

Pursuant to the License Agreement, the Company granted Allogene Overland an exclusive license to develop, manufacture and commercialize certain allogeneic CAR T cell candidates directed at four targets, BCMA, CD70, FLT3, and DLL3, in the JV Territory. As consideration, the Company would also be entitled to additional regulatory milestone payments of up to $40.0 million and, subject to certain conditions, tiered low-to-mid single-digit sales royalties. Subsequent to entering into the License Agreement, Allogene Overland assigned the License Agreement to a wholly-owned subsidiary, Allogene Overland BioPharm (HK) Limited. On April 1, 2022, Allogene Overland HK assigned the License Agreement to Allogene Overland Biopharm (PRC) Co., Limited.

Promises that the Company concluded were distinct performance obligations in the License Agreement included: (1) the license of intellectual property and delivery of know-how, (2) the manufacturing license, related know-how and support, (3) if and when available know-how developed in future periods, and (4) participation in the joint steering committee.
In order to determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract. Fixed consideration exists in the form of the upfront payment. Regulatory milestones and royalties were considered variable consideration. The Company constrains the estimated variable consideration when it assesses it is probable that a significant reversal in the amount of cumulative revenue recognized may occur in future periods. Milestone fees were constrained and not included in the transaction price due to the uncertainties of research and development. The Company re-evaluates the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The shares of Series Seed Preferred Stock were accounted for as part of the Company’s joint venture and equity method accounting upon formation of the joint venture, and as such, were excluded from the transaction price. The Company determined that the initial transaction price consists of the upfront payment of $40.0 million. The allocation of the transaction price is performed based on standalone selling prices, which are based on estimated amounts that the Company would charge for a performance obligation if it were sold separately. The transaction price allocated to the license of intellectual property and delivery of know-how will be recognized upon grant of license and delivery of know-how. The transaction price allocated to (i) the manufacturing license, related know-how and support services, (ii) if and when available know-how developed in future periods, and (iii) participation in the joint steering committee, will be recognized over time as the services are delivered. Funds received in advance are recorded as deferred revenue and will be recognized as the performance obligations are satisfied.
The Company has determined that Allogene Overland is a variable interest entity as of September 30, 2022 and December 31, 2021. The Company does not have the power to independently direct the activities which most significantly affect Allogene Overland's economic performance. Accordingly, the Company did not consolidate Allogene Overland because the Company determined that it was not the primary beneficiary.
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For the three and nine months ended September 30, 2022, the Company recognized less than $0.1 million and $0.2 million of collaboration revenue, respectively. For the three and nine months ended September 30, 2021, the Company recognized less than $0.1 million and $38.4 million, respectively, of collaboration revenue, primarily related to the license of intellectual property and delivery of the know-how performance obligation which was delivered in the first quarter of 2021. For the three and nine months ended September 30, 2022, the Company recorded $0.3 million and $0.6 million, respectively, of net cost recoveries under the terms of the license agreement as a reduction to research and development expenses. For the three and nine months ended September 30, 2021, the Company recorded zero net cost recoveries.
Collaboration and License Agreement with Antion
On January 5, 2022, the Company entered into an exclusive collaboration and global license agreement (Antion Collaboration and License Agreement) with Antion Biosciences SA (Antion) for Antion’s miRNA technology (miCAR), to advance multiplex gene silencing as an additional tool to develop next generation allogeneic CAR T products. Pursuant to the agreement, Antion will exclusively collaborate with the Company on oncology products for a defined period. The Company will also have exclusive worldwide rights to commercialize products incorporating Antion technology developed during the collaboration.
The Antion Collaboration and License Agreement includes an exclusive research collaboration to conduct research and development of the use of Antion’s proprietary technologies to produce certain products for a defined period, which will be conducted in accordance with an agreed research plan and budget under the oversight of a joint steering committee. The Company will reimburse Antion's costs incurred in accordance with such plan and budget.
In connection with the execution of the Antion Collaboration and License Agreement, the Company made an upfront payment to Antion of $3.5 million in return for a license to access Antion's technology in order to conduct research pursuant to the agreement. The upfront payment was fully recognized as research and development expense as the license had no foreseeable alternative future use. In addition, the Company made a $3.0 million investment in Antion's preferred stock and is expected to make an additional $3.0 million investment in Antion's preferred stock upon achievement of an agreed milestone. The Company accounts for its investment in Antion's preferred stock as an equity investment measured at cost less any impairment. In connection with this investment, a Company representative was appointed to Antion’s Board of Directors.

Under the Antion Collaboration and License Agreement, Antion will be eligible to receive up to $35.3 million for four products upon achievement of certain development and regulatory milestones. For each additional product, Antion will be eligible to receive $2.0 million upon achievement of a regulatory milestone. Antion is also entitled to receive a low single-digit royalty on the Company’s sales of licensed products, subject to certain reductions.
For the three and nine months ended September 30, 2022, the Company recorded $0.6 million and $4.5 million in research and development expenses related to the upfront payment and collaboration costs, of which $0.5 million is recorded in accrued and other liabilities as of September 30, 2022. The Company's total equity investment in Antion was $3.0 million as of September 30, 2022 and is recognized in other long-term assets in the condensed consolidated balance sheets.
7.         Commitments and Contingencies
Leases
In August 2018, the Company entered into an operating lease agreement (HQ Lease) for office and laboratory space which consists of approximately 68,000 square feet located in South San Francisco, California. The lease term was 127 months beginning August 2018 through February 2029 with an option to extend the term for seven years which was not reasonably assured of exercise. The Company has made certain tenant improvements, including the addition of laboratory space, and has received $5.0 million of tenant improvement allowances. The rent payments began on March 1, 2019 after an abatement period. In December 2021, the Company amended its lease agreement to lease an additional 47,566 square feet of office and laboratory space in South San Francisco, California, as part of the same building as the Company’s current headquarters. The lease term commenced in April 2022 and is for a period of 120 months. The rent payments for the expansion premises began in August 2022 after an abatement period. The lease term for the existing premises was also extended and the lease for both the existing and expansion premises will expire on March 31, 2032 with an option to extend the term for eight years which is not reasonably assured of exercise.
In October 2018, the Company entered into an operating lease agreement for office and laboratory space which consists of 14,943 square feet located in South San Francisco, California. The lease term was 124 months beginning November 2018 through February 2029, with an option to extend the term for another seven years which was not reasonably assured of exercise. The Company has made certain tenant improvements, including the upgrading of current office and laboratory space with a
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lease incentive allowance of $0.8 million. Rent payments began in November 2018. In December 2021, the Company amended its lease agreement to extend the term of the lease to be co-terminus with the HQ Lease. The lease term will expire March 31, 2032 with an option to extend the term for eight years which is not reasonably assured of exercise.
In February 2019, the Company entered into a lease agreement for approximately 118,000 square feet of space to develop a cell therapy manufacturing facility in Newark, California. The lease term is 188 months beginning November 2020 through July 2036. Upon certain conditions, the Company has two ten-year options to extend the lease, both of which are not reasonably assured of exercise. The Company has received $3.0 million of tenant improvement allowances for costs related to the design and construction of certain Company improvements.
The Company maintains letters of credit for the benefit of landlords which is disclosed as restricted cash in the condensed consolidated balance sheets. Restricted cash related to letters of credit due to landlords was $6.0 million as of September 30, 2022 and December 31, 2021.
The balance sheet classification of our lease liabilities were as follows (in thousands):
September 30, 2022December 31, 2021
Operating lease liabilities
      Current portion included in accrued and other current liabilities$5,831 $3,200 
      Long-term portion of lease liabilities96,706 69,929 
          Total operating lease liabilities$102,537 $73,129 
The components of lease costs for operating leases, which were recognized in operating expenses, were as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended September 30,
2022202120222021
Operating lease cost$3,177 $1,853 $8,476 $5,568 
Variable lease cost616 448 1,468 979 
         Total lease costs$3,793 $2,301 $9,944 $6,547 
Cash paid for amounts included in the measurement of lease liabilities for the nine months ended September 30, 2022 was $2.6 million and was included in net cash used in operating activities in our condensed consolidated statements of cash flows.
The undiscounted future lease payments under the lease agreements as of September 30, 2022 were as follows:
Year ending December 31:
 (In thousands)
    2022 (remaining 6 months)$2,943 
202312,065 
202412,464 
202512,636 
202612,819 
2027 and thereafter 90,492 
Total undiscounted lease payments143,419 
Less: Present value adjustment(40,882)
Total$102,537 
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, we use our estimated incremental borrowing rate. The weighted average discount rate used to determine the operating lease liability was 6.19%. As of September 30, 2022, the weighted average remaining lease term for our operating leases is 10.21 years.
Other Commitments
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In July 2020, the Company entered into a Solar Power Purchase and Energy Services Agreement for the installation and operation of a solar photovoltaic generating system and battery energy storage system at the Company's cell therapy manufacturing facility in Newark, California. The agreement has a term of 20 years and commenced in September 2022. The Company is obligated to pay for electricity generated from the system at an agreed rate for the duration of the agreement term. Termination of the agreement by the Company will result in a termination payment due of approximately $4.3 million. In connection with the agreement, the Company maintains a letter of credit for the benefit of the service provider in the amount of $4.3 million which is disclosed as restricted cash in the condensed consolidated balance sheets as of September 30, 2022.
The Company has entered into certain license agreements for intellectual property which is used as part of our development and manufacturing processes. Each of these respective agreements are generally cancellable by the Company. These agreements require payment of annual license fees and may include conditional milestone payments for achievement of specific research, clinical and commercial events, and royalty payments. The timing and likelihood of any significant conditional milestone payments or royalty payments becoming due was not probable as of September 30, 2022.
The Company enters into contracts in the normal course of business that includes arrangements with clinical research organizations, vendors for preclinical research and vendors for manufacturing. These agreements generally allow for cancellation with notice. As of September 30, 2022, the Company had non-cancellable purchase commitments of $0.4 million.
8.         Equity Method Investments
Notch Therapeutics
In conjunction with the execution of the Notch Agreement (see Note 6), the Company also entered into a Share Purchase Agreement with the Company acquiring shares of Notch’s Series Seed convertible preferred stock for a total investment cost of $5.1 million which includes transaction costs of $0.1 million, resulting in a 25% ownership interest in Notch. In February 2021, the Company made a $15.9 million investment in Notch's Series A preferred stock. Immediately following this transaction, the Company's share in Notch was 20.7% on a voting interest basis. In October 2021, the Company made an additional $1.8 million investment in Notch's common stock. Immediately following this transaction, the Company's share in Notch was 23.0% on a voting interest basis.
The Company’s total equity investment in Notch as of September 30, 2022 and December 31, 2021 was $14.0 million and $18.0 million, respectively, and the Company accounted for the investment using the equity method of accounting. During the three and nine months ended September 30, 2022 and 2021, the Company recognized its share of Notch's net loss under the other expenses caption within the condensed consolidated statement of operations.
Allogene Overland
In conjunction with the execution of the License Agreement with Allogene Overland (see Note 6), the Company also entered into a Share Purchase Agreement and Shareholders' Agreement with the joint venture company acquiring shares of Allogene Overland’s Seed Preferred Shares representing a 49% ownership interest in exchange for entering into a License Agreement which had a carrying value of zero. The Company accounts for its investment in Allogene Overland as an equity method investment at carrying value. The Company's total equity investment in Allogene Overland was zero as of September 30, 2022 and December 31, 2021.
The Company’s equity investment in Allogene Overland as of September 30, 2022 and December 31, 2021 had a zero carryover basis. Therefore, the Company did not account for its share of losses incurred by Allogene Overland. See Note 6 for further details.
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9.         Stock-Based Compensation
In June 2018, the Company adopted its 2018 Equity Incentive Plan (Prior 2018 Plan). The Prior 2018 Plan provided for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the Company’s Board of Directors and consultants of the Company under terms and provisions established by the Company’s Board of Directors. In September 2018, the Board of Directors adopted a new amended and restated 2018 Equity Incentive Plan as a successor to and continuation of the Prior 2018 Plan, which became effective in October 2018 (the 2018 Plan), which authorized additional shares for issuance and provided for an automatic annual increase to the number of shares issuable under the 2018 Plan by an amount equal to 5% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year. The term of any stock option granted under the 2018 Plan cannot exceed 10 years. The Company generally grants stock-based awards with service conditions only. Options shall not have an exercise price less than 100% of the fair market value of the Company’s common stock on the grant date. Options granted typically vest over a four-year period but may be granted with different vesting terms. Restricted Stock Units granted typically vest annually over a four-year period but may be granted with different vesting terms.
As of September 30, 2022, there were 12,035,820 shares reserved by the Company under the 2018 Plan for the future issuance of equity awards.
Stock Option Exchange program
On June 21, 2022, the Company commenced an offer to exchange certain eligible options held by eligible employees of the Company for new options (the Exchange Offer). The Exchange Offer expired on July 19, 2022. Pursuant to the Exchange Offer, 199 eligible holders elected to exchange, and the Company accepted for cancellation, eligible options to purchase an aggregate of 3,666,600 shares of the Company’s common stock, representing approximately 93.5% of the total shares of common stock underlying the eligible options. On July 19, 2022, immediately following the expiration of the Exchange Offer, the Company granted new options to purchase 3,666,600 shares of common stock, pursuant to the terms of the Exchange Offer and the 2018 Plan. The exercise price of the new options granted pursuant to the Exchange Offer was $13.31 per share, which was the closing price of the common stock on the Nasdaq Global Select Market on the grant date of the new options. The new options are subject to a new three-year vesting schedule, vesting in equal annual installments over the vesting term. Each new option has a maximum term of seven years.
The exchange of stock options was treated as a modification for accounting purposes. The incremental expense of $5.2 million for the new options was calculated using a lattice option pricing model. The incremental expense and the unamortized expense remaining on the exchanged options as of the modification date will be recognized over the new three-year service period.
Stock Option Activity
The following summarizes option activity under the 2018 Plan:
Outstanding Options
Number
of
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contract
Term
Aggregate Intrinsic Value
(in years)(in thousands)
Balance, December 31, 202110,239,167 $21.10 7.68$26,223 
Granted8,627,428 9.64 
Exercised(174,451)2.33 
Forfeited(569,697)24.41 
Cancelled under the Option Exchange(3,666,600)26.82 
Granted under the Option Exchange3,666,600 13.31 
Balance, September 30, 202218,122,447 $12.99