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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 March 31, 2023
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 May 1, 2023, the registrant had 145,841,620 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)
March 31,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents$109,931 $61,904 
Short-term investments361,293 455,416 
Prepaid expenses and other current assets10,241 11,504 
Total current assets481,465 528,824 
Long-term investments42,788 59,151 
Operating lease right-of-use asset81,964 83,592 
Property and equipment, net109,849 112,839 
Restricted cash10,292 10,292 
Other long-term assets9,389 9,564 
Equity method investment11,124 12,817 
Total assets$746,871 $817,079 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$14,688 $13,890 
Accrued and other current liabilities44,624 39,743 
Deferred revenue273 885 
Total current liabilities59,585 54,518 
Lease liability, non-current93,514 95,122 
Other long-term liabilities1,510 1,569 
Total liabilities154,609 151,209 
Commitments and Contingencies (Notes 6 and 7)
Stockholders’ equity:
Preferred stock, $0.001 par value: 10,000,000 shares authorized as of March 31, 2023 and December 31, 2022; no shares were issued and outstanding as of March 31, 2023 and December 31, 2022
  
Common stock, $0.001 par value: 400,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 145,740,333 and 144,438,304 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively
146 144 
Additional paid-in capital1,932,734 1,911,632 
Accumulated deficit(1,334,684)(1,235,980)
Accumulated other comprehensive loss(5,934)(9,926)
Total stockholders’ equity592,262 665,870 
Total liabilities and stockholders’ equity$746,871 $817,079 
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 March 31,
20232022
Collaboration revenue - related party$52 $61 
Operating expenses:
Research and development80,238 60,156 
General and administrative18,884 19,897 
Total operating expenses99,122 80,053 
Loss from operations(99,070)(79,992)
Other income (expense), net:
    Interest and other income, net2,059 492 
    Other expenses(1,693)(350)
Total other income, net366 142 
Net loss(98,704)(79,850)
Other comprehensive loss:
Net unrealized gain (loss) on available-for-sale investments3,992 (6,682)
Net comprehensive loss$(94,712)$(86,532)
Net loss per share, basic and diluted$(0.68)$(0.56)
Weighted-average number of shares used in computing net loss per share, basic and diluted144,563,829 141,356,306 
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 Income (Loss)Total Stockholders’ Equity
SharesAmount
Balance - December 31, 2022144,438,304 $144 $1,911,632 $(1,235,980)$(9,926)$665,870 
Issuance of common stock upon exercise of stock options and vesting of RSUs
942,276 1 (1)— —  
Vesting of early exercised common stock
— — 603 — — 603 
Stock-based compensation— — 18,770 — — 18,770 
Employee stock purchase plan
359,753 1 1,730 — — 1,731 
Net loss— — — (98,704)— (98,704)
Net unrealized gain on available-for-sale investments
— — — — 3,992 3,992 
Balance - March 31, 2023145,740,333 $146 $1,932,734 $(1,334,684)$(5,934)$592,262 


Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
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 


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)
Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net loss$(98,704)$(79,850)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation18,770 22,315 
Depreciation and amortization3,507 3,692 
Net amortization/accretion on investment securities508 1,332 
Non-cash rent expense207 466 
Share of loss from equity method investment1,693 3,800 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets1,263 (6,673)
Other long-term assets45 (3,114)
Accounts payable1,057 (505)
Accrued and other current liabilities5,686 (9,048)
Deferred revenue(612)(17)
Other long-term liabilities(59)(635)
Net cash used in operating activities(66,639)(68,237)
Cash flows from investing activities:
Purchases of property and equipment(1,035)(1,902)
Proceeds from sales of investments5,623  
Proceeds from maturities of investments143,441 68,680 
Purchase of investments(35,094)(89,155)
Net cash provided by (used in) investing activities112,935 (22,377)
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options 283 
Proceeds from issuance of common stock under the employee stock purchase plan1,731 1,531 
Net cash provided by financing activities1,731 1,814 
Net change in cash and cash equivalents and restricted cash48,027 (88,800)
Cash and cash equivalents and restricted cash — beginning of period72,196 183,606 
Cash and cash equivalents and restricted cash — end of period$120,223 $94,806 
Supplemental disclosure:
Cash paid for amounts included in the measurement of lease liabilities$(2,965)$(1,980)
Cash received for amounts related to tenant improvement allowances$ $325 
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 a clinical-stage immuno-oncology company pioneering the development of genetically engineered allogeneic T cell product candidates 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 $514.0 million as of March 31, 2023. Since inception through March 31, 2023, the Company has incurred cumulative net losses of $1,334.7 million. 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 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 at least the next 12 months from the date the accompanying unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (SEC).
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 March 31, 2023, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of stockholders’ equity as of March 31, 2023 and 2022, the condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022, 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 months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, 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, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2023.
Use of Estimates
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 common stock, the fair value of stock options, the fair value of investments, income tax uncertainties, and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical
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experience and other factors and adjusts those estimates and assumptions when facts and circumstances change. Actual results could differ from those estimates.
Significant Accounting Policies
There have been no significant changes to the accounting policies during the three months ended March 31, 2023, 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 other than 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 March 31, 2023 and as of December 31, 2022.
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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 March 31, 2023 and as of December 31, 2022 are presented in the following tables: 

March 31, 2023
Level 1Level 2Level 3Fair Value
(In thousands)
Financial Assets:
Money market funds (1)$103,302 $ $ $103,302 
Commercial paper 9,947  9,947 
Corporate bonds 110,467  110,467 
U.S. treasury securities246,873   246,873 
U.S. agency securities 36,794  36,794 
Total financial assets$350,175 $157,208 $ $507,383 

December 31, 2022
Level 1Level 2Level 3Fair Value
(In thousands)
Financial Assets:
Money market funds (1)$10,679 $ $ $10,679 
Commercial paper 4,954  4,954 
Corporate bonds 153,256  153,256 
U.S. treasury securities318,022   318,022 
U.S. agency securities 39,416  39,416 
Total financial assets$328,701 $197,626 $ $526,327 
(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 March 31, 2023 and as of December 31, 2022 are presented in the following tables:

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March 31, 2023
Amortized CostUnrealized GainsUnrealized LossesFair Value
(In thousands)
Money market funds$103,302 $ $ $103,302 
Commercial paper9,950  (3)9,947 
Corporate bonds111,969 26 (1,528)110,467 
U.S. treasury securities249,654 49 (2,830)246,873 
U.S. agency securities38,000  (1,206)36,794 
Total cash equivalents and investments$512,875 $75 $(5,567)$507,383 
Classified as:
Cash equivalents$103,302 
Short-term investments361,293 
Long-term investments42,788 
Total cash equivalents and investments$507,383 
December 31, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
(In thousands)
Money market funds$10,679 $ $ $10,679 
Commercial paper4,956  (2)4,954 
Corporate bonds156,019 25 (2,788)153,256 
U.S. treasury securities323,077 5 (5,060)318,022 
U.S. agency securities41,078  (1,662)39,416 
Total cash equivalents and investments$535,809 $30 $(9,512)$526,327 
Classified as:
Cash equivalents$11,760 
Short-term investments455,416 
Long-term investments59,151 
Total cash equivalents and investments$526,327 
As of March 31, 2023, the remaining contractual maturities of available-for-sale securities were less than 2 years. Realized losses on available-for-sale securities for the three months ended March 31, 2023 and 2022 were $1.0 million and zero, respectively. As of March 31, 2023, 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 March 31, 2023 and December 31, 2022, securities with a fair value of $279.6 million and $329.4 million, 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 March 31, 2023 and December 31, 2022, the Company recognized $1.0 million and $1.8 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:
March 31,
2023
December 31,
2022
(In thousands)
Leasehold improvements108,550 108,550 
Laboratory equipment32,901 32,601 
Computer equipment and purchased software4,651 4,533 
Furniture and fixtures4,066 4,012 
Construction in progress73 28 
Total150,241 149,724 
Less: accumulated depreciation(40,392)(36,885)
Total property and equipment, net$109,849 $112,839 
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 because the Company does not presently hold commercial rights in 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 months ended March 31, 2023 or 2022.
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. 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, CD70, Claudin 18.2, DLL3 and FLT3 (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 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.
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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 in the condensed consolidated statements of operations. For the three months ended March 31, 2023 and 2022, zero clinical development milestones were achieved.
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.
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
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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 ($76.7 million), respectively. The foregoing milestones are subject to certain adjustments if the Company obtains rights for certain products outside of the United States.
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 months ended March 31, 2023 and 2022, the Company recorded $0.2 million and $5.1 million, respectively, of net cost recoveries under the cost-sharing terms of the Servier Agreement as a reduction to research and development expenses. As of March 31, 2023 and December 31, 2022, amounts due from Servier of $1.2 million and $1.5 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. However, Servier has disputed the implications of the Discontinuation, namely whether development cost contributions continue and the timeframe during which the Company has the right to elect a license to CD19 Products outside of the United States.
In December 2022, Servier sent the Company a notice for material breach due to the Company's purported refusal to allow an audit of certain manufacturing costs under the cost share arrangement. While the Company does not believe Servier has such an audit right, the Company is currently progressing such audit with Servier to recover outstanding manufacturing costs owed by Servier to the Company.
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Research Collaboration and License Agreement with Notch Therapeutics
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 March 31, 2023, 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 months ended March 31, 2023 and 2022, the Company recorded $1.0 million and $0.8 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,
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2020. The Company is obligated to make further payments to MD Anderson each year upon the anniversary of the agreement 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 months ended March 31, 2023 and 2022, the Company recorded $0.4 million and $0.3 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 March 31, 2023, 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 March 31, 2023 and December 31, 2022, respectively. 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 months ended March 31, 2023 and 2022, the Company recognized less than $0.1 million of collaboration revenue. For the three months ended March 31, 2023 and 2022, the Company recorded zero and $0.3 million, respectively, of net cost recoveries under the terms of the license agreement as a reduction to research and development expenses.
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 months ended March 31, 2023, the Company recorded $0.5 million in research and development expenses related to collaboration costs. For the three months ended March 31, 2022, the Company recorded $3.5 million in research and development expenses related to the upfront payment and collaboration costs. As of March 31, 2023 and December 31, 2022, research and development expenses recorded in accrued and other liabilities was $0.5 million. As of March 31, 2023 and December 31, 2022, the Company's total equity investment in Antion was $3.0 million 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 through December 31, 2020. 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 lease incentive allowance of $0.8 million. Rent payments began in November 2018. In December 2021, the Company amended
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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 and began in November 2020. 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 March 31, 2023 and December 31, 2022.
The balance sheet classification of our lease liabilities were as follows (in thousands):
March 31, 2023December 31, 2022
Operating lease liabilities
      Current portion included in accrued and other current liabilities$6,189 $6,002 
      Long-term portion of lease liabilities93,514 95,122 
          Total operating lease liabilities$99,703 $101,124 
The components of lease costs for operating leases, which were recognized in operating expenses, were as follows (in thousands):
Three Months Ended
March 31,
20232022
Operating lease cost$3,181 $2,122 
Variable lease cost691 455 
         Total lease costs$3,872 $2,577 
Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2023 was $3.0 million and was included in net cash used in operating activities in the Company's condensed consolidated statements of cash flows.
The undiscounted future non-cancellable lease payments under the Company's operating leases as of March 31, 2023 were as follows:
Year ending December 31:
 (In thousands)
    2023 (remaining 9 months)$9,084 
202412,447 
202512,627 
202612,819 
202713,257 
2028 and thereafter 77,235 
Total undiscounted lease payments137,469 
Less: Present value adjustment(37,766)
Total$99,703 
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, the Company uses its estimated incremental borrowing rate. The weighted average discount rate used to determine the operating lease liability was 6.88%. As of March 31, 2023, the weighted average remaining lease term for our operating leases is 9.74 years.
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Other Commitments
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 recorded as restricted cash in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022.
The Company has entered into certain license agreements for intellectual property which is used as part of its 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 March 31, 2023.
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 March 31, 2023, the Company had non-cancellable purchase commitments of $0.3 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 March 31, 2023 and December 31, 2022 was $11.1 million and $12.8 million, respectively, and the Company accounted for the investment using the equity method of accounting. During the three months ended March 31, 2023 and 2022, the Company recognized its share of Notch's net loss under the other expenses caption within the condensed consolidated statements of operations.
Allogene Overland Biopharm (CY) Limited
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 March 31, 2023 and December 31, 2022.
The Company’s equity investment in Allogene Overland as of March 31, 2023 and December 31, 2022 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 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. 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. If the individual possesses more than 10% of the combined voting power of all classes of stock of the Company, the exercise price shall not be less than 110% of the fair market value of a common share of stock on the date of grant. This requirement is applicable to incentive stock options only.
As of March 31, 2023, there were 5,111,513 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 modified 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 are being 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, 202217,569,575 $12.90 7.73$6,658 
Options granted6,698,130 5.24 9.95
Options exercised  $— 
Options forfeited(719,219)17.32 
Balance, March 31, 202323,548,486 $10.59 8.13$4,001 
Exercisable, March 31, 202313,913,480 $12.01 7.80$4,001 
Vested and expected to vest, March 31, 202323,548,486 $10.59 8.13$4,001 
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The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on the Nasdaq Global Select Market on March 31, 2023. For the three months ended March 31, 2023, the estimated weighted-average grant-date fair value of employee options granted was $3.54 per share. As of March 31, 2023, there was $94.1 million of unrecognized stock-based compensation related to unvested stock options, which is expected to be recognized over a weighted-average period of 2 years, 314 days.
The fair value of employee, consultant and director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:
Three Months Ended March 31,
20232022
Expected term in years
6.03 - 6.07
6.07
Expected volatility
73.85%
70.82%
Expected risk-free interest rate
3.45% - 4.10%
1.61% - 2.34%
Expected dividend
0%
0%
The fair value of the options granted under the Option Exchange program was estimated at the date of grant using a lattice option pricing model with the following assumptions: expected volatility of 73.74%, expected risk-free rate of 3.06%, expected dividends of 0% and expected exercise barrier of 2.57.
Expected term— The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.
Expected volatility The Company uses an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as the Company does not have sufficient trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.
Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.
Expected dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.
Expected exercise barrier - The modified options are assumed to be exercised upon vesting and when the ratio of stock market price to exercise price reaches 2.57, or expiration, whichever is earlier.
Restricted Stock Unit Activity
The following summarizes restricted stock unit activity under the 2018 Plan:
Outstanding Restricted Stock Units
Restricted
Stock Units
Weighted-
Average Grant Date Fair
Value per
Share
Weighted Average Remaining Vesting LifeAggregate Intrinsic Value
(in years)(in thousands)
Unvested December 31, 20225,493,406 $16.86 1.54$34,554 
Granted9,405,095 4.66 2.94
Vested(970,288)19.88 
Forfeited(340,743)13.79 
Unvested March 31, 202313,587,470 $8.28 2.52$67,122 
Vested and expected to vest, March 31, 202313,587,470 $8.28 2.52$67,122 
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As of March 31, 2023, there was $87.4 million of unrecognized stock-based compensation related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2 years, 279 days.
For the quarter ended March 2023, the Company granted 2,665,449 performance-based restricted stock units and 1,902,307 restricted stock units with a market condition to certain executive officers and other employees pursuant to the 2018 Plan. These awards are subject to the holders' continuous service to the Company through each applicable vesting event. Through March 31, 2023, the Company believes that the achievement of the requisite performance conditions for these awards are not probable. As a result, no compensation expense has been recognized related to the performance-based restricted stock units in the quarter ended March 31, 2023. The Company recognized $0.1 million in stock-based compensation expense related to the restricted units with a market condition in the quarter ended March 31, 2023.
Total stock-based compensation expense related to stock options, restricted stock units, employee stock purchase plan and vesting of the founders’ common stock was as follows (in thousands):
Three Months Ended March 31,
20232022
Research and development$9,197 $11,080 
General and administrative9,573 11,235 
Total stock-based compensation$18,770 $22,315 
Early Exercised Options
The Company allows certain of its employees and its directors to exercise options granted under the Prior 2018 Plan and the 2018 Plan prior to vesting. The shares related to early exercised stock options are subject to the Company’s lapsing repurchase right upon termination of employment or service on the Company’s Board of Directors at the lesser of the original purchase price or fair market value at the time of repurchase. In order to vest, the holders are required to provide continued service to the Company. The proceeds are initially recorded in accrued and other liabilities for the current portion, and other long-term liabilities for the non-current portion. The proceeds are reclassified to paid-in capital as the repurchase right lapses. In May 2021, 293,594 options were early exercised, resulting in proceeds of $5.3 million. As of March 31, 2023 and December 31, 2022 there was $1.9 million recorded in accrued and other liabilities and zero and $0.6 million, respectively, recorded in other long-term liabilities related to shares held by employees and directors that were subject to repurchase. The underlying shares are shown as outstanding in the condensed consolidated financial statements but the shares which are subject to future vesting conditions are not included in the calculation of earnings per share.
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10.         Related Party Transactions
Collaboration Revenue
In December 2020, the Company entered into a license agreement with Allogene Overland, a corporate joint venture entity and related party (see Note 6). The license agreement was subsequently assigned to a wholly-owned subsidiary of Allogene Overland, Allogene Overland BioPharm (HK) Limited. On April 1, 2022, Allogene Overland HK assigned the License Agreement to Allogene Overland Biopharm (PRC) Co., Limited. During the three months ended March 31, 2023 and 2022, the Company recognized less than $0.1 million of collaboration revenue under this arrangement.
For the three months ended March 31, 2023 and 2022, the Company recorded zero and $0.3 million, respectively, of net cost recoveries under the terms of the license agreement as a reduction to research and development expenses.
Sublease Agreement
In December 2018, the Company entered into a sublease with Bellco Capital LLC (Bellco) for 1,293 square feet of office space in Los Angeles, California for a three year term. On April 1, 2020, Bellco Capital Advisors Inc. assumed all rights, title, interests and obligations under the sublease from Bellco Capital LLC. In November 2021, the sublease was extended to June 30, 2025. The sublease was amended, effective in July 2022, to move to a nearby location, with office space of 737 square feet. The Company’s executive chairman, Arie Belldegrun, M.D., FACS, is a trustee of the Belldegrun Family Trust, which controls Bellco Capital Advisors Inc. The total right of use asset and associated liability recorded related to this related party lease was $0.2 million at March 31, 2023 and December 31, 2022.
Consulting Agreements
In June 2018, the Company entered into a services agreement with Two River Consulting, LLC (Two River), a firm affiliated with the Company’s President and Chief Executive Officer, the Company’s Executive Chair of the board of directors, and a director of the Company to provide various managerial, clinical development, administrative, accounting and financial services to the Company. The costs incurred for services provided under this agreement were $0.1 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively.
In August 2018, the Company entered into a consulting agreement with Bellco. Pursuant to the consulting agreement, Bellco provides certain services for the Company, which are performed by Dr. Belldegrun, the Company's executive chair, and include without limitation, providing advice and analysis with respect to the Company’s business, business strategy and potential opportunities in the field of allogeneic CAR T cell therapy and any other aspect of the CAR T cell therapy business as the Company may agree. In consideration for these services, the Company paid Bellco $40,217 per month in arrears commencing January 2022. The Company may also, at its discretion, pay Bellco an annual performance award in an amount up to 60% of the aggregate compensation payable to Bellco in a calendar year. The Company also reimburses Bellco for out of pocket expenses incurred in performing the services. The costs incurred for services provided, bonus, and out-of-pocket expenses incurred under this consulting agreement were $0.2 million for the three months ended March 31, 2023 and 2022.
11.         Income Taxes
The Company has a history of losses and expects to record a loss in 2023. The Company continues to maintain a full valuation allowance against its net deferred tax assets.
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12.         Net Loss Per Share
The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the period presented due to their anti-dilutive effect:
March 31,
20232022
Stock options to purchase common stock23,548,486 17,055,544 
Restricted stock units subject to vesting13,587,470 5,512,146 
Expected shares to be purchased under Employee Stock Purchase Plan1,234,606 616,036 
Founders' shares of common stock subject to future vesting  
Early exercised stock options subject to future vesting105,743 378,143 
Total38,476,305 23,561,869 
13.         Subsequent Events
None.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (Annual Report), which was filed with the Securities and Exchange Commission (SEC) on February 28, 2023. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Allogene,” “we,” “us” and “our” refer to Allogene Therapeutics, Inc., and references to “Servier” collectively refer to Les Laboratoires Servier SAS and Institut de Recherches Internationales Servier SAS.
In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a clinical-stage immuno-oncology company pioneering the development of genetically engineered allogeneic T cell product candidates for the treatment of cancer. We are developing a pipeline of off-the-shelf T cell product candidates that are designed to target and kill cancer cells. Our engineered T cells are allogeneic, meaning they are derived from healthy donors for intended use in any patient, rather than from an individual patient for that patient’s use, as in the case of autologous T cells. We believe this key difference will enable us to deliver readily available treatments faster, more reliably, at greater scale, and to more patients.
We have a deep pipeline of allogeneic chimeric antigen receptor (CAR) T cell product candidates targeting multiple promising antigens in a host of hematological malignancies and solid tumors. Pursuant to our Exclusive Collaboration and License Agreement with Servier (Servier Agreement), we have exclusive rights to ALLO-501 and ALLO-501A, CAR T cell product candidates targeting CD19, in the United States. ALLO-501 and ALLO-501A use Cellectis S.A. (Cellectis) technologies under which Servier holds an exclusive worldwide license from Cellectis.
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We are conducting long-term follow-up in our Phase 1 clinical trial (the ALPHA trial) of ALLO-501 in patients with relapsed or refractory (R/R) non-Hodgkin lymphoma (NHL). We are also progressing the development of the second-generation version of ALLO-501, known as ALLO-501A. We have removed rituximab recognition domains in ALLO-501A, which we believe will potentially facilitate treatment of more patients, as rituximab is a typical part of a treatment regimen for a patient with NHL.
In the fourth quarter of 2022, we initiated a Phase 2 clinical trial for ALLO-501A (the ALPHA2 trial) in R/R large B cell lymphoma (LBCL). The single-arm ALPHA2 trial will utilize a single dose of ALLO-501A at 120 million CAR+ cells with a lymphodepletion regimen comprised of fludarabine (30 mg/m2/day x 3 days) and cyclophosphamide (300 mg/m2/day x 3 days) plus ALLO-647 (90 mg). We plan to enroll approximately 100 patients who have received at least two prior lines of therapy and have not received any prior anti-CD19 therapy, including CAR T therapy. The primary endpoint is objective response rate (ORR) and the key secondary endpoint is duration of response (DoR).
We recently initiated the EXPAND trial, which is expected to enroll approximately 70 patients with R/R LBCL and is intended to demonstrate the overall contribution of ALLO-647 to the benefit to risk ratio of the lymphodepletion regimen for ALLO-501A. Patients will be randomized to receive the same single 120 million CAR+ cell dose of ALLO-501A as in the ALPHA2 trial and either lymphodepletion with fludarabine and cyclophosphamide (control arm) or the lymphodepletion regimen of the ALPHA2 trial (active arm). The primary endpoint of this trial is progression free survival, and the key secondary endpoints are ORR, DoR, and the safety of ALLO-647. Assuming favorable outcomes and subject to FDA discussions, we plan to seek FDA approval of ALLO-501A and ALLO-647 on the basis of the ALPHA2 trial and the EXPAND companion trial.
We are sponsoring two clinical trials in adult patients with R/R multiple myeloma, a Phase 1 clinical trial (the UNIVERSAL trial) of ALLO-715 and a Phase 1 clinical trial (the IGNITE trial) of ALLO-605, our first product candidate to incorporate our TurboCAR technology. TurboCAR technology allows cytokine signaling to be engineered selectively into CAR T cells and has shown the ability to improve the potency and persistence of the cells and to delay exhaustion of the cells in preclinical models. We are currently reviewing and optimizing the manufacturing process for our BCMA program and are not enrolling patients in the UNIVERSAL and IGNITE trials at this time.
We also continue to advance the Phase 1 clinical trial (the TRAVERSE trial) of ALLO-316, an allogeneic CAR T cell product candidate targeting CD70, in adult patients with advanced or metastatic clear cell renal cell carcinoma (ccRCC). Subject to ongoing results in the TRAVERSE trial, we intend to complete planned dose exploration and initiate expansion cohort enrollment in 2023.
Since inception, we have had significant operating losses. Our net losses were $98.7 million for the three months ended March 31, 2023. As of March 31, 2023, we had an accumulated deficit of $1,334.7 million. As of March 31, 2023, we had $514.0 million in cash and cash equivalents and investments. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses and general and administrative expenses will continue to increase.
Recent Developments
In April 2023, we announced interim data from the TRAVERSE trial. As of the March 23, 2023 data cutoff, 19 patients were enrolled in the Phase 1 trial, 10 of whom had RCC confirmed to express CD70. The median time from enrollment to the start of therapy was five days. In the ongoing dose escalation phase of the TRAVERSE trial, patients will receive lymphodepletion followed by ALLO-316 at one of four cell dose levels (DL1= 40M cells, DL2= 80M cells, DL3=120M cells, DL4= 240M cells). The data reported to date is primarily from the DL1 and DL2 cohorts.
Anti-tumor activity was primarily observed in patients with tumors confirmed to express CD70. Among 18 patients evaluable for efficacy, the disease control rate (DCR) was 89%. In the 10 patients whose tumors were known to express CD70, the disease control rate was 100%, which included three patients who achieved partial remission (two confirmed, one unconfirmed). The longest response lasted until month eight. There was a trend toward greater tumor shrinkage in patients with higher levels of CD70 expression.
All Patients
(n=18)
CD70+ Patients
(n=10)
Overall Response Rate (ORR), n (%)3 (17)3 (30)
Disease Control Rate (DCR), n (%)16 (89)10 (100)
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There were 19 patients evaluable for safety. To date, ALLO-316 has demonstrated an adverse event profile generally consistent with autologous CAR T therapies. One dose-limiting toxicity of Grade 3 autoimmune hepatitis occurred in the second dose level. Cytokine release syndrome (CRS) was all low-grade with the exception of one Grade 3. Neurotoxicity, which is now defined more broadly, was generally low grade and reversible with most events being fatigue or headache. There were no cases of immune effector cell-associated neurotoxicity syndrome (ICANS). Infections occurred in eight patients of which four were Grade 3+ including one Grade 5 respiratory failure due to Covid-19 infection deemed unrelated to study treatment. Grade 3+ prolonged cytopenia was observed in three patients (16%). There were no cases of graft-versus-host disease (GvHD).
All Patients
(n=19)
All Grades
N (%)
Gr 3+
N (%)
CRS11 (58)1 (5)
Infusion-Related Reaction1 (5)0
Neurotoxicity13 (68)2 (11)
ICANS00
GvHD00
Infection8 (42)4 (21)
Prolonged Gr3+ Cytopenia03 (16)
The Dagger technology, which is a feature of ALLO-316, is designed to resist rejection of AlloCAR T cells by the host immune cells, thereby supporting expansion and enabling a prolonged window of persistence during which AlloCAR T cells can target and destroy cancer cells. Initial translational data from the TRAVERSE trial demonstrates the suppression of host T cells and marked peak expansion of ALLO-316 despite the relatively low cell doses tested. In addition to ALLO-316, we plan to deploy Dagger technology to potentially enhance the persistence and activity of next generation AlloCAR T products.
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Our Research and Development and License Agreements
Asset Contribution Agreement with Pfizer
In April 2018, we entered into an Asset Contribution Agreement (Pfizer Agreement) with Pfizer pursuant to which we acquired certain assets and assumed certain liabilities from Pfizer, including agreements with Cellectis and Servier as described below, and other intellectual property for the development and administration of CAR T cells for the treatment of cancer. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the Pfizer Agreement.
Research Collaboration and License Agreement with Cellectis
In June 2014, Pfizer entered into a Research Collaboration and License Agreement with Cellectis. In April 2018, Pfizer assigned the agreement to us pursuant to the Pfizer Agreement. In March 2019, we terminated the agreement with Cellectis and entered into a new license agreement with Cellectis. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further descriptions of the prior agreement with Cellectis and the new license agreement with Cellectis.
Exclusive License and Collaboration Agreement with Servier
In October 2015, Pfizer entered into an Exclusive License and Collaboration Agreement (Servier Agreement) with Servier to develop, manufacture and commercialize certain allogeneic anti-CD19 CAR products, including UCART19, in the United States with the option to obtain the rights over certain additional allogeneic anti-CD19 CAR product candidates and for allogeneic CAR T cell product candidates directed against one additional target. In April 2018, Pfizer assigned the agreement to us pursuant to the Pfizer Agreement. In October 2019, we agreed to waive our rights to the one additional target.
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 us with the right to elect a license to the CD19 Products outside of the United States (Ex-US Option) and does not otherwise affect our current exclusive license for the development and commercialization of CD19 Products in the United States. Upon any exercise of the Ex-US Option by us, our potential milestone payments with respect to ALLO-501A would increase for any first dosing in Phase 2, first dosing in Phase 3 and regulatory approval by €46 million in the aggregate. In addition, upon any such exercise of the Ex-US Option, Servier's obligation to reimburse us for 40% of the development costs for CD19 Products would cease. However, Servier has disputed the implications of the Discontinuation, namely whether development cost contributions continue and the timeframe during which we have the right to elect a license to CD19 Products outside of the United States. Moreover, in December 2022, Servier sent us a notice for material breach due to our purported refusal to allow an audit of certain manufacturing costs under our cost share arrangement. While we do not believe Servier has such an audit right, we are currently progressing such audit with Servier to recover outstanding manufacturing costs owed by Servier to us. For more information, see “Risk Factors—Servier’s Discontinuation of its involvement in the development of CD19 Products and our disputes with Servier may have adverse consequences."
See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the Servier Agreement.
Collaboration and License Agreement with Notch
On November 1, 2019, we entered into a Collaboration and License Agreement (the Notch Agreement) with Notch Therapeutics Inc. (Notch), pursuant to which Notch granted us 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 cell products from induced pluripotent stem cells directed at certain CAR targets for initial application in NHL, ALL and multiple myeloma. In addition, Notch has granted us an option to add certain specified targets to our exclusive license in exchange for an agreed upon 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 our exclusive targets, which will be conducted in accordance with an agreed research plan and budget under the oversight of a joint development committee. In connection with the execution of the Notch Agreement, we made an upfront payment to Notch of $10.0 million. In addition, we made a $5.0 million investment in Notch’s series seed convertible preferred stock, resulting in us having a 25% ownership interest in Notch’s outstanding capital stock on a fully diluted basis immediately following the investment. In February 2021, we made an additional $15.9 million investment in
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Notch's Series A preferred stock. In October 2021, we made an additional $1.8 million investment in Notch's common stock. Immediately following this transaction, our share in Notch was 23.0% on a voting interest basis. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the Notch Agreement.
Strategic Alliance with The University of Texas MD Anderson Cancer Center
On October 6, 2020, we 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. See Note 6 to our consolidated financial statements included elsewhere in this report for further description of the agreement with MD Anderson.
License Agreement with Allogene Overland Biopharm (CY) Limited
On December 14, 2020, we entered into a License Agreement with Allogene Overland Biopharm (CY) Limited (Allogene Overland), a joint venture established by us 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). Allogene Overland subsequently assigned the License Agreement to a wholly owned subsidiary, Allogene Overland BioPharm (HK) Limited (Allogene Overland HK). On April 1, 2022, Allogene Overland HK assigned the License Agreement to Allogene Overland Biopharm (PRC) Co., Limited. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the License Agreement and Share Purchase Agreement with Allogene Overland.
Collaboration and License Agreement with Antion
On January 5, 2022, we entered into an exclusive collaboration and global license agreement (Antion 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 us on oncology products for a defined period. We will also have exclusive worldwide rights to commercialize products incorporating Antion technology developed during the collaboration. See Note 6 to our condensed consolidated financial statements included elsewhere in this report for further description of the Antion Agreement.
Components of Results of Operations
Revenues
As of March 31, 2023, our revenue has been exclusively generated from our collaboration and license agreement with Allogene Overland Biopharm (PRC) Co., Limited. See Note 6 to our financial statements appearing elsewhere in this Quarterly Report for more information related to our recognition of revenue and the Allogene Overland Biopharm (PRC) Co., Limited agreement.
In the future, we may generate revenue from a combination of product sales, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, milestones and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, will be materially adversely affected.
Operating Expenses
Research and Development
To date, our research and development expenses have related primarily to discovery efforts, preclinical and clinical development, and manufacturing of our product candidates. Research and development expenses for the three months ended March 31, 2023 included costs associated with our clinical and preclinical stage pipeline candidates and research into newer technologies. The most significant research and development expenses for the year to date relate to costs incurred for the development of our most advanced product candidates and include:
expenses incurred under agreements with our collaboration partners and third-party contract organizations, investigative clinical trial sites that conduct research and development activities on our behalf, and consultants;
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costs related to production of clinical materials, including fees paid for raw materials and to contract manufacturers;
laboratory and vendor expenses related to the execution of preclinical and clinical trials;
employee-related expenses, which include salaries, benefits and stock-based compensation;
facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and supplies; and
other significant research and development costs including overhead costs.
We expense all research and development costs in the periods in which they are incurred. We accrue for costs incurred as the services are being provided by monitoring the status of the project and the invoices received from our external service providers. We adjust our 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.
We have reimbursed Servier for 60% of the costs associated with the prior development of UCART19, including for the long-term follow-up of patients in the CALM and PALL clinical trials of UCART19. We believe Servier is required to reimburse us for 40% of the costs associated with the development of ALLO-501 and ALLO-501A. 
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase in the future as our clinical programs progress and as we seek to initiate clinical trials of additional product candidates. The cost of advancing our manufacturing process as well as the cost of manufacturing product candidates for clinical trials are included in our research and development expense. We also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates. However, it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates.
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
per patient trial costs;
biomarker analysis costs;
the cost and timing of manufacturing for the trials;
the number of patients that participate in the trials;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the total number of cells that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring or other studies requested by regulatory agencies, including to resolve any future clinical hold;
the duration of patient follow-up; and
the efficacy and safety profile of the product candidates.
In addition, the probability of success for each product candidate will depend on numerous factors, including safety, efficacy, competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.
Because our product candidates are still in clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability.
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General and Administrative
General and administrative expenses consist primarily of salaries and other staff-related costs, including stock-based compensation for options and restricted stock units granted. Other significant costs include costs relating to facilities and overhead costs, legal fees relating to corporate and patent matters, insurance, investor relations costs, fees for accounting and consulting services, information technology, costs and support for our board of directors and board committees, and other general and administrative costs. General and administrative costs are expensed as incurred, and we accrue for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from our service providers, and adjusting our accruals as actual costs become known.
We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, potential commercialization of our product candidates and operating as a public company. These increases are anticipated to include increased costs related to the hiring of additional personnel, developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, complying with and advancing environmental, social and governance matters, and insurance and investor relations costs.
Other Income (Expense), Net:
Interest and Other Income, Net
Interest and other income, net consists of interest earned on our cash and cash equivalents and investments, as well as investment gains and losses recognized during the period.
Other Expenses
Other expense consists of non-operating expenses, including our share of equity investments' net losses for the period.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following sets forth our results of operations for the three months ended March 31, 2023 and 2022 (dollars in thousands):
Three Months Ended March 31,Change
20232022$%
Collaboration revenue - related party$52 $61 $(9)(15)%
Operating expenses:
Research and development80,238 60,156 20,082 33 %
General and administrative18,884 19,897 (1,013)(5)%
Total operating expenses99,122 80,053 19,069 24 %
Loss from operations(99,070)(79,992)(19,078)24 %
Other income (expense), net:
    Interest and other income, net2,059 492 1,567 318 %
    Other expenses(1,693)(350)(1,343)384 %
Total other income (expense), net366 142 224 158 %
Net Loss$(98,704)$(79,850)$(18,854)24 %

Collaboration revenue - related party