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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2016

OR

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

Commission File Number 001-37368

ADAPTIMMUNE THERAPEUTICS PLC

(Exact name of Registrant as specified in its charter)

101 Park Drive, Milton Park

Abingdon, Oxfordshire OX14 4RY

United Kingdom

(44) 1235 430000

(Address of principal executive offices)

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.  x Yes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  o No

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

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

As of August 5, 2016 the number of outstanding ordinary shares par value £0.001 per share of the Registrant is 424,711,900.

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General information

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

Information Regarding Forward-Looking Statements

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

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

·      our ability to advance our NY-ESO SPEAR® T-cells to a point where GlaxoSmithKline, or GSK, exercises the option to license the product;

·      our ability to successfully advance our MAGE-A10 and AFP SPEAR T-cells through clinical development and to advance our MAGE-A4 SPEAR T-cells into clinical development;

·      our ability to further develop our commercial manufacturing process for our SPEAR T-cells and transfer such commercial process to third party contract manufacturers;

·      the success, cost and timing of our product development activities and clinical trials;

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

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

·      government regulation and approval, including, but not limited to, the expected regulatory approval timelines for TCR therapeutic candidates;

·      patents, including, any inability to obtain third party licenses, legal challenges thereto or enforcement of patents against us;

·      the level of pricing and reimbursement for our SPEAR T-cells, if approved for marketing;

·      general economic and business conditions or conditions affecting demand for our SPEAR T-cells in the markets in which we operate, both in the United States and internationally;

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

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

·      our relationships with suppliers and other third-party providers;

·      increased competition from other companies in the biotechnology and pharmaceutical industries;

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

·      changes in our business strategy or development plans, and our expected level of capital expenses;

·      our ability to attract and retain qualified personnel;

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·      regulatory, environmental, legislative and judicial developments including a regulatory requirement to place any clinical trials on hold or to suspend any trials;

·      a change in our status as an emerging growth company under the Jumpstart Our Business Start-ups Act of 2012, or JOBS Act;

·      the change in our status from reporting as a foreign private issuer to reporting as a U.S. domestic company now using Securities Act and Exchange Act U.S. domestic company forms;

·   uncertainty about the future relationship between the United Kingdom and the European Union; and

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

Additional factors that could cause actual results, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results to differ materially include, but are not limited to, those discussed under “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (the “SEC”). Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Quarterly Report not to occur. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only at the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this Quarterly Report might not occur, and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive of, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except share and per share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in thousands, except share data)

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENTS

(in thousands)

See accompanying notes to unaudited condensed consolidated financial statements.

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ADAPTIMMUNE THERAPEUTICS PLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - General

Adaptimmune Therapeutics plc is registered in England and Wales. Its registered office is 101 Park Drive, Milton Park, Abingdon, Oxfordshire, OX14 4RY, United Kingdom.  Adaptimmune Therapeutics plc and its subsidiaries (collectively “Adaptimmune” or the “Company”) is a clinical-stage biopharmaceutical company focused on novel cancer immunotherapy products based on its proprietary SPEAR (Specific Peptide Enhanced Affinity Receptor) T-cell platform. It has developed a comprehensive proprietary platform that enables it to identify cancer targets, find and genetically engineer T-cell receptors (“TCRs”), and produce TCR therapeutic candidates for administration to patients. The Company engineers TCRs to increase their affinity to cancer specific peptides in order to destroy cancer cells in patients.

The Company is subject to a number of risks similar to other biopharmaceutical companies in the early stage including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical programs or clinical trials, the need to obtain marketing approval for its SPEAR T-cells, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s SPEAR T-cells, and protection of proprietary technology. If the Company does not successfully commercialize any of its SPEAR T-cells, it will be unable to generate product revenue or achieve profitability.  The Company had an accumulated deficit of $127.6 million as of June 30, 2016.

Note 2 - Summary of Significant Accounting Policies

(a)                       Basis of presentation

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

The unaudited condensed interim financial statements presented in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 9.01 of the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2016.  The balance sheet as of December 31, 2015 was derived from audited consolidated financial statements included in Item 9.01 of the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2016 but does not include all disclosures required by U.S. GAAP. The Company’s significant accounting policies are described in Note 2 to those consolidated financial statements.

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

(b)                       Use of estimates in interim financial statements

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

(c)                        Intangible assets

Intangibles includes intellectual property (“IP”) rights for licensed technology used in research and development with an alternative future use, which are recorded at cost and amortized over the estimated useful life of the related product.  The weighted-average amortization period for IP rights for licensed technology at June 30, 2016 is 7 years.

Intangibles also include acquired computer software licenses, which are recorded at cost and amortized over the estimated useful lives of the software.

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Intangibles are assessed for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable.

(d)                       New accounting pronouncements

Adopted with effect from January 1, 2016

Customer’s accounting for fees paid in a cloud computing arrangement

The Company has adopted Accounting Standards Update (“ASU”) 2015-05 - Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement issued by the Financial Accounting Standards Board (“FASB”) in April 2015 which clarifies a customer’s accounting for fees paid in a cloud computing arrangement.  The guidance provides a customer with guidance on whether a cloud computing arrangement includes a software license and clarifies that the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses.  If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract.  The guidance has been adopted prospectively to all arrangements entered into or materially modified after January 1, 2016.  The adoption of this guidance did not have any impact on the financial position, results of operations or cash flows.

To be adopted in future periods

Accounting for leases

In February 2016, the FASB issued ASU 2016-02 — Leases.  The guidance requires that lessees recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term at the commencement date.  The guidance also makes targeted improvements to align lessor accounting with the lessee accounting model and guidance on revenue from contracts with customers.  The guidance is effective for the fiscal year beginning January 1, 2019, including interim periods within that fiscal year. Early application is permitted.  The guidance must be adopted on a modified retrospective transition approach for leases existing, or entered into after, the beginning of the earliest comparative period presented in the financial statements.  The Company is currently evaluating the impact of the guidance on the consolidated financial statements.

Recognition and measurement of financial assets and financial liabilities

In January 2016, the FASB issued ASU 2016-01 - Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which amended the guidance on the recognition and measurement of financial assets and financial liabilities.  The new guidance requires that equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) are measured at fair value with changes in fair value recognized in net income.  The guidance also requires the use of an exit price when measuring the fair value of financial instruments for disclosure purposes, eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset.  The guidance is effective for the fiscal year beginning January 1, 2018, including interim periods within that fiscal year.  The Company does not believe the adoption of the guidance will have a material impact on the consolidated financial statements.

Revenue from contracts with customers

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.  The guidance is effective for the fiscal year beginning January 1, 2018, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  The guidance can be adopted retrospectively to each prior reporting period presented, subject to certain practical expedients, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company is currently assessing the impact of adopting the guidance, including the selection of the transition method and date of adoption.

In March 2016, the FASB issued ASU 2016-08 - Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which provided further clarification on the principal versus agent considerations included within the new revenue recognition guidance.  This guidance will be effective upon the adoption of the new revenue recognition guidance. The Company is currently assessing the impact of adopting the guidance.

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In April 2016, the FASB issued ASU 2016-10 - Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which provided further clarification on identifying performance obligations in a contract with a customer and provided implementation guidance on whether licenses are satisfied at a point in time or over time. This guidance will be effective upon the adoption of the new revenue recognition guidance. The Company is currently assessing the impact of adopting the guidance.

In May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which provided further clarification on the new revenue recognition guidance.  This clarification did not change the core principles but provided narrow-scope improvements to the guidance and certain practical expedients available upon transitioning to the guidance. The Company is currently assessing the impact of adopting the guidance.

Note 3 — Revenue

GSK Collaboration and License Agreement

Revenue represents recognized income from the GSK Collaboration and License agreement, whereby GSK funds the development of, and has an option to obtain an exclusive license to, our NY-ESO SPEAR T-cells. In addition, GSK has the right to nominate four additional target peptides, excluding those where the Company has already initiated development of a SPEAR T-cell candidate. The Company received an upfront payment of $42 million (£25 million) in June 2014 and has achieved various development milestones totaling $22 million (£14 million).  No milestones were achieved during the three and six months ended June 30, 2016. The Company is entitled to further milestone payments based on the achievement of specified development and commercialization milestones by either the Company or GSK.

The revenue recognized to date relates to the upfront fee and development milestones payments received, which are being recognized in revenue over the period in which the Company is delivering services under the GSK Collaboration and License Agreement.  The Company recognized revenue of $328,000 and $2,783,000 in the three months ended June 30, 2016 and 2015, respectively and $3,246,000 and $5,511,000 in the six months ended June 30, 2016 and 2015, respectively.

We regularly review and monitor the progress of the GSK Collaboration and License Agreement to determine the period over which to recognize revenue. In the three months ended June 30, 2016, the estimate of the period over which the Company will deliver services under the GSK Collaboration and License Agreement was increased.  This change in estimate resulted in a decrease in revenue of $2,785,000 in the three months ended June 30, 2016 and will result in a decrease in revenue of $672,000 and $1,344,000 in the six months ended December 31, 2016 and the year ended December 31, 2017, respectively, and an increase in revenue of $1,793,000, $1,187,000 and $1,642,000 in the years ended December 31, 2018, 2019 and 2020, respectively, compared to the revenue that would have been recognized based on previous estimates.

Note 4 — Earnings (loss) per share

Basic earnings (loss) per share is determined by dividing net income or loss available to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.  Diluted earnings (loss) per share is determined by dividing net income or loss applicable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, adjusted for the dilutive effect of all potential ordinary shares that were outstanding during the period.  Potentially dilutive shares are excluded when the effect would be to increase diluted earnings per share or reduce diluted loss per share.

The following table reconciles the numerator and denominator in the basic and diluted earnings (loss) per share computation (in thousands):

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The effects of the following potentially dilutive equity instruments have been excluded from the diluted loss per share calculation because they would have an antidilutive effect on the loss per share for the period:

Note 5 — Property, plant and equipment, net

Property and equipment, net consisted of the following (in thousands):

Depreciation expense was $804,000 and $297,000 for the three months ended June 30, 2016 and 2015, respectively and $1,512,000 and $365,000 for the six months ended June 30, 2016 and 2015, respectively.

Note 6 — Intangible assets, net

Intangible assets, net consisted of the following (in thousands):

Amortization expense was $44,000 and $- for the three months ended June 30, 2016 and 2015, respectively and $82,000 and $- for the six months ended June 30, 2016 and 2015, respectively. The estimated aggregate amortization expense in respect of these assets for each of the five years ended June 30, 2021 is $145,000, $85,000, $33,000, $21,000 and $21,000, respectively.

Note 7 — Accrued expenses and other current liabilities

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

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Note 8 — Contingencies and commitments

Leases

Future minimum lease payments under operating leases at June 30, 2016 are presented below (in thousands):

The Company leases property under operating leases expiring through 2027. Lease expenses amounted to $406,000 and $235,000 for the three months ended June 30, 2016 and 2015, respectively and $831,000 and $403,000 for the six months ended June 30, 2016 and 2015, respectively, which expenses are included within Research and development and General and administrative expenses in the Company’s Consolidated statement of operations.

Capital commitments

At June 30, 2016, the Company had commitments for capital expenditure totaling $18,637,000, of which the Company expects to pay $13,789,000 within one year and $4,848,000 in one to three years.

Purchase commitments for clinical materials, clinical trials and contract manufacturing

At June 30, 2016, the Company had commitments to pay vendors for purchase of clinical materials, executing and administering clinical trials and for contract manufacturing of $47,524,000, of which the Company expects to pay $28,810,000 within one year, $11,896,000 in one to three years and $6,818,000 in three to five years.  The timing of these payments vary depending on the rate of progress of development and clinical trial enrollment rates. Our subcontracted costs for clinical trials and contract manufacturing were $6,323,000 and $2,845,000 for the three months ended June 30, 2016 and 2015, respectively, and $9,876,000 and $4,633,000 for the six months ended June 30, 2016 and 2015, respectively.

Universal Cells Research, Collaboration and License Agreement

On November 25, 2015, the Company entered into a Research, Collaboration and License Agreement relating to gene editing and HLA-engineering technology with Universal Cells, Inc. (“Universal Cells”). The Company paid an upfront license and start-up fee of $2.5 million to Universal Cells in November 2015 and a milestone payment of $3.0 million in February 2016.  Further milestone payments of up to $44 million are payable if certain development and product milestones are achieved. Universal Cells would also receive a profit-share payment for the first product, and royalties on sales of other products utilizing its technology.  The upfront and start-up fee was expensed to research and development when incurred.

ThermoFisher License Agreement

In 2012, the Company entered into a series of license and sub-license agreements with Life Technologies Corporation, part of ThermoFisher Scientific, Inc. (“ThermoFisher Scientific”) that provide the Company with a field-based exclusive license under certain intellectual property rights owned or controlled by ThermoFisher Scientific.  The Company paid upfront license fees of $1.0 million relating to the license and sublicense agreements and has an obligation to pay minimum annual royalties (in the tens of thousands of U.S. dollars prior to licensed product approval and thereafter at a level of 50% of running royalties in the previous year), milestone payments and a low single-digit running royalty payable on the net selling price of each licensed product. The upfront payment made in 2012 was expensed to research and development when incurred. Subsequent milestone payments have been recognized as an intangible asset due to the technology having alternative future use in research and development projects at the time of the payment.  The minimum annual royalties have been expensed as incurred.

On June 16, 2016 the Company entered into a supply agreement with ThermoFisher Scientific for the supply of the Dynabeads® CD3/CD28 technology. The Dynabeads® CD3/CD28 technology is designed to isolate, activate and expand human T-cells, and is being used in the manufacturing of the Company’s affinity enhanced T-cell therapies.  The supply agreement runs until December 31, 2025. Under the supply agreement the Company is required to purchase its requirements for CD3/CD28 magnetic bead product exclusively from ThermoFisher Scientific for a period of 5 years and there are also minimum purchasing obligations, which are included within ‘Purchase commitments for clinical materials, clinical trials and contract manufacturing’ set forth above. ThermoFisher Scientific has the right to terminate the supply agreement for material breach or insolvency.

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Note 9 — Share-based compensation

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

There were 1,768,243 and 1,885,615 share options granted in the three months ended June 30, 2016 and 2015, respectively, and 15,343,797 and 11,069,517 share options granted in the six months ended June 30, 2016 and 2015, respectively. The weighted average fair value of stock options granted was $0.89 and $1.45 in the three months ended June 30, 2016 and 2015, respectively, and $0.70 and $0.94 in the six months ended June 30, 2016 and 2015.

The fair value of the share options granted during the period was calculated using the Black-Scholes option-pricing model using the following assumptions:

The expected term of the option is based on management judgment.  Forfeitures are recognized when they occur. To date, our forfeitures have been minimal.  Due to the Company’s lack of sufficient history as a publicly traded company, management’s estimate of expected volatility is based on the average volatilities of seven public companies with similar attributes to the Company.  The risk free rate is based on the Bank of England’s estimates of gilt yield curve as of the respective grant dates.

At June 30, 2016, there were 3,074,600 share options granted to nonemployees outstanding.  These share options are measured at the current fair values at each reporting date until the share options have vested and recognized in the consolidated statement of operation over the requisite service period.  The total share based payment expense relating to these options was a charge of $274,000 and $1,707,000 in the three months ended June 30, 2016 and 2015, respectively and a benefit of $108,000 and a charge of $2,506,000 in the six months ended June 30, 2016 and 2015, respectively.

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

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

The following discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included elsewhere in this report, the Company’s consolidated financial statements and accompanying notes for the period ended December 31, 2015 included in Item 9.01 of the Company’s Current Report on Form 8-K filed with the SEC on July 8, 2016, the Company’s Transition Report on Form 20-F for the six months ended December 31, 2015, prepared under IFRS and presented in pounds sterling and the Company’s Annual Report on Form 20-F for the year ended June 30, 2015, prepared under IFRS and presented in pounds sterling.

Update on Clinical Pipeline Progress

The Company has three SPEAR T-cells either in clinical trials or with an Investigational New Drug Application, or IND, open. An IND for a further SPEAR T-cell directed to the MAGE-A4 target, the MAGE-A4 SPEAR T-cell, is anticipated to filed in late 2016 or first quarter of 2017. In addition, INDs for second generation SPEAR T-cells are anticipated to be filed from 2017 onwards.

Our Sponsored NY-ESO SPEAR T-cell trials

Our first SPEAR T-cell targets the NY-ESO-1 target peptide and is currently in clinical trials in the United States. Pilot studies are ongoing in synovial sarcoma, melanoma, multiple myeloma, non small cell lung cancer (“NSCLC”) and ovarian indications and a trial in myxoid round cell lyposarcoma (“MRCLS”) is due to start in late 2016 or early 2017.

·                  Synovial sarcoma: Four cohorts are currently ongoing for synovial sarcoma with enrollment in the first cohort being completed. Enrollment continues in the second cohort (low NY-ESO target expression) and third cohort (no fludarabine conditioning). Accrual to the fourth cohort which uses different doses of cyclophosphamide and fludarabine pre-conditioning regimen is dependent on the data obtained from the third cohort, but is now being initiated at several U.S. sites. The fourth cohort is likely to start accrual in the second half of 2016. Data from the third cohort suggest that fludarabine may be required as part of the pre-conditioning regimen. The Company is in discussions with the U.S. Food and Drug Administration, or FDA, in relation to the initiation of a pivotal trial in the synovial sarcoma indication, including discussions relating to trial design and the requirement for comparability testing for use of its commercial-ready manufacturing process. The pivotal trial is currently anticipated to start in the second half of 2017 which will allow for the performance of analytical comparability studies between the current and the commercial processes and the submission of a Special Protocol Assessment as requested by the FDA. The synovial sarcoma trials are also being extended to sites outside of the United States with submissions made to the Medicines and Healthcare Products Regulatory Agency, or MHRA, in the United Kingdom and to Health Canada in Canada. Health Canada has approved the clinical trial application.

·                  MRCLS: A trial in MRCLS is also planned to start in late 2016 or early 2017. The FDA has issued a partial clinical hold for the trial following review of the protocol submitted for the trial. This trial is not yet active at any investigational site and has not yet recruited any subjects. The FDA notification is not based on safety concerns and does not affect the current pilot trial in synovial sarcoma or any of our other studies with our NY-ESO SPEAR T-cell therapy. In its correspondence the FDA requests additional Chemistry Manufacturing and Controls, or CMC, data with the cell process and vector to be used in this trial and information on and modification of certain clinical trial design features. Addressing these will result in an amendment to the protocol for the trial. The requested modifications will not change the eligibility criteria, treatment plan, or overall conduct of the study. We intend to provide a response to all of the FDA requests shortly and the FDA has 30 days from receipt of our response in which to respond. Provided the discussions with the FDA are favorable and the hold is lifted during this period, we would expect to initiate the MRCLS trial as planned in late 2016 or first quarter of 2017. If discussions take longer then initiation of the MRCLS trial may be delayed to the second half of 2017.

·                  Ovarian: Data from the trial in ovarian cancer were reported at the 2016 American Society of Clinical Oncology, or ASCO, meeting. The protocol for the ovarian study has been amended to include a preconditioning regimen which includes both fludarabine and cyclophosphamide. This protocol amendment is being evaluated at existing trial sites and enrollment under the amended protocol is anticipated to occur on the new protocol later in 2016.

·                  Melanoma: Data from the trial in melanoma were reported at the 2016 ASCO meeting. No objective responses were observed in the six patients treated and a combination study with immune check point inhibitors (CPI) is currently being considered.

·                  Myeloma: Enrollment in the myeloma trial (with autologous SCT) has completed. The second myeloma trial (no transplant) is currently paused and the Company is considering combination approaches for treatment of myeloma, with a combination study anticipated to start in the first half of 2017.

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·                  NSCLC: A trial in NSCLC opened in 2016. Enrollment has been more challenging than anticipated with no patients as yet enrolled. Initial data is currently anticipated in 2017 but availability of data for publication will depend on the number of patients recruited to the trial. The chemotherapy preconditioning regimen is being modified in a protocol amendment to include both fludarabine and cyclophosphamide.

Our NY-ESO TCR therapeutic is also being used in an investigator-initiated clinical program funded by the European Union, Adoptive engineered T-cell Targeting to Activate Cancer Killing program, or ATTACK 2 program. The therapy, which is produced under a different manufacturing process than Adaptimmune’s NY-ESO TCR therapy, is being evaluated for the treatment of patients with advanced gastro-esophageal cancer for the first time. To date, two patients have been treated under this protocol, one of whom passed away 46 days after initial treatment. Enrollment in the trial was temporarily paused pending investigation of the patient fatality but an independent data monitoring committee has since recommended that recruitment can resume following a protocol amendment. The European Union has since terminated funding of the trial due to the delays in trial progression and the Company is in discussions with the sponsor, the Christie NHS Foundation Trust, in relation to continuation of the trial.

Our MAGE-A10 SPEAR T-cell

The MAGE-A10 trial in NSCLC initiated in late 2015. Enrollment of patients has been challenging and initial data are currently anticipated in 2017. A three tumor trial in bladder, melanoma and ovarian cancers received Recombinant DNA Advisory Committee (RAC) approval in May 2016 and the trial is currently being initiated at sites in the United States and Canada.

Our AFP SPEAR T-cell

An IND for a clinical trial of our AFP SPEAR T-cell in hepatocellular cancer was opened in 2016 and we anticipate enrollment will start in the first half of 2017. Enrollment is dependent on our supply of vector to manufacture our AFP SPEAR T-cell.

Our MAGE-A4 SPEAR T-cell

An IND submission for our next proprietary therapy the MAGE-A4 SPEAR T-cell in multiple tumor types is anticipated to be filed in early 2017.

Significant Events in the Three Months Ended June 30, 2016

IND for our AFP SPEAR T-cell in Locally Advanced or Metastatic Hepatocellular Carcinoma

On April 7, 2016, the Company announced that the FDA had accepted the Company’s IND application for its AFP SPEAR T-cells in patients with locally advanced or metastatic hepatocellular carcinoma.  This is the Company’s second unpartnered therapeutic candidate to enter clinical trials.  Enrollment in a clinical trial of the Company’s AFP SPEAR T-cells is expected to initiate in the first half of 2017.

Presentation of Corporate and Clinical Updates at Investor and Analyst Day

On April 22, 2016, the Company hosted an Investor and Analyst meeting in New York and presented clinical and corporate updates that included progress with pipeline development and manufacturing process optimization.  The presentations included updates on the Company’s synovial sarcoma and multiple myeloma studies, as well as on progress with optimization of manufacturing processes and the construction of a dedicated manufacturing plant in Philadelphia scheduled to open in 2017.

The Company also announced:

·                  it had adopted the name SPEAR T-cells (Specific Peptide Enhanced Affinity Receptor T-cells) to describe its proprietary technology.

·                  its next target for development of a SPEAR T-cell is MAGE-A4, with the objective of achieving IND acceptance in 2017.

·                  the appointment of leading immunology, immunotherapy and oncology experts from across the United States and Europe to its newly formed scientific advisory board (“SAB”). Crystal Mackall, M.D., Professor of Pediatrics and Medicine and Associate Director of the Stanford Cancer Institute, will serve as Chair of the SAB.  The SAB will serve as a strategic resource for Adaptimmune and help to steer the Company’s development efforts in the field of immuno-oncology.

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Notification of Termination of Funding for ATTACK 2 Program

In May 2016, the Company received notification that the European Commission was terminating the funding provided for the ATTACK 2 collaboration program due to the lack of progress seen on the program. Such termination became effective on June 27, 2016. This program evaluates our NY-ESO TCR therapeutic in esophageal cancer and is sponsored by the Christie Trials Co-ordination Unit. Two patients have been treated to date and the Company is in active discussions with the Christie Trials Co-ordination Unit in relation to the continuation of the program with an amended protocol.

Presentation of Preclinical and Clinical Data at the 2016 ASCO Meeting

In June 2016, the Company presented new data relating to the incidence of cytokine release syndrome with its NY-ESO SPEAR T-cell, data describing the clinical response seen in its synovial sarcoma and myeloma trials and the Company’s preclinical safety package.

Positive Opinion by European Medicines Agency’s (EMA) Committee for Orphan Medicinal Products (COMP)

On June 20, 2016, the Company announced that the EMA’s COMP had adopted a positive opinion recommending the Company’s SPEAR T-cell therapy targeting NY-ESO for designation as an orphan medicinal product for the treatment of soft tissue sarcoma. The COMP adopts an opinion on the granting of orphan drug designation, after which the opinion is submitted to the European Commission for endorsement. Orphan drug designation provides certain regulatory and financial incentives for companies to develop and market therapies that treat a life-threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the European Union, and where no satisfactory treatment is available.

Supply Agreement with ThermoFisher Scientific, Inc.

On June 21, 2016, the Company announced that it had entered into a supply agreement with ThermoFisher Scientific for the supply of the Dynabeads® CD3/CD28 technology. The Dynabeads® CD3/CD28 technology is designed to isolate, activate and expand human T-cells, and is being used in the manufacturing of our affinity enhanced T-cell therapies.  The supply agreement runs until December 31, 2025. Under the supply agreement, we are required to purchase our requirements for CD3/CD28 magnetic bead product exclusively from ThermoFisher Scientific for a period of 5 years and there are also minimum purchasing obligations. ThermoFisher Scientific has the right to terminate the supply agreement for material breach or insolvency.

Recent events

Orphan Drug Designation by European Commission

On July 27, 2016, the Company announced that the European Commission had adopted a decision designating the Company’s NY-ESO SPEAR T-cell therapy as an orphan medicinal product for the treatment of soft tissue sarcoma, a solid tumor cancer. Adaptimmune previously received orphan drug designation from the FDA for its NY-ESO SPEAR T-cell therapy in this indication. Orphan drug designation provides certain regulatory and financial incentives for companies to develop and market therapies that treat a life-threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the European Union, and where no satisfactory treatment is available.

PRIME Regulatory Access Granted for NY-ESO SPEAR T-cell

On July 28, 2016, the Company announced that the EMA granted access to its newly-established Priority Medicines (PRIME) regulatory initiative for the Company’s NY-ESO SPEAR T-cell for the treatment of HLA-A0201, HLA-A0205, or HLA-A0206 patients with inoperable or metastatic synovial sarcoma who have received prior chemotherapy. The PRIME initiative provides support to optimize regulatory applications and accelerate the review of medicines that address a high unmet need.

Equity Sales Agreement

On July 27, 2016, the Company entered into a sales agreement with Cowen and Company, LLC (“Cowen”), under which the Company may, from time to time, issue and sell through Cowen, American Depositary Shares (“ADSs”) of the Company having an aggregate offering price of up to $75 million (the “Agreement”).  Under the Agreement, Cowen may sell ADSs by methods deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Company will pay Cowen compensation at a commission rate of up to 3.0% of the gross proceeds from sales of ADSs pursuant to the terms of the Agreement. The Company is not obligated to make any sales under the Agreement.

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Financial operations overview

Revenue

To date, we have not generated any revenue from the sale of our SPEAR T-cells. Our revenues have been solely derived from our collaboration and license agreement with GSK (the “GSK Collaboration and License Agreement”). The terms of this arrangement contain multiple milestones associated with: (i) co-development of our NY-ESO SPEAR T-cells, (ii) associated manufacturing optimization work and (iii) co-development of other TCR target programs. GSK is also obligated to pay us certain milestone fees, which are generally non-refundable and are payable upon satisfactory completion of specified research and development activities.

In February 2016, the terms of the GSK Collaboration and License Agreement were expanded by an amendment agreement effective February 2, 2016 (the “Amendment Agreement”). The Amendment Agreement enables the acceleration of development of our NY-ESO SPEAR T-cells towards pivotal trials in synovial sarcoma, as well as the exploration of development of NY-ESO SPEAR T-cells in myxoid round-cell liposarcoma. The Amendment Agreement also provides the opportunity for up to eight combination studies using our NY-ESO SPEAR T-cells. The Amendment Agreement increases the potential development milestones that the Company is eligible to receive but does not result in any additional separate standalone deliverables.

Consideration received under the GSK Collaboration and License Agreement is allocated between the separate deliverables within the arrangement and the revenue allocated to each is recognized as that revenue is earned.  Milestone payments which are non-refundable, non-creditable and contingent on achieving clinical milestones are recognized as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period for which the Company has continuing performance obligations, if the milestones are not considered substantive.

Research and Development Expenses

Research and development expenses consist principally of:

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

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

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

·                  costs of related facilities, materials and equipment;

·                  costs of acquired or in-licensed R&D which does not have alternative future use;

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

·                  share-based compensation expenses.

Research and development expenditure is expensed as incurred.

Expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple Contract Research Organizations, or CROs, that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period. To date, there has been no material difference between our estimates and the amount actually incurred.

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Upfront and milestone payments to third parties for in-licensed products or technology which has not yet received regulatory approval and which does not have alternative future use in R&D projects or otherwise are expensed as incurred.

Milestone payments made to third parties either on or subsequent to regulatory approval are capitalized as an intangible asset and amortized over the remaining useful life of the product.

Research and development expenditure is presented net of reimbursements from government grants and reimbursable tax credits from the U.K. government, when it is probable that the Company has complied with any attached conditions and will receive the reimbursement.

As a company that carries out extensive research and development activities, we benefit from the U.K. research and development tax credit regime for small and medium sized companies and the U.K. Research and Development Expenditure Credit Scheme, or the U.K. RDEC Scheme, whereby our principal research subsidiary company, Adaptimmune Limited, is able to surrender the trading losses that arise from its research and development activities for a refundable tax credit.  A large proportion of costs in relation to our pipeline research, clinical trials management and manufacturing development activities, all of which are being carried out by Adaptimmune Limited, are eligible for inclusion within these tax credit cash rebate claims.

Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, which depends upon the timing of initiation of clinical trials and the rate of enrollment of patients in clinical trials.

We may never succeed in achieving regulatory approval for any of our SPEAR T-cells. The duration, costs, and timing of clinical trials and development of our SPEAR T-cells will depend on a variety of factors, including:

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

·                  uncertainties in clinical trial enrollment rates;

·                  future clinical trial results;

·                  significant and changing government regulation; and

·                  the timing and receipt of any regulatory approvals.

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

We may not be able to continue to claim certain research and development tax credits in the future as we increase our personnel and expand our business because we may no longer qualify as an SME (small or medium-sized enterprise). In order to qualify as an SME for research and development tax credits, we must continue to be a company with fewer than 500 employees and also have either an annual turnover not exceeding €100 million or a balance sheet not exceeding €86 million.

General and Administrative Expenses

Our general and administrative expenses consist principally of:

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

·                  business development expenses, including travel expenses;

·                  professional fees for auditors, lawyers and other consulting expenses not related to research and development activities;

·                  cost of facilities, communication, and office expenses;

·                  information technology expenses;

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

·                  share-based compensation expenses.

Other Income (Expense), net

Other income (expense), net primarily comprises foreign exchange gains (losses). We are exposed to foreign exchange rate risk because we currently operate in the United Kingdom and United States. Our revenue from our GSK Collaboration and License Agreement is denominated in pounds sterling and generated by our U.K.-based subsidiary, which has a pounds sterling functional currency. As a result, these sales are subject to translation into U.S. Dollars when we consolidate our financial statements. Our expenses are generally denominated in the currency in which our operations are located, which are the United Kingdom and United States. However our U.K.-based subsidiary incurs significant research and development costs in U.S. dollars and, to a lesser extent, Euros.

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

Taxation

We are subject to corporate taxation in the United Kingdom. Our subsidiary Adaptimmune LLC is subject to corporate taxation in the United States. Our tax recognized represents the sum of the tax currently payable or recoverable. No deferred tax assets are recognized on our losses carried forward because there is currently no indication that we shall make sufficient profits to utilize these tax losses.

Unsurrendered tax losses can be carried forward to be offset against future taxable profits. After accounting for tax credits receivable, there are accumulated tax losses for carry forward in the United Kingdom amounting to $46.2 million at December 31, 2015.  These tax losses do not expire.

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

VAT is charged on all qualifying goods and services by VAT-registered businesses. An amount of 20% of the value of the goods or services is added to all sales invoices and is payable to the UK tax authorities. Similarly, VAT paid on purchase invoices paid by Adaptimmune Limited and Adaptimmune Therapeutics plc is reclaimable from the UK tax authorities.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenues and expenses incurred during the reported periods. We base our estimates on historical experience and on various other factors that we believe are relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies considered to be critical to the judgments and estimates used in the preparation of our financial statements are disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 2.02 of our Current Report on Form 8-K filed with the SEC on July 8, 2016.  There has been no change in the accounting policies considered to be critical accounting judgments and estimates.

The estimate of the period over which we are delivering services to GSK is a critical accounting estimate identified in Item 2.02 of our Current Report on Form 8-K filed with the SEC on July 8, 2016.  In the three months ended June 30, 2016 we increased our estimate of the period over which we are delivering services, which resulted in a decrease in revenue of $2,785,000 in the three months ended June 30, 2016 compared to the revenue that would have been recognized based on previous estimates and will result in a decrease in revenue of $672,000 and $1,344,000 in the six months ended December 31, 2016 and the year ended December 31, 2017, respectively, and an increase in revenue of $1,793,000, $1,187,000 and $1,642,000 in the years ended December 31, 2018, 2019 and 2020, respectively, compared to the revenue that would have been recognized based on previous estimates.

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Results of operations

Comparison of Three Months Ended June 30, 2016 and 2015

The following table summarizes the results of our operations for the three months ended June 30, 2016 and 2015, together with the changes to those items:

Revenue

Revenue decreased from $2.8 million for the three months ended June 30, 2015 to $0.3 million for the three months ended June 30, 2016. We regularly review and monitor the progress of the GSK Collaboration and License Agreement to determine the period over which to recognize revenue. In the three months ended June 30, 2016, the estimate of the period over which the Company will deliver services under the GSK Collaboration and License Agreement was increased.  This change in estimate resulted in a decrease in revenue of $2,785,000 in the three months ended June 30, 2016 and will result in a decrease in revenue of $672,000 and $1,344,000 in the six months ended December 31, 2016 and the year ended December 31, 2017, respectively, and an increase in revenue of $1,793,000, $1,187,000 and $1,642,000 in the years ended December 31, 2018, 2019 and 2020, respectively, compared to the revenue that would have been recognized based on previous estimates.

Although it is difficult to project the timing of achieving future development deliverables, we expect revenue in the full year to December 31, 2016 to be similar to the full year ended December 31, 2015, excluding the impact of foreign exchange.

Research and Development Expenses

Research and development expenses increased by 93% to $16.2 million for the three months ended June 30, 2016 from $8.4 million for the three months ended June 30, 2015.

Our research and development expenses are highly dependent on the phases of our research projects and therefore fluctuate from period to period.

The increase in our research and development expenses of $7.8 million for the three months ended June 30, 2016 compared to the same period in 2015 was primarily due to:

·                  an increase of $6.0 million in salaries, materials, equipment, depreciation of tangible fixed assets and other employee-related costs. The driver for these is an increase in the average number of employees engaged in research and development from 82 to 204; and

·                  an increase of $3.5 million in subcontracted expenditures, including clinical trial expenses, contract research organization (CRO) costs, and manufacturing expenses driven by increased recruitment in our clinical trials;

partially offset by:

·                  a decrease of $1.2 million in share-based compensation expense due to a decrease in share-based compensation expense for nonemployee share options of $1.4 million offset by an increase in share-based compensation expense for employees of $0.2 million; and

·                  an increase of $0.5 million in reimbursements in the form of grants and R&D expenditure credits and tax credits from the U.K. government.

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Our subcontracted costs for the three months ended June 30, 2016 were $6.3 million, of which $5.2 million related to our NY-ESO SPEAR T-cells and the remaining $1.1 million related to other projects, including our MAGE-A10 and AFP SPEAR T-cells.

In the year ended December 31, 2016 and into the year ended December 31, 2017, we plan to increase the number of clinical trials we are running, both in new therapies (including our MAGE-A10 and AFP SPEAR T-cells) and as part of the GSK Collaboration and License Agreement for our NY-ESO SPEAR T-cells.  We expect to increase the number of staff employed in our research and development departments in order to invest in our future pipeline of SPEAR T-cells, develop our platform and manage clinical trials. This will significantly increase the related salaries and share-based compensation expenses, as well as require higher expenditures on facilities, materials and equipment.

The share-based compensation expense will fluctuate in future periods due to changes in the assumptions to the fair value calculation for nonemployee share options, which include the share price, interest rates, volatility and expected term. A 5% increase in the share price at June 30, 2016 would have increased the share-based compensation expense for the three months to June 30, 2016 by approximately $44,000.

General and Administrative Expenses

General and administrative expenses increased by 24% to $6.8 million for the three months ended June 30, 2016 from $5.5 million in the same period in 2015.

The increase of $1.3 million was due to:

·                  an increase of $1.3 million in personnel costs, primarily due to the addition of key management and other professionals to support our growth;

·                  an increase of $0.5 million in property costs; and

·                  an increase of $0.7 million in other corporate costs, including costs in relation to our Nasdaq listing, consultants, additional audit costs and investor relations,

partially offset by:

·                  a decrease of $1.2 million in share-based compensation expense.

We expect that our general and administrative expenses will continue to increase, primarily due to the costs of operating as a public company, such as additional legal, accounting, and corporate governance expenses, including expenses related to compliance with the Sarbanes-Oxley Act, directors’ and officers’ insurance premiums, and investor relations activity.

Other Income (Expense), net

Other income (expense), net was an income of $0.6 million for the three months ended June 30, 2016 compared to an expense of $3.5 million for the three months ended June 30, 2015.  Other income (expense), net primarily relates to unrealized foreign exchange gains and losses on cash and cash equivalents, intercompany loans and short-term deposits held in U.S. dollars.

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Comparison of Six Months Ended June 30, 2016 and 2015

The following table summarizes the results of our operations for the six months ended June 30, 2016 and 2015, together with the changes to those items:

Revenue

Revenue decreased from $5.5 million for the six months ended June 30, 2015 to $3.2 million for the six months ended June 30, 2016.  We regularly review and monitor the progress of the GSK Collaboration and License Agreement to determine the period over which to recognize revenue. In the three months ended June 30, 2016, the estimate of the period over which the Company will deliver services under the GSK Collaboration and License Agreement was increased.  This change in estimate resulted in a decrease in revenue of $2,785,000 in the three months ended June 30, 2016 and will result in a decrease in revenue of $672,000 and $1,344,000 in the six months ended December 31, 2016 and the year ended December 31, 2017, respectively, and an increase in revenue of $1,793,000, $1,187,000 and $1,642,000 in the years ended December 31, 2018, 2019 and 2020, respectively, compared to the revenue that would have been recognized based on previous estimates.

Although it is difficult to project the timing of achieving future development deliverables, we expect revenue in the full year to December 31, 2016 to be similar to the full year ended December 31, 2015 due to a full year’s recognition of revenue relating to milestone payments achieved in 2015 and potential future development milestones.

Research and Development Expenses

Research and development expenses increased by 109% to $30.1 million for the six months ended June 30, 2016 from $14.4 million for the six months ended June 30, 2015.

Our research and development expenses are highly dependent on the phases of our research projects and therefore fluctuate from period to period.

The increase in our research and development expenses of $15.7 million for the six months ended June 30, 2016 compared to the same period in 2015 was primarily due to:

·                  a $11.0 million increase in salaries, materials, equipment, depreciation of tangible fixed assets and other employee-related costs. The driver for these is an increase in the average number of employees engaged in research and development from 75 to 195;

·                  a $5.2 million increase in subcontracted expenditures, including clinical trial expenses, CRO costs, and manufacturing expenses driven by increased recruitment in our clinical trials; and

·                  a $3.0 million payment to Universal Cells for in-process R&D;

partially offset by

·                  a $1.2 million decrease in share-based compensation expense due to a decrease in share-based compensation expense for nonemployee share options of $2.4 million offset by an increase in share-based compensation expense for employees of $0.9 million; and

·                  a $2.3 million increase in reimbursements in the form of grants and R&D expenditure credits and tax credits from the U.K. government.

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Our subcontracted costs for the six months ended June 30, 2016 were $9.9 million, of which $8.3 million related to our NY-ESO SPEAR T-cells and the remaining $1.6 million related to other projects, including our MAGE-A10 and AFP SPEAR T-cells.

In the year ended December 31, 2016 and into the year ended December 31, 2017, we plan to increase the number of clinical trials we are running, both in new therapies (including our MAGE-A10 and AFP SPEAR T-cells) and as part of the GSK Collaboration and License Agreement for our NY-ESO SPEAR T-cells.  We expect to increase the number of staff employed in our research and development departments in order to invest in our future pipeline of SPEAR T-cells, develop our platform and manage clinical trials. This will significantly increase the related salaries and share-based compensation expenses, as well as require higher expenditures on facilities, materials and equipment.

The share-based compensation expense will fluctuate in future periods due to changes in the assumptions to the fair value calculation for nonemployee share options, which include the share price, interest rates, volatility and expected term. A 5% increase in the share price at June 30, 2016 would have increased the share-based compensation expense for the six months to June 30, 2016 by approximately $44,000.

General and Administrative Expenses

General and administrative expenses increased by 61% to $12.7 million for the six months ended June 30, 2016 from $7.8 million in the same period in 2015.

The increase of $4.8 million was due to:

·                  a $2.4 million of increased personnel costs, primarily due to the addition of key management and other professionals to support our growth;

·                  a $1.0 million of increased property costs; and

·                  a $1.9 million of increased other corporate costs, including costs in relation to our Nasdaq listing, consultants, additional audit costs and investor relations activity;

partially offset by:

·                  a $0.5 million of decreased share-based compensation expense;

We expect that our general and administrative expenses will continue to increase, primarily due to the costs of operating as a public company, such as additional legal, accounting, and corporate governance expenses, including expenses related to compliance with the Sarbanes-Oxley Act, directors’ and officers’ insurance premiums, and investor relations activity.

Other Income, net

Other income, net increased by 1540% to $1.7 million for the six months ended June 30, 2016 from $0.1 million for the six months ended June 30, 2015.  Other income, net primarily relates to unrealized foreign exchange gains/losses on cash and cash equivalents, intercompany loans and short-term deposits held in U.S. dollars.

Liquidity and Capital Resources.

Sources of Funds

Since our inception, we have incurred significant net losses and negative cash flows from operations. We financed our operations primarily through an initial public offering, placements of equity securities, cash receipts under our GSK Collaboration and License Agreement, government grants and research and development tax credits. From inception through to June 30, 2016, we have raised:

·                  $307.3 million, net of issue costs, through the issuance of shares, of which $176.0 million was raised through our initial public offering in May 2015;

·                  $63.7 million upfront fees and milestones under our GSK Collaboration and License Agreement;

·                  $2.4 million of income in the form of government grants from the United Kingdom; and

·                  $7.2 million in the form of research and development tax credits and receipts from the U.K. RDEC Scheme.

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The Company uses a non-GAAP measure, Total Liquidity Position, which is defined as cash and cash equivalents plus short-term deposits to evaluate the funds available to the Company in the near-term. A description of Total Liquidity Position and reconciliation to the most directly comparable U.S. GAAP measure are provided below under “Non-GAAP measures”.

As of June 30, 2016, we had cash and cash equivalents of $150.9 million, in addition to short-term deposits of $55.0 million.  Our Total Liquidity Position as of June 30, 2016 was $205.9 million. We believe that our Total Liquidity Position as of June 30, 2016 will be sufficient to fund our operations, including currently anticipated research and development activities and planned capital spending for at least the next twelve months.

Cash Flows

The following table summarizes the results of our cash flows for the six months ended June 30, 2016 and 2015 (in thousands):

Operating Activities

Net cash used in operating activities increased by $21.6 million to $35.2 million for the six months ended June 30, 2016 from $13.5 million for the six months ended June 30, 2015.  The increase in cash used in operations was primarily the result of an increase in research and development costs due to the ongoing advancement of our preclinical programs and clinical trials and an increase in general and administrative expenses.

Components of Cash Flows used in Operating Activities

Net cash used in operating activities of $35.2 million for the six months ended June 30, 2016 comprised a net loss of $37.7 million, net cash out flow of $1.6 million from changes in operating assets and liabilities and noncash items of $4.1 million. The non-cash items consisted primarily of depreciation expense on plant and equipment of $1.5 million, amortization expense of $0.1 million and equity-settled share-based compensation expense of $4.5 million, partially offset by unrealized foreign exchange gains of $2.0 million.

Net cash used in operating activities of $13.5 million for the six months ended June 30, 2015 comprised a net loss of $16.5 million and net cash outflow of $5.9 million from changes in operating assets and liabilities, partially offset by non-cash items of $8.9 million. The non-cash items consisted primarily of unrealized foreign exchange losses of $2.2 million, depreciation expense on plant and equipment of $0.4 million and equity-settled share-based compensation expense of $6.3 million.  The changes in operating assets and liabilities is predominantly due to an increase in receivables and other operating assets as a result of an increase in prepaid expenses.

Investing Activities

Net cash used in investing activities was $4.9 million and $31.6 million for the six months ended June 30, 2016 and 2015, respectively.  Net cash used in investing activities for the six months ended June 30, 2016 comprised investment in short-term deposits of $42.8 million, purchases of property and equipment of $2.9 million and acquisition of intangibles of $0.9 million for the six months ended June 30, 2016, offset by cash inflows from the maturity of short-term deposits of $41.7 million.  The purchases of property, plant and equipment for the six months ended June 30, 2016 related predominantly to the investment in our laboratory facilities in the United Kingdom. Net cash used in investing activities for the six months ended June 30, 2015 predominantly comprised of investments in short-term deposits of $28.6 million and purchases of property and equipment of $3.1 million.

Financing Activities

Net cash provided by financing activities was $nil and $176.0 million for the six months ended June 30, 2016 and 2015, respectively.  Net cash provided by financing activities for the six months ended June 30, 2015 comprised proceeds from issuance of common stock upon the Company’s initial public offering on NASDAQ of $176.0 million, net of issuance costs of $13.4 million.

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Non-GAAP Measures

Total Liquidity Position (a non-GAAP financial measure)

Total Liquidity Position (a non-GAAP financial measure) is defined as cash and cash equivalents plus short-term deposits. Each of these components appears in the Consolidated Statements of Financial Position. The U.S. GAAP financial measures most directly comparable to Total Liquidity Position are Cash and cash equivalents and Short-term deposits as reported in the Consolidated Financial Statements.

The Company believes that the presentation of Total Liquidity Position provides useful information to investors because management reviews Total Liquidity Position as part of its management of overall liquidity, financial flexibility, capital structure and leverage.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC other than operating leases as described in Note 8 of the consolidated financial statements included in Item 1 of this Quarterly Report.

Contractual Obligations

The following table summarizes our contractual commitments and obligations as of June 30, 2016 (in thousands):

(1)                As of June 30, 2016, operating lease obligations consisted of minimum lease payments under non-cancellable leases for laboratory and office property in Oxfordshire, U.K. and Philadelphia, U.S.

(2)                Purchase obligations include signed orders for capital equipment, clinical materials, clinical trial expenses and contract manufacturing, which have been committed but not yet received and costs relating to the expansion of our laboratory and office space in Oxfordshire, U.K. and Philadelphia, U.S.  The timing of the payments for clinical materials, clinical trial expenses and contract manufacturing may vary depending on the rate of progress of development and clinical trial enrollment rates.

On November 25, 2015, the Company entered into a Research Collaboration and License Agreement relating to gene editing and HLA-engineering technology with Universal Cells. The Company paid an upfront license fee of $2.5 million to Universal Cells. A milestone payment of $3.0 million was made in February 2016 and the Company will make further payments of up to $44 million if certain development and product milestones are achieved. Universal Cells would also receive a profit-share payment for the first product, and royalties on sales of other products utilizing its technology. These payments are not reflected in the table above because the timing of the payments is uncertain.

In 2012, we entered into a series of license and sub-license agreements with Life Technologies Corporation, part of ThermoFisher Scientific that provide the Company with a field-based exclusive license under certain intellectual property rights owned or controlled by ThermoFisher Scientific.  The Company paid upfront license fees of $1.0 million relating to the license and sublicense agreements and has an obligation to pay minimum annual royalties (in the tens of thousands of U.S. dollars prior to licensed product approval and thereafter at a level of 50% of running royalties in the previous year), milestone payments and a low single-digit running royalty payable on the net selling price of each licensed product. The upfront payment made in 2012 was expensed to research and development when incurred. Subsequent milestone payments will be recognized as an intangible asset due to the technology now having alternative future use in research and development projects.  The minimum annual royalties have been expensed as incurred.

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