Note 8 — Contingencies and commitments

 

Leases

 

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

 

 

The Company leases property under operating leases expiring through 2027. Lease expenses amounted to $327,000 and $433,000 for the three months ended September 30, 2016 and 2015, respectively and $1,159,000 and $836,000 for the nine months ended September 30, 2016 and 2015, respectively, which are included within research and development and general and administrative expenses in the Company’s consolidated statement of operations.

 

In July 2015, the Company entered into a long-term lease agreement, with break clauses, for offices and research facilities in Philadelphia, U.S.  In October 2016, the lease commenced upon completion of construction. The related lease commitments are included in the table above.

 

In September 2015, the Company entered into an agreement for a 25-year lease, with break clauses, for a research and development facility in Oxfordshire, U.K.  In October 2016, the Company entered into the lease for that facility following the completion of construction. The related lease commitments are included in the table above.

 

Capital commitments

 

At September 30, 2016, the Company had commitments for capital expenditure totaling $15,455,000, which the Company expects to incur within one year.

 

Purchase commitments for clinical materials, clinical trials and contract manufacturing

 

At September 30, 2016, the Company had non-cancellable commitments for purchase of clinical materials, executing and administering clinical trials, and for contract manufacturing of $54,611,000, of which the Company expects to pay $25,850,000 within one year, $20,292,000 in one to three years, $7,659,000 in three to five years, and $810,000 after 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 $6,032,000 and $3,406,000 for the three months ended September 30, 2016 and 2015, respectively, and $15,908,000 and $8,040,000 for the nine months ended September 30, 2016 and 2015, respectively.

 

MD Anderson Strategic Alliance

 

On September 26, 2016, the Company announced that it had entered into a multi-year strategic alliance with The University of Texas MD Anderson Cancer Center (“MD Anderson”) designed to expedite the development of T-cell therapies for multiple types of cancer.  The Company and MD Anderson will collaborate in a number of studies including clinical and preclinical development of Adaptimmune’s SPEAR T-cell therapies targeting MAGE-A10 and future clinical stage first and second generation SPEAR T-cell therapies such as MAGE-A4 across a number of cancers, including bladder, lung, ovarian, head and neck, melanoma, esophageal and gastric cancers. The Company will make payments to MD Anderson as certain milestones are achieved and these costs will be expensed to research and development as MD Anderson renders the services under the strategic alliance.  These milestones are included within ‘Purchase commitments for clinical materials, clinical trials and contract manufacturing’ above.

 

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.