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Summary of Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2019
Summary of Significant Accounting Policies |
Summary of Significant Accounting Policies | 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 consolidated interim financial statements presented in this Quarterly Report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2019 (the “Annual Report”). The balance sheet as of December 31, 2018 was derived from audited consolidated financial statements included in the Company’s Annual Report 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. On January 1, 2019, the Company adopted new guidance on lease recognition, which has been codified within Accounting Standard Codification Topic 842, Leases (“ASC 842”). The comparative financial information for the three months ended March 31, 2018 and as of December 31, 2018 has not been restated. The Company has adopted the guidance using the modified retrospective approach, with the cumulative effect of initially applying the guidance recognized as an adjustment to the opening balance of equity at January 1, 2019. Therefore, the comparative information has not been adjusted and continues to be reported under previous guidance. The effect on the accumulated deficit, total stockholders’ equity and net assets as at January 1, 2019 was $0. Note 2 — Summary of Significant Accounting Policies (continued) (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) Foreign currency The reporting currency of the Company is the U.S. dollar. The Company has determined the functional currency of the ultimate parent company, Adaptimmune Therapeutics plc, is U.S. dollars because it predominately raises finance and expends cash in U.S. dollars. The functional currency of subsidiary operations is the applicable local currency. Transactions in foreign currencies are translated into the functional currency of the subsidiary in which they occur at the foreign exchange rate in effect on at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into the functional currency of the relevant subsidiary at the foreign exchange rate in effect on the balance sheet date. Foreign exchange differences arising on translation are recognized within other income (expense) in the consolidated statement of operations. The results of operations for subsidiaries, whose functional currency is not the U.S. dollar, are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions and the balance sheet are translated at foreign exchange rates ruling at the balance sheet date. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income (loss). (d) Fair value measurements The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The hierarchy defines three levels of valuation inputs: Level 1 - Quoted prices in active markets for identical assets or liabilities Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3 - Unobservable inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability The carrying amounts of the Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The fair value of marketable securities, which are measured at fair value on a recurring basis is detailed in Note 6, Fair value measurements. Note 2 — Summary of Significant Accounting Policies (continued) (e) Going concern Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least one year from the date of the condensed consolidated interim financial statements. This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that: a. The Company’s current financial condition, including its liquidity sources; b. The Company’s conditional and unconditional obligations due or anticipated within one year; c. The funds necessary to maintain the Company’s operations considering its current financial condition, obligations, and other expected cash flows; and d. Other conditions and events, when considered in conjunction with the above that may adversely affect the Company’s ability to meet its obligations. (f) New accounting pronouncements Adopted in the period Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard, ASC 842, related to leases to increase transparency and comparability among organizations by requiring the recognition of “Right of Use” (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company has adopted the guidance using the modified retrospective approach, with the cumulative effect of initially applying the guidance recognized as an adjustment to the opening balance of equity at January 1, 2019. Therefore, the comparative information has not been adjusted and continues to be reported under previous guidance. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification. The Company also elected the practical expedient related to land easements, allowing it to carry forward our accounting treatment for land easements on existing agreements. Therefore, the effect on the accumulated deficit, total stockholders’ equity and net assets as at January 1, 2019 was $0. The adoption of ASC 842 has had a material impact on the Company’s financial statements due to the following:
| · |  | As a lessee, the Company has recognized liabilities for operating leases following the adoption date. These liabilities have been measured at the present value of the remaining minimum rental payments using an incremental borrowing rate (the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment).
| · |  | The Company’s operating lease agreements under the new standards also required the measurement of ROU assets at the initial measurement of the lease liabilities, with adjustments for prepaid or accrued lease payments and the remaining balance of any incentives received (the amount of the gross lease incentives received net of amounts recognized previously as part of the single lease cost).
Note 2 — Summary of Significant Accounting Policies (continued) (f) New accounting pronouncements (continued) Adopted in the period (continued) Leases (continued)
| · |  | Following initial measurement of the operating lease liabilities and ROU assets, the lease liabilities experience further changes with the accrual of interest and the repayments made under the lease agreements. In addition, the ROU assets are amortized at amounts equal to the difference between the straight-line lease expense and the change in interest on the lease liability in the period.
The Company has operating leases in relation to property and laboratory facilities. Leases with an expected term of 12 months or less at inception are not recorded on the balance sheet and are instead recognized as a lease expense on a straight-line basis over the lease. term. The Company accounts for lease components (e.g. fixed payments including rent and termination costs) separately from the non-lease components (e.g. common-area maintenance costs and service charges based on utilization) which are recognized over the period in which the obligation occurs. The lease term and minimum lease payments have been determined by taking the non-cancellable period and then assessing the reasonable certainty of whether to exercise an option to extend or terminate. Economic factors such as termination costs have been considered in this assessment. All of the leases have termination options and, with the exception of one of the two buildings in Milton Park, UK, the assumption has been made that the initial termination option will be activated. For Milton Park, the two buildings are assumed to have a coterminous termination point. The maximum lease term without activation of termination options is to 2041. Where termination options have been assumed to be utilized, the associated termination fees have been included in the calculation of the lease liability and ROU asset. All leases are classified as operating leases, and the related cash flows are categorized under Net cash used in operating activities. For the three months ended March 31, 2019 the operating lease cash outflows totaled $1.2 million, and the operating lease cost, recognized in General and administrative expenses, totaled $1.0 million. In addition, there were costs in relation to short term leases of $951,000. Amounts reported in the unaudited condensed consolidated balance sheet as of 31 March, 2019 were (in thousands):
|  |  | March 31, |
|  |  | 2019 |
Operating lease right of use assets |  | $ | 24,462 |
Operating lease liabilities, current |  |  | (2,217) |
Operating lease liabilities, non-current |  |  | (26,779) |
Total operating lease liabilities |  | $ | (4,534) |
The maturities of operating lease liabilities are as follows (in thousands):
|  | Operating leases |
2019 |  | $ | 2,465 |
2020 |  |  | 4,136 |
2021 |  |  | 4,172 |
2022 |  |  | 4,216 |
2023 |  |  | 3,936 |
after 2023 |  |  | 16,520 |
Total lease payments |  |  | 35,445 |
Less: Imputed interest |  |  | 6,449 |
Present value of lease liability |  | $ | 28,996 |
Note 2 — Summary of Significant Accounting Policies (continued) (f) New accounting pronouncements (continued) Adopted in the period (continued) Leases (continued) The company has no external borrowings, therefore the discount rates have been determined as an average rate for each lease, as provided by independent financial institutions. The rates provided were based upon the Company’s incremental borrowing rate for each lease based upon the value, currency and term. The weighted average discount rate for the operating leases as at March 31, 2019 is 4.65% and the weighted average remaining lease term is 8.1 years. To be adopted in future periods Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit losses, which replaces the incurred loss impairment methodology for financial instruments in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance is effective for the fiscal year beginning January 1, 2020, including interim periods within that fiscal year. Early application is permitted for the fiscal year beginning January 1, 2019, including interim periods within that fiscal year. The guidance must be adopted using a modified-retrospective approach and a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Company is currently evaluating the impact of the guidance on its consolidated financial statements. Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract In August 2018, the FASB issued ASU 2018-15 – Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The guidance is effective for the fiscal year beginning January 1, 2020, including interim periods within that fiscal year. Early application is permitted for the fiscal year beginning January 1, 2019, including interim periods within that fiscal year. The guidance may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of the guidance on its consolidated financial statements. Changes to the Disclosure Requirements for Fair Value Measurement In August 2018, the FASB issued ASU 2018-13 – Fair Value Measurement (Topic 820) - Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The guidance is effective for the fiscal year beginning January 1, 2020, including interim periods within that fiscal year. Early application is permitted. Certain amendments apply prospectively with the all other amendments applied retrospectively to all periods presented upon their effective date. The Company is currently evaluating the impact of the guidance on its consolidated financial statements. Note 2 — Summary of Significant Accounting Policies (continued) (g)Restricted cash The Company’s restricted cash consists primarily of cash providing security for letters of credit in respect of lease agreements. (h) Accumulated other comprehensive income (loss) The following amounts were reclassified out of other comprehensive income during the three months ended March 31, 2019 and 2018 (in thousands):
|  | Amount reclassified |
|  | Three months ended |  | Three months ended |  |
|  | March 31, |  | March 31, |  |
Component of Accumulated Other Comprehensive Income |  | 2019 |  | 2018 |  |
Unrealized gains (losses) on available-for-sale securities |  |  |  |  |  |  |  |
Reclassification adjustment for losses on available-for-sale debt securities |  | $ | — |  | $ | 1,163 |  |

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