What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-12 · 125 added, 106 removed, 285 unchanged (45% of the section changed)

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• our expectations regarding our ability to utilize the Phase I and II aNK and haNK clinical trials data to support the development of our product candidates, including our haNK, taNK, t‑haNK, MSC and M-ceNK product candidates;

our expectations regarding the development, application, commercialization, marketing, prospects and use generally of our product candidates, including Anktiva, hAd5 and aldoxorubicin;

the timing or likelihood of regulatory filings or other actions and related regulatory authority responses, including any planned investigational new drug (“IND”);

Biologics License Application (“BLA”);

or New Drug Application (“NDA”) filings or pursuit of accelerated regulatory approval pathways or orphan drug status and Breakthrough Therapy designations;

• our expectations regarding the development, application, commercialization, marketing, prospects and use generally of our product candidates, including Anktiva™, hAd5 constructs and aldoxorubicin;

• the timing or likelihood of regulatory filings or other actions and related regulatory authority responses, including any planned investigational new drug (“IND”), Biologics License Application (“BLA”) or New Drug Application (“NDA”) filings or pursuit of accelerated regulatory approval pathways or orphan drug status and Breakthrough Therapy designations;

• our ability to implement an integrated discovery ecosystem and the operation of that planned ecosystem, including being able to regularly add neoepitopes and subsequently formulate new product candidates;

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• our beliefs regarding the potential manufacturing and distribution benefits associated with our product candidates, and our ability to scale up the production of our product candidates;

our plans regarding our manufacturing facilit ies and our belief that our manufacturing is capable of being conducted in ‑house;

our belief in the potential of our antibody cytokine fusion protein, vaccine technology and NK-92 and M-ceNK cell therapy technology, and the fact that our business is based upon the success individually and collectively of our platforms;

our antibody cytokine fusion protein, vaccine technology and NK-92 and M-ceNK cell therapy technology along with other product candidate families, will require significant additional clinical testing;

even if we successfully develop and commercialize specific product candidates like our Anktiva or haNK and t‑hank, we may not be successful in developing and commercializing our other product candidates either alone or in combination with other therapeutic agents;

• our plans regarding our manufacturing facilities and our belief that our manufacturing is capable of being conducted in‑house;

• our belief in the potential of our antibody cytokine fusion proteins, vaccine technologies and NK-92 and M-ceNK cell therapy technology, and the fact that our business is based upon the success individually and collectively of our platforms;

• our antibody cytokine fusion proteins, vaccine technologies and NK-92 and M-ceNK cell therapy technology along with other product candidate families, will require significant additional clinical testing;

• even if we successfully develop and commercialize specific product candidates like our Anktiva™ or haNK and t‑haNK, our ability to develop and commercialize our other product candidates either alone or in combination with other therapeutic agents;

• the ability to obtain and maintain regulatory approval of any of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;

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You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.

This Quarterly Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities.

This Quarterly Report on Form 10-Q contains references to our trademarks and trademarks belonging to other entities.

Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.

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and its subsidiaries.

We established ImmunityBio to advance next-generation immunotherapies and address unmet needs within oncology and infectious disease.

Our platform is designed to overcome limitations of the current standards of T cell-based immunotherapies, including checkpoint inhibitors and CAR-T cells and is based on our four key modalities:

(1) activating natural killer (“NK”) and T cells using antibody cytokine fusion proteins, (2) activating tumoricidal macrophages using low-dose synthetic immunomodulators, (3) generating memory T cells using vaccine candidates developed with our second-generation adenovirus (“hAd5”) technology, and (4) off-the-shelf natural killer cells from the NK-92 cell line and memory-like cytokine-enhanced natural killer cells (“M-ceNK”) from allogenic and autologous donors.

We own a broad, clinical-stage immunotherapy pipeline, including an antibody cytokine fusion protein (an IL-15 superagonist (“N-803”) known as Anktiva), an albumin-associated anthracycline synthetic immunomodulator (aldoxorubicin), second-generation adenovirus (“hAd5”) and yeast vaccine technologies (targeting tumor-associated antigens and neoepitopes), off-the-shelf genetically engineered natural killer cell lines inducing cancer and virally infected cell death through a variety of concurrent mechanisms (including innate killing, antibody-mediated killing, and CAR-directed killing), patient specific NK cell product for cancer that is an autologous memory cytokine enhanced NK cells (“M-ceNK”), macrophage polarizing peptides, and bi-specific fusion proteins targeting CD20, PD-L1, TGF- b and IL-12.

Our immunotherapy clinical pipeline consists of over 40 clinical trials in Phase 1, 2, or 3 development across 19 indications in solid and liquid cancers and infectious diseases.

We have an expansive clinical-stage pipeline and intellectual property portfolio with 17 first-in-human assets in 25 Phase II to III clinical trials.

We established ImmunityBio to advance next-generation immunotherapies and address unmet needs within the clinical fields of oncology and infectious disease.

We are developing treatments based on a proprietary immunotherapy platform that is designed to overcome limitations of the current standards of T cell-based immunotherapies, including checkpoint inhibitors and CAR-T cells.

Our platform is based on four key modalities:

(1) activating natural killer (“NK”), and T cells using antibody cytokine fusion proteins, (2) activating tumoricidal macrophages using low-dose synthetic immuno-modulators, (3) generating memory T cells using vaccine candidates developed with our second-generation adenovirus (“hAd5”), yeast and saRNA technologies, and (4) off-the-shelf NK cells from the NK‑92 cell line and memory-like cytokine-enriched NK cells (“M‑ceNK”) from allogenic and autologous donors.

ImmunityBio’s immunotherapy pipeline includes an antibody cytokine fusion protein (an IL-15 superagonist (N-803) known as Anktiva™), an albumin-associated anthracycline synthetic immuno-modulator (aldoxorubicin), hAd5 and yeast vaccine technologies (targeting the novel strain of coronavirus disease (“SARS‑CoV‑2”) , tumor-associated antigens and neoepitopes), off-the-shelf genetically engineered natural killer cell lines inducing cancer and virally infected cell death through a variety of concurrent mechanisms (including innate killing, antibody-mediated killing, and CAR-directed killing), patient specific NK cell product for cancer (M-ceNK), macrophage polarizing peptides, and bi-specific fusion proteins targeting CD20, PD-L1, TGF-b and IL -12.

Our immunotherapy clinical pipeline consists of 20 actively recruiting clinical trials in Phase I, II, or III development.

There are 13 active clinical trials in Phase II or III development across 12 indications in solid and liquid cancers (including bladder, pancreatic and lung cancers) and infectious diseases (including SARS‑CoV‑2 and the human immunodeficiency virus (“HIV”)).

We have an expansive clinical-stage pipeline and intellectual property portfolio with 16 first-in-human assets.

In December 2019, the U.S.

Food and Drug Administration (“ FDA ”) granted Breakthrough Therapy designation to Anktiva for bacillus Calmette-Guérin (“ BCG ”) unresponsive carcinoma in situ non-muscle invasive bladder cancer.

Based on patient reado ut data that was submitted with our application to obtain our Breakthrough Therapy designation, Anktiva achieved its primary endpoint of complete response rate at any time in the ongoing registrational Phase II / III trial .

Other indications currently with registration- potential studies include BCG unresponsive papillary bladder cancer, first- and second-line lung cancer, and metastatic pancreatic cancer.

Food and Drug Administration (“FDA”) granted Breakthrough Therapy designation to Anktiva™ for bacillus Calmette-Guérin (“BCG”) unresponsive non-muscle invasive bladder cancer carcinoma in situ (“CIS”).

Based on patient readout data that was submitted with our application to obtain our Breakthrough Therapy designation, Anktiva™ achieved its primary endpoint of complete response rate at any time in the ongoing registrational Phase II/III trial.

Other indications currently with registration-potential studies include BCG unresponsive papillary bladder cancer, lung cancer, and metastatic pancreatic cancer.

On December 21, 2020 , we and NantCell, Inc.

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As a result of the Merger and immediately following the Effective Time, Dr.

Patrick Soon-Shiong, our Executive Chairman, and his affiliates beneficially owned, in the aggregate, approximately 81.8% of the outstanding shares of Company Common Stock.

Patrick Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, and his affiliates beneficially owned, in the aggregate, approximately 81.8% of the outstanding shares of Company Common Stock.

Following the consummation of the Merger, shares of the company’s common stock were listed on the Nasdaq Global Select Market under the symbol “IBRX.”

We incurred costs totaling $23.3 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, of which $13.0 million was recorded during the six months ended June 30, 2021.

Accounting Treatment of the Merger

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Coronavirus Pandemic

In March 2020, the World Health Organization declared the novel strain of coronavirus disease (SARS‑CoV‑2) a pandemic.

In March 2020, the World Health Organization declared COVID-19 a pandemic.

To date, our operations have not been significantly disadvantaged by the pandemic.

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Operating Results

To date, we have generated minimal revenue from non-exclusive license a g reements related to our cell li n es, the sale of our bioreactors and related consumables and grant programs.

To date, we have generated minimal revenue from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables and grant programs.

We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development.

We have incurred net losses in each year since our inception and, as of June 30, 2021, we had an accumulated deficit of $1.8 billion.

Our net losses attributable to ImmunityBio common stockholders were $167.9 million and $88.5 million for the six months ended June 30, 2021 and 2020, respectively.

We have incurred net losses in each year since our inception and, as of September 30, 2021, we had an accumulated deficit of $1.9 billion.

Our net losses attributable to ImmunityBio common stockholders were $255.5 million and $154.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Substantially all of our net losses resulted principally from costs incurred in connection with our ongoing clinical trials and operations, our research and development programs, and from selling, general and administrative costs associated with our operations, including stock-based compensation expense.

As of June 30, 2021, we had 511 employees.

As of September 30, 2021, we had 538 employees.

Personnel of related companies who provide corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy and other support services under our shared services agreement with NantWorks are not included in this number.

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“Financial Statements” of this Quarterly Report on Form 10-Q.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year.

In anticipation of the commercialization of select drug candidates, we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year.

See “— Future Funding Requirements ” below for a discussion of our anticipated expenditures and sources of capital we expect to access to fund these expenditures.

Collaboration Agreements

We anticipate that strategic collaborations will become an integral part of our operations, providing opportunities to leverage our partners’ expertise and capabilities to further expand the potential of our technologies and product candidates.

We believe we are well positioned to become a leader in immunotherapy due to our broad and vertically integrated platform and through complementary strategic partnerships.

As we continue the development of our pipeline, we anticipate that strategic collaborations with established biopharma companies and other research-based entities will become integral to our operations and the development of novel combination therapies.

These collaborations would provide ImmunityBio with a range of opportunities to leverage our partners’ expertise and capabilities to further expand the potential of our technologies and product candidates.

We are currently pursuing this aspect of our business in seven clinical trials studying our IL-15 receptor agonist Anktiva™ in combination with complementary, approved therapies to determine if Anktiva™ may have broad potential to enhance the activity of those therapies, including therapeutic monoclonal antibodies and other standard-of-care therapeutics across a wide range of tumor types.

We believe we are well positioned to become a leader in immunotherapy through the combined strength of our broad and vertically integrated platform and complementary strategic partnerships.

We may also enter into supply arrangements for various investigational agents to be used in our clinical trials.

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We conduct business with several affiliates under written and informal arrangements.

Our Executive Chairman, and principal stockholder, founded and has a controlling interest in NantWorks, which is a collection of multiple companies in the healthcare and technology space.

Our Executive Chairman, Global Chief Scientific and Medical Officer and our principal stockholder, founded and has a controlling interest in NantWorks, which is a collection of companies in the healthcare and technology space.

We have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline.

Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman.

As of June 30, 2021, we have outstanding promissory notes with certain entities affiliated with Dr.

Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman and Global Chief Scientific and Medical Officer.

Related-Party Notes Payable

As of September 30, 2021, we have outstanding promissory notes with certain entities affiliated with Dr.

Soon-Shiong in an aggregate amount of $303.2 million, including accrued interest.

The notes bear interest at a per annum rate ranging from 3.0% to 6.0%.

As of June 30, 2021, the notes provide that all outstanding principal is due and payable on September 30, 2025, and accrued and unpaid interest is payable on either the maturity date or, with respect to one of the notes, on a quarterly basis beginning June 30, 2021.

As of September 30, 2021, the notes provide that all outstanding principal is due and payable on September 30, 2025, and accrued and unpaid interest is payable on either the maturity date or, with respect to one of the notes, on a quarterly basis beginning June 30, 2021.

We may prepay the outstanding amount of any advance under such notes, together with accrued and unpaid interest, at any time, in whole or in part, without premium or penalty.

In May 2021, but effective on April 1, 2021, we entered into an amendment to our existing lease with 605 Nash, LLC.

The amendment expanded the leased square feet by approximately 57,760 rentable square feet (the “Expansion Premises”).

The lease term of the Expansion Premises commenced in April 2021 and expires in March 2028, whereby the company has the option to extend the initial term for three years.

Per the terms of the amendment, the term of the lease that commenced in January 2021 was extended for an additional three months and now expires on March 31, 2028.

Base rent for the Expansion Premises is approximately $170,400 per month with annual increases of 3% on April 1 of each year.

We are responsible for the build out of the facility space and associated costs.

The amended lease provides for a rent abatement for the first seven months, and for a tenant improvement allowance of approximately $2.6 million for costs and expenses related to improvements made by us to the Expansion Premises.

Immuno-Oncology Clinic, Inc.

We entered into multiple agreements with Immuno-Oncology Clinic, Inc.

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As certain programs costs are excluded from and certain services are subject to credit adjustments under the Clinic Agreement, we determined the expected future fees for services to be performed are less than the carrying value of the prepaid asset on the condensed consolidated balance sheets.

As a result, we partially wrote down the value of our prepayments under the Clinic Agreement and recorded approximately $1.9 million in research and development expense , on the condensed consolidated statements of operations for the three months ended June 30, 2021.

In addition, we reclassified $0.9 million of prepaid assets from prepaid expenses and other current assets to other current assets , on the condensed consolidated balance sheets as of June 30, 2021 based on the additional time expected for them to be realized than initially estimated.

In addition, we reclassified $0.8 million of prepaid assets from prepaid expenses and other current assets to other current assets , on the condensed consolidated balance sheets during the three months ended September 30, 2021 based on the additional time expected for them to be realized than initially estimated.

605 Nash, LLC

In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, LLC, a related party, for a facility primarily used for pharmaceutical development and manufacturing purposes.

In May 2021, but effective on April 1, 2021, we entered into an amendment to our lease agreement with 605 Nash, LLC.

557 Doug St, LLC

In September 2021, we entered into a sale transaction with Nant Capital, a related party, for a real estate property located at 557 South Douglas Street, El Segundo, California.

We subsequently leased back the building for an initial seven-year lease term with an option to extend the lease for two additional seven-year periods.

See Note 8 , Related-Party Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1.

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Components of our Results of Operations

To date, we have generated minimal revenue from non-exclusive license a g reements related to our cell li n es, the sale of our bioreactors and related consumables and grant programs.

To date, we have generated minimal revenue from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables and grant programs.

We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development.

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Personnel costs, including salaries, benefits, bonuses, and stock-based compensation expense comprise a significant component of our research and development, and selling, general and administrative expense categories.

We allocate expenses associated with our facilities and information technology costs between these two categories based on the nature of each cost.

We allocate expenses associated with our facilities and information technology costs between these two categories, primarily based on the nature of each cost.

Research and Development

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We recognize research and development expenses as they are incurred.

Our research and development expense primarily consists of:

Our research and development expenses primarily consist of:

• clinical trial and regulatory-related costs;

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Results of Operations

Comparison of the three months ended June 30, 2021 and 2020

Comparison of the three months ended September 30, 2021 and 2020

Three Months Ended

September 30, $ Change % Change

(Unaudited, $ in thousands)

Revenue $ 66 $ 151 $ (85) (56 %)

Operating expenses:

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with related parties) 29,625 19,596 10,029 51 %

Impairment of intangible assets — 10,660 (10,660) (100 %)

Total operating expenses 78,902 66,028 12,874 19 %

Loss from operations (78,836) (65,877) (12,959) 20 %

Other expense:

Other expense, net:

Interest and investment (expense) income, net (5,941) 149 (6,090) (4087 %)

Interest expense (including amounts with related parties) (3,614) (2,226) (1,388) 62 %

Other income, net (including amounts

Other (expense) income, net (including amounts

with related parties) (38) 84 (122) (145 %)

Total other expense

Total other expense, net (9,593) (1,993) (7,600) 381 %

Loss before income taxes and noncontrolling interests (88,429) (67,870) (20,559) 30 %

Income tax expense — 1,700 (1,700) (100 %)

Net loss $ (88,429) $ (66,170) $ (22,259) 34 %

Research and Development Expense

Research and development expense increased $20.8 million during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020.

The increase in research and development expense was primarily driven by an $11.2 million increase in compensation expense, including an $8.6 million increase in stock compensation expense due to new grants issued and a $2.6 million increase in personnel costs due to higher headcount to support our continued research and development efforts, a $3.4 million increase in clinical trial and regulatory expenses related to our Anktiva and COVID ‑ 19 programs, including a $1.9 million expense associated with the write down of a prepaid asset with the Clinic, a $2.5 million increase in license and research agreement costs, primarily driven by new license agreements entered into in the second quarter of 2021, a $1.9 million increase in facilities expense, primarily related to the expansion of our manufacturing facility in El Segundo, California during 2021, and a $1.8 million increase in laboratory supply expenses and other research and development costs, primarily driven by higher expenses related to our COVID ‑ 19 programs.

Research and development expense increased $13.5 million during the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.

The increase in research and development expense was primarily driven by a $9.7 million increase in compensation expense, including a $4.9 million increase in personnel costs due to higher headcount to support our continued research and development efforts and a $4.8 million increase in stock compensation expense as a result of awards granted to new hires, a $2.5 million increase in license and research agreement costs, primarily driven by new license agreements entered into in the third quarter of 2021, a $1.9 million increase in facilities expense, primarily related to the expansion of our manufacturing facility in El Segundo, California during 2021, and a $1.5 million increase in consulting costs.

These increases were partially offset by a $1.9 million reduction in laboratory supply expenses related to our COVID-19 programs and a $0.2 million decrease in other research and development costs.

We expect our research and development expense to increase significantly for the foreseeable future as we advance our product candidates through clinical development and conduct our ongoing and planned clinical trials.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $14.1 million during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020.

The increase in selling, general and administrative expense was primarily attributable to $ 9.8 million increase in compensation expense, including an $8.9 million increase in stock compensation expense driven by new grants and option modifications resulting in incremental stock-based compensation expense in 2021 and a $0.9 million increase personnel-related expenses, and a $6.2 million increase in legal expense, primarily due to ongoing litigation.

These increases were partially offset by a $1.2 million decrease in shared services and travel costs, and a $0.7 million decrease in general liability insurance costs.

Other Expense

Other expense increased $2.4 million during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020.

The increase in other expense was mainly due to a $1.4 million increase in interest expense driven higher related-party borrowings and a reduction in net unrealized gains of $1.2 million related to our equity securities, which were partially offset by a $0.2 million increase in other income.

Comparison of the six months ended June 30, 2021 and 2020

Six Months Ended

Selling, general and administrative expense increased $10.0 million during the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.

The increase in selling, general and administrative expense was primarily attributable to a $ 9.5 million increase in compensation expense, including an $8.3 million increase in stock compensation expense driven awards granted to new hires and a $1.2 million increase in personnel costs related to higher headcount to support our business growth, and a $0.5 million increase in shared services needs with our growth.

Impairment of Intangible Assets

During the three months ended September 30, 2020, the company recorded an impairment charge totaling $10.7 million to write down the carrying value of indefinite-lived in-process research and development intangible assets associated with the acquisition of Receptome, LLC to zero in connection with the decision to discontinue certain programs based on results gathered from preclinical data.

Other Expense, Net

Other expense, net increased $7.6 million during the three months ended September 30, 2021, as compared to the three months ended September 30, 2020.

The increase in other expense, net was mainly due to a $6.1 million increase in net unrealized losses related to our marketable equity securities, a $1.4 million increase in interest expense driven by higher related-party borrowings and a $0.1 million reduction in other income.

Comparison of the nine months ended September 30, 2021 and 2020

Nine Months Ended

September 30, $ Change % Change

(Unaudited, $ in thousands)

Revenue $ 544 $ 752 $ (208) (28 %)

Operating expenses:

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with related parties) 107,345 47,436 59,909 126 %

Impairment of intangible assets — 10,660 (10,660) (100 %)

Total operating expenses 251,550 154,247 97,303 63 %

Loss from operations (251,006) (153,495) (97,511) 64 %

Other income (expense):

Other expense, net:

Interest and investment income, net 2,826 1,213 1,613 133 %

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with related parties) 252 1,269 (1,017) (80 %)

Total other income (expense)

Total other expense, net (7,281) (3,756) (3,525) 94 %

Loss before income taxes and noncontrolling interests (258,287) (157,251) (101,036) 64 %

Income tax expense (8) 1,637 (1,645) (100 %)

Net loss $ (258,295) $ (155,614) $ (102,681) 66 %

Research and Development Expense

Research and development expense increased $34.5 million during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.

The increase in research and development expense was primarily driven by a $15.3 million increase in compensation expense, including an $11.3 million increase in stock compensation expense due to new grants issued and a $4.0 million increase in the personnel costs due to higher headcount in support of our continued research and development efforts, a $5.1 million increase in clinical trial expenses and regulatory costs related to our Anktiva and COVID ‑ 19 programs, including a $1.9 million expense associated with the write down of a prepaid asset with the Clinic, a $4.7 million increase in laboratory supply expenses and other preclinical research and development costs, a $4.5 million increase in manufacturing costs for contract manufacturing of clinical materials, a $2.8 million increase in facilities expense, primarily related to the expansion of our manufacturing facility in El Segundo, California during 2021, and a $2.1 million increase in license and collaboration costs, primarily driven by new license agreements entered in the second quarter of 2021.

Research and development expense increased $48.1 million during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.

The increase in research and development expense was primarily driven by a $25.0 million increase in compensation expense, including a $16.2 million increase in stock compensation expense due to new grants issued to new hires and executives and an $8.8 million increase in personnel costs due to higher headcount in support of our continued research and development efforts, a $4.6 million increase in license and research agreement costs, a $4.5 million increase in clinical trial expenses and regulatory costs related to our Anktiva™ and COVID ‑ 19 programs, including a $1.9 million expense associated with the write down of a prepaid asset with the Clinic, a $4.5 million increase in quality control and research and development-related technology expense, a $4.3 million increase in facilities expense, primarily related to the expansion of our manufacturing facility in El Segundo, California during 2021 and increased maintenance costs at our various facilities, a $2.8 million increase in consulting costs, a $1.5 million increase in shared services to support our growth, and a $0.9 million increase in laboratory supply expenses related to our COVID-19 programs ramp up and NK-92 and M-ceNK cell therapy research.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $49.9 million during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.

The increase in selling, general and administrative expense was primarily attributable to a $22.4 million increase in compensation expense, including a $21.0 million increase in stock compensation expense driven by new grants issued and option modifications resulting in incremental stock-based compensation expense in 2021 and a $1.4 million increase in personnel-related expenses due to higher headcount needed to support our business activities, a $24.3 million increase in financial advisory, legal, public company and other professional fees (including fees related to our Merger, which was announced in December 2020 and closed in March 2021), as well as higher costs associated with ongoing litigation, patent-related legal fees and other matters, and a $3.2 million increase in insurance costs, primarily due to higher directors’ and officers’ insurance renewal rates and increased insurance coverage.

Other Income and Expense

Other income increased $4.1 million during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.

The increase was mainly due a $7.7 million increase in unrealized gains from our equity investments, which were partially offset by a $2.7 million increase in interest expense driven primarily by higher related-party borrowings and a $0.9 million decrease in other income.

Selling, general and administrative expense increased $59.9 million during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.

The increase in selling, general and administrative expense was primarily attributable to a $31.9 million increase in compensation expense, including a $29.3 million increase in stock compensation expense driven by awards granted to new hires and executives and option modifications resulting in incremental stock-based compensation expense in 2021 and a $2.6 million increase in salaries and bonuses related to higher headcount needed to support our business activities, a $24.9 million increase in professional services fees related to merger costs, SOX compliance, combined company audit, recruitment and business growth strategy, various legal matters, and new system implementations, and a $3.3 million increase in insurance costs, primarily due to higher directors’ and officers’ insurance renewal rates and increased insurance coverage.

These increases were partially offset by a $0.2 million decrease in other general and administrative expenses.

Impairment of Intangible Assets

During the nine months ended September 30, 2020, the company recorded an impairment charge totaling $10.7 million to write down the carrying value of indefinite-lived in-process research and development intangible assets associated with the acquisition of Receptome, LLC to zero in connection with the decision to discontinue certain programs based on results gathered from preclinical data.

Other Expense, Net

Other expense, net increased $3.5 million during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020.

The increase was due to a $4.1 million increase in interest expense driven primarily by higher related-party borrowings and a $1.0 million increase in other expense, which were partially offset by a $1.6 million increase in interest and investment income, driven primarily by a $1.9 million increase in net unrealized gains related to our marketable equity securities, a $0.5 million decrease in interest income, and a $0.2 million increase in realized gains from the sale of equity investments.

Liquidity and Capital Resources

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The general condition of the financial markets and the economy may increase those risks and may affect the value and liquidity of investments and restrict our ability to access the capital markets.

As of June 30, 2021, we had cash and cash equivalents, and marketable securities of $104.8 million compared to $97.0 million as of December 31, 2020.

As of September 30, 2021, we had cash and cash equivalents, and marketable securities of $81.2 million compared to $97.0 million as of December 31, 2020.

On April 30, 2021, we entered into an Open Market Sale Agreement (the “Sale Agreement”) with respect to an at-the-market (the “ATM”) offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $500.0 million through our sales agent.

For the three months ended June 30, 2021, we received net proceeds totaling $94.9 million from the issuance of 6,420,441 shares under the ATM, which we expect to use for general corporate purposes, including to progress our clinical development programs, fund other research and development activities, for capital expenditures and to fund working capital.

For the nine months ended September 30, 2021, we received net proceeds totaling $136.9 million from the issuance of 10,216,978 shares under the ATM, which we expect to use for general corporate purposes, including to progress our clinical development programs, fund other research and development activities, make capital expenditures and fund working capital.

We may also use a portion of the net proceeds to license intellectual property or to make acquisitions or investments.

As of June 30, 2021, we had $402.0 million available for future stock issuances under the ATM.

As of September 30, 2021, we had $359.0 million available for future stock issuances under the ATM.

In order to complete the development of our current product candidates, and implement our business plan, we will require substantial additional funding.

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In addition to the cash used to fund our operating activities discussed in “ —Future Funding Requirements ” below, we will require cash to settle the following obligations:

As of June 30, 2021, we had related-party notes payable together with accrued interest thereon of $300.3 million compared to $254.4 million as of December 31, 2020.

During the six months ended June 30, 2021, we received a $40.0 million advance pursuant to a related-party promissory note.

As of September 30, 2021, we had related-party notes payable together with accrued interest thereon of $303.2 million compared to $254.4 million as of December 31, 2020.

During the nine months ended September 30, 2021, we received a $40.0 million advance pursuant to a related-party promissory note.

Such notes bear interest at 3.0% to 6.0% per year and may be prepaid by us without penalty.

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The following table sets forth our primary sources and uses of cash for periods indicated:

Six Months Ended

Nine Months Ended

September 30,

(Unaudited, in thousands)

Cash provided by (used in):

Cash (used in) provided by:

Operating activities $ (202,780) $ (114,120)

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Financing activities 179,490 150,434

Effects of exchange rate changes on cash, cash equivalents,

Effect of exchange rate changes on cash, cash equivalents,

and restricted cash (17) (73)

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Operating Activities

For the six months ended June 30, 2021, net cash used in operating activities of $130.1 million consisted of a net l oss of $169.9 million and $0.4 million of cash used in net working capital changes, part i a l ly offset by $40.2 million in ad j us t ments f o r no n -cash items.

A d justmen t s f or non - cash i tems pr i mari l y consisted of $33.2 million in s t ock compe n sati o n expense, $7.0 million in depreciati o n and amo r tizati o n expense, $6.2 million in non - cash i n terest related primarily to related party loans, $2.3 million in non - cash l e ase expense related to operat i ng lease righ t -of-use assets, and $0.2 million in a m or t iza t ion of net premiums and discounts on mar k e t a b le debt securi t ies, reduced b y $8.4 million in u n realized gains on e q u i ty secur i ties dri v en pr i mari l y by an i ncrease i n the val u e o f our in v e st m ents, $0.2 million in realized gains on sales of equity securities, and a $0.1 million change in the fair value of contingent consideration.

The change in net working capi t al co n sisted pr i mari l y of increases of $5.4 million in prepaid and other current assets and $2.6 million in each of accounts payable and related parties.

T h e increases i n net wo r king ca p ital were p a r tially of f s et b y de creases of $4.2 million in other assets, $3.8 million in accrued expenses and other liabilities and $3.0 million in o p e r ating lease liab i lities.

For the six months ended June 30, 2020, net cash used in operating activities of $77.1 million consisted of a net l oss of $89.4 million, partially offset by $11.9 million i n adjustmen t s f or non-cash i t e m s and $0.4 million of cash provided by net w o rki n g capital changes.

Adjust m e n ts for non-cash items p r ima r ily consisted of $7.0 million in dep r ec i a t ion and a m ort i za t ion, $4.0 million in n o n-cash inte r e st items, $2.0 million in non-cash lease ex p e n s e r e l ated to o p e r ating lease ri g ht- o f- u se assets, and $0.8 million in stock co m pensa t ion expense, partially offset by a $1.0 million change in deferred tax liability, a $0.5 million unrealized gain on equity securities and a $0.4 million change in the fair value of contingent consideration obligation.

The changes in net working capital consisted primarily of increases related to $10.2 million in accrued expenses and other liabilities and $2.3 million in accounts payable, partially offset by decreases related to $5.6 million in prepaid expenses and other current assets, $4.7 million in due to related parties and $1.8 million in ope r a t ing lease liabi l ities.

For the nine months ended September 30, 2021, net cash used in operating activities of $202.8 million consisted of a net loss of $258.3 million and $12.3 million of cash used in net working capital changes, partially offset by $67.8 million in adjustments for non-cash items.

The changes in net working capital consisted primarily of decreases of $4.8 million in other assets, $4.7 million with related parties, $3.6 million in operating lease liabilities and $0.2 million in accounts payable, partially offset by increases of $0.6 million in accrued expenses and other liabilities and $0.4 million in prepaid and other current assets.

Adjustments for non-cash items primarily consisted of $47.0 million in stock compensation expense, $10.6 million in depreciation and amortization expense, $9.1 million in non-cash interest related primarily to related-party promissory notes, $3.5 million in non-cash lease expense related to operating lease right-of-use assets, and $0.3 million in amortization of net premiums and discounts on marketable debt securities, reduced by $2.4 million in unrealized gains on equity securities driven primarily by an increase in the value of our investments, $0.2 million in realized gains on sales of equity securities, and a $0.1 million change in the fair value of contingent consideration.

For the nine months ended September 30, 2020, net cash used in operating activities of $114.1 million consisted of a net loss of $155.6 million, partially offset by $28.2 million in adjustments for non-cash items and $13.3 million of cash provided by net working capital changes.

Adjustments for non-cash items primarily consisted of an impairment of intangible assets totaling $10.7 million, $10.5 million in depreciation and amortization, $5.7 million in non-cash interest items, $3.4 million in non-cash lease expense related to operating lease right-of-use assets, $1.5 million in stock compensation expense and $0.4 million in amortization of net premiums and discounts on marketable debt securities, partially offset by a $2.7 million change in deferred tax liability, an $0.8 million change in the fair value of contingent consideration and a $0.5 million unrealized gain on equity securities.

The changes in net working capital consisted primarily of increases related to $11.2 million in accrued expenses and other liabilities, $7.3 million in accounts payable and $4.7 million with related parties, partially offset by decreases related to $6.8 million in prepaid expenses and other current assets and $3.1 million in operating lease liabilities.

We have historically experienced negative cash flows from operating activities, with such negative cash flows likely to continue for the foreseeable future.

Investing Activities

For the six months ended June 30, 2021, net cash provided by investing activities was $42.3 million, which included cash inflows of $57.7 million f rom matu r ities and sales o f m a r ketable sec u rit i es , partially offset by $15.1 million of p urchases of p r opert y , plant and equip m ent and $0.3 million of purchases of marketable debt securities.

Our invest m e n ts in p r opert y , plant a n d equip m ent related p ri m a r ily t o acquisiti o ns of equ i pment w hich wi l l be used f o r the m anufactu r ing o f our p r oduct cand ida te s and expenditures related to the build out of our manufacturing facilities .

For the six months ended June 30, 2020 , net cash provided by investing activities was $29.3 million , which included cash inflows of $44.4 million f rom matu r ities and sales o f m a r ketable sec u rit i es , partially offset by $14.8 million of purchases of marketable debt securities and $0.3 million of purchases of property, plant and equipment .

For the nine months ended September 30, 2021, net cash provided by investing activities was $52.9 million, which included cash inflows of $58.3 million from maturities and sales of marketable debt and equity securities and $20.5 million in net proceeds from sales of property, plant and equipment, mainly due to the sale of 557 Doug St, LLC, partially offset by $23.2 million of purchases of property, plant and equipment and $2.7 million of purchases of marketable debt securities.

Our investments in property, plant and equipment are primarily related to acquisitions of equipment that will be used for the manufacturing of our product candidates and expenditures related to the build out of our manufacturing facilities.

For the nine months ended September 30, 2020, net cash used in investing activities was $27.4 million, which included $85.7 million of purchases of marketable debt securities and $2.4 million of purchases of property, plant and equipment, partially offset by cash inflows of $60.7 million from maturities and sales of marketable debt securities.

We expect to accelerate our capital spending as we scale our GMP manufacturing capabilities, which will require significant capital for the foreseeable future.

Financing Activities

For the six months ended June 30, 2021, net cash provided by financing activities was $136.8 million, which consisted of $95.0 million in net proceeds from the ATM offering , $40.0 million in proceeds from issuances of related party notes and $4.4 million in proceeds from exercises of stock options.

Net cash used in financing activities consisted of $2.6 million related t o net share settle m e n t of ves t ed RSUs for pay m e n t of pay r oll t a x withholding .

For the six months ended June 30, 2020, net cash provided by financing activities was $87.2 million, which consisted primarily of $86.8 million in net proceeds from an equity offering.

For the nine months ended September 30, 2021, net cash provided by financing activities was $179.5 million, which consisted of $137.0 million in net proceeds from the ATM offering, $40.0 million in proceeds from issuances of related-party promissory notes, $5.1 million in proceeds from exercises of stock options and a $1.4 million capital contribution related to the sale of 557 Doug St, LLC to an entity under common control.

Net cash used in financing activities consisted of $3.6 million related to net share settlement of vested RSUs for payment of payroll tax withholding and a $0.4 million payment for contingent consideration.

For the nine months ended September 30, 2020, net cash provided by financing activities was $150.4 million, which consisted primarily of $86.3 million in net proceeds from an equity offering, $63.7 million in proceeds from issuances of related-party promissory notes and $0.9 million in proceeds from exercises of stock options, partially offset by $0.5 million related to net share settlement of vested RSUs for payment of payroll tax withholding.

Future Funding Requirements

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As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support.

However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including the ATM) and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the condensed consolidated financial statements based primarily upon our Executive Chairman’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt.

However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including the ATM) and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the condensed consolidated financial statements based primarily upon our Executive Chairman and Global Chief Scientific and Medical Officer’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt.

We may also seek to sell additional equity, through one or more follow-on public offerings, or in separate financings, or obtain a credit facility.

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Further, because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we may need additional funds to meet our needs sooner than planned.

We will need to obtain a dditional financing to fund our fut u re o p erations, including completing the development and commercial i zation of our product candidates.

C hanging cir c umstances may cause us to increase our spending s i gnif i can t ly faster th a n we curr e ntly an t ic ip ate and we may n eed to raise additional funds sooner than we presently anticipate.

Moreover, research and development and our operating costs and fixed expenses such as rent and other contractual co m mitm e nt s , in c l uding those for our research collaborat i ons, are subs t a nt i a l and are e xpec t ed to i ncr e a se in the futur e .

Our future funding requ i rements will depend on many factors, including, but not limited to:

progr e s s, t i ming, number, scope a nd c os t s of researching and developing our product candidates and our on g oing, plan n e d a nd po t ent i al c lin i c a l t ria l s ;

t ime and cost of regulatory approvals;

We will need to obtain additional financing to fund our future operations, including completing the development and commercialization of our product candidates.

Changing circumstances may cause us to increase our spending significantly faster than we currently anticipate and we may need to raise additional funds sooner than we presently anticipate.

Moreover, research and development and our operating costs and fixed expenses such as rent and other contractual commitments, including those for our research collaborations, are substantial and are expected to increase in the future.

Our future funding requirements will depend on many factors, including, but not limited to:

• progress, timing, number, scope and costs of researching and developing our product candidates and our ongoing, planned and potential clinical trials;

• time and cost of regulatory approvals;

• our ability to successfully commercialize any product candidates, if approved and the costs of such commercialization activities;

revenue from p r oduct candidates that we may commercialize, if any, i n cluding the selling prices for su c h potential products and the availabi l ity of adequate third-party cover a ge and reimbursement for patients;

c ost of building, staffing and validating our own manufacturing facilities in t he Un i ted Sta t es, including having a product candidate successfully manufactured consistent with FDA and European Medicines Agency regulations;

t erms, t iming and costs of our current and any pote n tial future collaborations, business or product acquisitions, CVRs, m i lestones, r o yalti e s, l i c e n s i n g or other arrangements that we have established or may establish;

t ime and cost necessary to respond to technological, regulatory, po l itical and market developments;

c osts of filing, prosecuting, maintaining, defending and enforcing any patent claims a n d other intellectual property rights.

Unless and until we can generate a suffic i ent amount of reve n ues, we m a y finance f uture cash needs through pu b lic or private equity offerings, license agreements, debt financings, col l abor a t i ons, str a teg i c al l ian c e s and marketing or dis t ribution arrangements.

• revenue from product candidates that we may commercialize, if any, including the selling prices for such potential products and the availability of adequate third-party coverage and reimbursement for patients;

• cost of building, staffing and validating our own manufacturing facilities in the United States, including having a product candidate successfully manufactured consistent with FDA and European Medicines Agency regulations;

• terms, timing and costs of our current and any potential future collaborations, business or product acquisitions, CVRs, milestones, royalties, licensing or other arrangements that we have established or may establish;

• time and cost necessary to respond to technological, regulatory, political and market developments;

• costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights.

Unless and until we can generate a sufficient amount of revenues, we may finance future cash needs through public or private equity offerings, license agreements, debt financings, collaborations, strategic alliances and marketing or distribution arrangements.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, or at all, including but not limited to the offering, issuance and sale by us of up to a maximum aggregate amount of $500.0 million of our common stock that may be issued and sold under the ATM.

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“Financial Statements” of this Quarterly Report on Form 10-Q.

To the extent that we raise additional c a pital through the sale of equity or conver t ible debt securitie s including through the ATM or other offerings , your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder.

The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve certain r e strictive covenants, such as limitations on o u r abil i ty to incur additional debt, li m it a tions on our a bil i ty to a c qu i re or l i c e nse i n t e l le c tu a l p r operty rights and other operating r e strictions that could adversely impact our ability to conduct our business.

If we raise additional funds through strategic partnerships a nd alliances and licensing arrangements with third parti e s, w e m a y have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us.

To the extent that we raise additional capital through the sale of equity or convertible debt securities including through the ATM or other offerings, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder.

The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us.

We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts.

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From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations.

We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business.

We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a

material adverse effect on our business.

We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints.

If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve.

Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis