ImmunityBio, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-Looking Statements The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, but are not limited to: • our ability to pioneer immunotherapy, harness the power of the innate immune system, implement precision cancer medicine and change the current paradigm of cancer care; • our ability to implement and support our COVID ‑ 19 vaccine and therapeutic programs; • any impact of the coronavirus pandemic, or responses to the pandemic, on our business, clinical trials or personnel; • our expectations regarding the potential benefits of our strategy and technology; • our expectations regarding the operation of our product candidates and related benefits; • our ability to utilize multiple modes to induce cell death; • our beliefs regarding the benefits and perceived limitations of competing approaches, and the future of competing technologies and our industry; • details regarding our strategic vision and planned product candidate pipeline, including that we eventually plan to advance therapies for virally induced infectious diseases; • our beliefs regarding the success, cost and timing of our product candidate development activities and current and future clinical trials and studies, including study design; • 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 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; • the ability and willingness of strategic collaborators, including certain affiliates of NantWorks, LLC (“NantWorks”) to share our vision and effectively work with us to achieve our goals; • the ability and willingness of various third parties to engage in research and development activities involving our product candidates, and our ability to leverage those activities; • our ability to attract additional third-party collaborators; • our expectations regarding the ease of administration associated with our product candidates; • our expectations regarding the patient compatibility associated with our product candidates; • our beliefs regarding the potential markets for our product candidates and our ability to serve those markets; • our ability to produce an “off-the-shelf” therapy; 45 Table of Contents • 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 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; • our ability to commercialize any approved products; • the rate and degree of market acceptance of any approved products; • our ability to attract and retain key personnel; • the accuracy of our estimates regarding our future revenue, as well as our future operating expenses, capital requirements and needs for additional financing; • our ability to obtain funding for our operations, including funding necessary to complete further development and any commercialization of our product candidates; • our ability to obtain, maintain, protect and enforce intellectual property protection for our product candidates and technology and not infringe upon, misappropriate or otherwise violate the intellectual property of others; • the terms and conditions of licenses granted to us and our ability to license additional intellectual property relating to our product candidates and technology; • the impact on us, if any, if the contingent value rights (“CVRs”) held by former Altor BioScience Corporation (“Altor”) stockholders become due and payable in accordance with their terms; and • regulatory developments in the United States (“U.S.”) and foreign countries. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. 46 Table of Contents Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. 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 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. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us, by any other companies. In this Quarterly Report on Form 10-Q, “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio, Inc. and its subsidiaries. Overview 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. 47 Table of Contents 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 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. The Merger On December 21, 2020 , we and NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) (“NantCell”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which we and NantCell agreed to combine our businesses. The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell (the “Merger”), with NantCell surviving the Merger as a wholly-owned subsidiary of the company. On March 9, 2021 , we completed the Merger pursuant to the terms of the Merger Agreement. Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of NantCell common stock , par value $0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 (the “Exchange Ratio”) newly issued shares of common stock, par value $0.0001 per share, of the company (“Company Common Stock”), with cash paid in lieu of any fractional shares. At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase NantCell common stock was converted using the Exchange Ratio into an option, warrant or restricted stock unit, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock. Immediately following the Effective Time, the former stockholders of NantCell held approximately 71.5% of the outstanding shares of Company Common Stock and the stockholders of the company as of immediately prior to the Merger held approximately 28.5% of the outstanding shares of Company Common Stock. As a result of the Merger and immediately following the Effective Time, Dr. 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 nine months ended September 30, 2021. 48 Table of Contents Accounting Treatment of the Merger The Merger represents a business combination pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 805-50, Mergers , which is accounted for as a transaction between entities under common control as Dr. Soon‑Shiong and his affiliates were the controlling stockholders of both the company and NantCell for all of the periods presented in this report. As a result, all of the assets and liabilities of NantCell were combined with ours at their historical carrying amounts on the closing date of the Merger. We have recast our prior period financial statements to reflect the conveyance of NantCell’s common shares as if the Merger had occurred as of the earliest date of the condensed consolidated financial statements presented in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. All material intercompany accounts and transactions have been eliminated in consolidation. Coronavirus 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. However, we cannot at this time predict the specific extent, duration, or full impact that this pandemic may have on our financial condition and results of operations, including ongoing and planned clinical trials. More specifically, the pandemic may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist for the foreseeable future. The impact of the pandemic on our financial performance will depend on future developments, including the duration and spread of the outbreak, impact of potential variants and the related governmental advisories and restrictions. These developments and the impact of the ongoing pandemic on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected. Given the unprecedented and continuously evolving nature of the pandemic, the future impact of these changes and potential changes on the company are unknown at this time. To date, we have seen no material adverse impact to our business from the pandemic. We anticipate, however, that enrollment of patients in certain studies will likely take longer than forecasted in prior Securities and Exchange Commission (“SEC”) filings and that our clinical trials may require additional time to complete which would in turn impact the timeline in which we were previously forecasting BLA submissions of our product candidates and subsequent revenue generation. These factors have been accounted for in the company’s anticipated upcoming milestones. During any such delays in our clinical trials, we will continue to incur fixed costs such as selling, general and administrative expenses and operating expenses related to our laboratory, Good Manufacturing Practice (“GMP”) manufacturing, and office facilities. Many of our office-based employees have been working from home since mid-March 2020. Essential staffing levels for our research and development operations remain in place, including maintaining key personnel in our laboratory and GMP manufacturing facilities. It is likely that the pandemic and resulting mitigation efforts could have an impact in the future on our third-party suppliers who manufacture laboratory supplies required for our in-house manufacturing process, which in turn could have an impact on having sufficient clinical product supply available for our clinical trials. We have addressed this in part by ensuring that we have sufficient supplies on hand to weather interruptions in our supply chain. There is significant uncertainty about the progression and ultimate impact of the pandemic on our business and operations. While the pandemic did not materially impact our results during the periods presented in this Quarterly Report on Form 10-Q, we anticipate that it could impact our business in the future due to factors such as fewer patients accessing treatment for cancer. Operating Results 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 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. 49 Table of Contents 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. For additional information, see Note 8 , Related-Party Agreements, of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. 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 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. See Note 6 , Collaboration and License Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our existing collaboration and license agreements. Agreements with Related Parties We conduct business with several affiliates under written and informal arrangements. 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 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 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. Immuno-Oncology Clinic, Inc. We entered into multiple agreements with Immuno-Oncology Clinic, Inc. (the “Clinic”) to conduct clinical trials related to certain of our product candidates. The Clinic is a related party as it is owned by an officer of the company and NantWorks manages the administrative operations of the Clinic. B ased on a review of our updated clinical trial programs post-Merger, we updated our estimates of the investigator fees for the clinical trials currently underway or planned at the Clinic. 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 nine months ended September 30, 2021 . 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. 50 Table of Contents 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. “Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our related-party agreements. Components of our Results of Operations Revenue 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. If we fail to complete the development of our product candidates in a timely manner or fail to obtain regulatory approval for them, we may never be able to generate substantial future revenue. Operating Expenses We generally classify our operating expenses into research and development, and selling, general and administrative expenses. 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, primarily based on the nature of each cost. Research and Development Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our technology and product candidates. This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expenses primarily consist of: • clinical trial and regulatory-related costs; • expenses incurred under agreements with investigative sites and consultants that conduct our clinical trials; • expenses incurred under collaborative agreements; • manufacturing and testing costs and related supplies and materials; • employee-related expenses, including salaries, benefits, travel and stock-based compensation; and • facility expenses dedicated to research and development. We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or development programs. We expect our research and development expenses to continue to increase significantly for the foreseeable future as we advance our product candidates through clinical development, including the conduct of our ongoing and any future clinical trials. 51 Table of Contents The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates. The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following: • per patient trial costs; • the number of sites included in the clinical trials; • the countries in which the clinical trials are conducted; • the length of time required to enroll eligible patients; • the number of patients that participate in the clinical trials; • the number of doses that patients receive; • the cost of comparative agents used in clinical trials; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring or other studies requested by regulatory agencies; • the duration of patient follow-up; and • the efficacy and safety profile of the product candidate. We do not expect any of our product candidates to be commercially available for the foreseeable future, if ever. Selling, General and Administrative Selling, general and administrative expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-based compensation, for employees performing functions other than research and development. This includes personnel in executive, finance, human resources, information technology, legal, and administrative support functions. Other selling, general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, professional fees for auditing, tax and legal services, advertising costs, expenses associated with strategic business transactions and business development efforts, obtaining and maintaining patents, consulting costs, royalties and licensing costs, and costs of our information systems. We expect that our selling, general and administrative expenses will increase for the foreseeable future as we expand operations, build out information systems and increase our headcount to support continued research activities and the development of our clinical programs. We have incurred and expect that we will continue to incur in the future, additional costs associated with operating as a public company, including costs to comply with stock exchange listing and SEC requirements, future funding efforts, corporate governance, internal controls, investor relations, disclosure and similar requirements applicable to public companies. Additionally, if and when we believe that a regulatory approval of a product candidate appears likely, we expect to incur significant increases in our selling, general and administrative expenses relating to the sales and marketing of the approved product candidate. Other Income and Expense Other income and expense consists primarily of interest income, interest expense, unrealized gains and losses on investments in equity securities, realized gains and losses on both debt and equity securities, and gains and losses on foreign currency transactions. Income Taxes The company is subject to taxation in the United States, various state, and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. To date, we have not been required to pay U.S. federal income taxes or foreign income taxes because of our or our subsidiaries’ current and accumulated net operating losses. 52 Table of Contents Results of Operations Comparison of the three months ended September 30, 2021 and 2020 Three Months Ended September 30, $ Change % Change 2021 2020 (Unaudited, $ in thousands) Revenue $ 66 $ 151 $ (85) (56 %) Operating expenses: Research and development (including amounts with related parties) 49,277 35,772 13,505 38 % Selling, general and administrative (including amounts 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, 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 (expense) income, net (including amounts with related parties) (38) 84 (122) (145 %) 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 $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 $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. 53 Table of Contents 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 2021 2020 (Unaudited, $ in thousands) Revenue $ 544 $ 752 $ (208) (28 %) Operating expenses: Research and development (including amounts with related parties) 144,205 96,151 48,054 50 % Selling, general and administrative (including amounts 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 expense, net: Interest and investment income, net 2,826 1,213 1,613 133 % Interest expense (including amounts with related parties) (10,359) (6,238) (4,121) 66 % Other income, net (including amounts with related parties) 252 1,269 (1,017) (80 %) 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 $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. 54 Table of Contents 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 $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 Sources of Liquidity Our principal sources of liquidity are our existing cash, cash equivalents, and marketable securities. We have historically invested our cash primarily in investment grade short- to intermediate-term corporate debt securities, commercial paper, government-sponsored securities, U.S. treasury securities, and foreign government bonds and classify these investments as available-for-sale. Certain of these investments are subject to general credit, liquidity and other market risks. 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 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 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 September 30, 2021, we had $359.0 million available for future stock issuances under the ATM. 55 Table of Contents In order to complete the development of our current product candidates, and implement our business plan, we will require substantial additional funding. Furthermore, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to raise even greater amounts of funds sooner if we choose to expand more rapidly than we presently anticipate. Moreover, our fixed expenses such as rent and other contractual commitments are substantial and are expected to increase in the future. Uses of Liquidity 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 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. The notes allow for additional advances as we may request with the consent of the applicable lender. With the exception of interest on the recent $40.0 million advance, all outstanding principal and accrued and unpaid interest on these notes are due and payable on September 30, 2025. In connection with our acquisition of Altor, we issued CVRs under which we have agreed to pay the prior stockholders of Altor approximately $304.0 million upon successful approval of the BLA, or foreign equivalent, for Anktiva™ by December 31, 2022 and approximately $304.0 million upon the first calendar year prior to December 31, 2026 in which worldwide net sales of Anktiva™ exceed $1.0 billion (with payments payable in cash or shares of our common stock or a combination thereof). Dr. Soon-Shiong and his related party hold approximately $279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of common stock in satisfaction of their CVRs. We may need to seek additional sources of capital to satisfy the CVR obligations if they are achieved. Cash Flows The following table sets forth our primary sources and uses of cash for periods indicated: Nine Months Ended September 30, 2021 2020 (Unaudited, in thousands) Cash (used in) provided by: Operating activities $ (202,780) $ (114,120) Investing activities 52,916 (27,357) Financing activities 179,490 150,434 Effect of exchange rate changes on cash, cash equivalents, and restricted cash (17) (73) Net change in cash, cash equivalents, and restricted cash $ 29,609 $ 8,884 56 Table of Contents Operating Activities 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 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 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. 57 Table of Contents 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 To date, we have generated minimal revenue, and 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 do not expect to generate significant revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, this will occur. In addition, we expect our expenses to significantly increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We have also incurred and expect that we will continue to incur in the future additional costs associated with operating as a public company as well as costs related to future fundraising efforts. In addition, subject to obtaining regulatory approval of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. We expect that our expenses will increase substantially if and as we: • continue research and development, including preclinical and clinical development of our existing product candidates; • potentially seek regulatory approval for our product candidates; • seek to discover and develop additional product candidates; • establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval; • seek to comply with regulatory standards and laws; • maintain, leverage and expand our intellectual property portfolio; • hire clinical, manufacturing, scientific and other personnel to support our product candidates’ development and future commercialization efforts; • add operational, financial and management information systems and personnel; and • incur additional legal, accounting and other expenses in operating as a public company. 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 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. However, we may not be able to secure such financing in a timely manner or on favorable terms. Without additional funds, we may choose to delay or reduce our operating or investment expenditures. 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 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. 58 Table of Contents 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 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; and • 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. See Note 9 , Stockholders’ Deficit , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. 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. Our current license and collaboration agreements may also be terminated if we are unable to meet the payment obligations under those agreements. As a result, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Contractual Obligations, Commitments and Contingencies Contractual Obligations and Commitments See Note 7 , Commitments and Contingencies – Lease Arrangements , and Note 8 , Related-Party Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. Contingencies 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 59 Table of Contents 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 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 During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules. Critical Accounting Policies and Significant Judgments In the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 and the Management’s Discussion and Analysis of Financial Condition and Results of Operations of ImmunityBio, Inc. filed as Exhibit 99.3 to our Current Report on Form 8-K/A filed with the SEC on April 22, 2021, we have disclosed those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of our Current Report on Form 8-K/A on April 22, 2021. The accounting principles used in preparing our condensed consolidated financial statements conform in all material respects with accounting principles generally accepted in the United States of America (“U.S. GAAP”) . Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these financial statements. We base our estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the ongoing coronavirus pandemic could have on our significant accounting estimates. Actual results could differ from those estimates. Stock-Based Compensation We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). We measure the fair value of an equity-classified award at the grant date and recognize the stock-based compensation expense over the period of vesting on the straight-line basis for our outstanding share awards that do not contain a performance condition. For awards subject to performance-based vesting conditions, we assess the probability of the individual milestones under the award being achieved and stock-based compensation expense is recognized over the service period using the graded vesting method once management believes the performance criteria is probable of being met. For awards with service or performance conditions, we recognize the effect of forfeitures in compensation cost in the period that the award was forfeited. Recent Accounting Pronouncements Refer to Note 2 , Summary of Significant Accounting Policies , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to us. 60 Table of Contents