What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-04 · 366 added, 516 removed, 95 unchanged (90% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read together with Item 6, “Selected Financial Data,” the description of the business appearing in Item 1, “Business,” of this report, and the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10‑K and the related notes included elsewhere in this report.

This discussion contains forward-looking statements as a result of many factors, including those set forth under Item 1, “Business – Forward-Looking Statements” and Item 1A, "Risk Factors", and elsewhere in this Annual Report on Form 10‑K.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could differ materially from those discussed in or implied by forward-looking statements.

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in Item 1A, “Risk Factors”.

We are a pioneering clinical-stage immunotherapy company focused on harnessing the power of the innate immune system by using our natural killer cells, or NK cells, to treat cancer and viral infectious diseases.

NK cells are the body’s first line of defense due to their innate ability to rapidly seek and destroy abnormal cells, such as cancer or virally infected cells, without prior exposure or co-activation by other support molecules that are typically required to train and activate adaptive immune cells such as T‑cells.

A critical aspect of our strategy is to invest significantly in innovating new therapeutic candidates, based upon our proprietary activated NK, or aNK, cell platform, and conducting clinical testing and scale manufacturing of our most promising biologic product candidates.

We believe our aNK cell is capable of being manufactured as a cell-based “off-the-shelf” therapy that can be molecularly engineered in a variety of ways to boost its killing capabilities against cancers and virally infected cells.

We retain worldwide commercial rights to clinical and research data, intellectual property and know-how developed with our aNK cells, as well as clinical grade master and working cell banks of aNK, haNK and t‑haNK cell lines.

Agreement and Plan of Merger with ImmunityBio, Inc.

On December 21, 2020, NantKwest and ImmunityBio, Inc.

(ImmunityBio) entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which NantKwest and ImmunityBio agreed to combine their businesses.

The Merger Agreement provides that a wholly owned subsidiary of NantKwest will merge with and into ImmunityBio (the Merger), with ImmunityBio continuing as the surviving company and being renamed NantCell, Inc., upon the terms and subject to the conditions therein.

At the effective time of the Merger (the Effective Time), NantKwest’s name, as the parent of NantCell, Inc., will be changed to “ImmunityBio, Inc.”

At the Effective Time, each share of ImmunityBio common stock issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, will be converted automatically into a right to receive 0.8190 shares of NantKwest common stock.

At the Effective Time, each share of NantKwest common stock issued and outstanding immediately prior to the Effective Time, will remain an issued and outstanding share of the combined company.

At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase ImmunityBio common stock will be converted (using the merger exchange ratio of 0.8190) 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 common stock of the combined company.

Upon consummation of the Merger, on a fully-diluted basis, ImmunityBio stockholders and NantKwest stockholders will own approximately 72% and 28%, respectively, of the outstanding shares of common stock of the combined company.

It is estimated that, immediately following the closing date, Dr.

Patrick Soon‑Shiong, our Executive Chairman and principal stockholder, and his affiliates will beneficially own, in the aggregate, approximately 82% of the common stock of the combined company.

Following consummation of the Merger, shares of common stock of the combined company are expected to be listed on the Nasdaq Global Select Market under the symbol “IBRX”.

Under the terms and subject to the conditions set forth in the Merger Agreement, the closing of the Merger depends on a number of conditions being satisfied, including approval of the Merger by holders of a majority of the outstanding shares of NantKwest common stock as of the NantKwest record date (excluding all shares of NantKwest common stock beneficially owned by Dr.

Patrick Soon‑Shiong and his affiliates Cambridge Equities, LP and Chan Soon‑Shiong Family Foundation or any of their respective controlled affiliates or any of the directors or executive officers of NantKwest or ImmunityBio).

On February 1, 2021, our Registration Statement on Form S-4, which was filed with the Securities and Exchange Commission (SEC) in connection with the Merger, was declared effective by the SEC.

A special meeting of the stockholders of NantKwest will be held on March 8 , 2021 to consider and vote on a proposal to approve the issuance of shares of common stock of NantKwest to security holders of ImmunityBio, and to consider and vote on a proposal to approve the Merger.

Only holders of record of NantKwest common stock at the close of January 29, 2021, will be entitled to notice of and to vote at the special meeting.

We expect the Merger to close in the first quarter of 2021, subject to receipt of the requisite stockholder approvals and satisfaction of other customary closing conditions.

The Merger is expected to be accounted for as a transaction between entities under common control as Dr.

Patrick Soon‑Shiong is the controlling stockholder of each of NantKwest and ImmunityBio.

Upon the closing of the Merger, the net assets of ImmunityBio will be combined with those of NantKwest at their historical carrying amounts and the companies will be presented on a combined basis for all historical periods presented.

For the year ended December 31, 2020, we incurred costs of $6.2 million in connection with our proposed merger with ImmunityBio, consisting of financial advisory, legal and other professional fees.

Our Off-the-Shelf Approach

Multiple Modes of aNK Directed Tumor Cell Killing.

Our NK platform has demonstrated the ability to induce cell death in cancers and virally infected cells through a variety of concurrent mechanisms including:

Innate Killing , whereby all of our NK platforms, aNK, haNK, taNK and t‑haNK, recognize the abnormal proteins typically found on the surfaces of metabolically stressed cells, which upon binding, release toxic granules to immediately kill their targets;

Antibody-Mediated Killing with our haNK and t ‑ haNK platforms , which are aNK cells engineered to express antibody receptors that can bind to therapeutically administered antibody products or to antibodies naturally produced in the body, thereby enhancing the cancer cell killing effects of those antibodies through Antibody Dependent Cellular Cytotoxicity, or ADCC;

CAR-Directed Killing with our taNK and t ‑ haNK platforms, which are aNK cells engineered to express chimeric antigen receptors, or CARs, that target tumor-specific proteins commonly found only on the surfaces of cancer cells and upon binding, induce cell death through the release of toxic granules directly into their targets and by the release of cytokines and chemokines, which recruit additional innate and adaptive immune responses, including the recruitment of cytotoxic T‑cells.

All three modes of killing;

Innate Killing, Antibody-Mediated Killing, and CAR-Directed Killing , are employed by our proprietary t‑haNK platform, which combines all the enhanced NK killing functions of aNK, haNK and taNK into a single product platform.

Our primary target therapeutic area is cancer, with a heavy emphasis on solid tumors.

According to the National Cancer Institute, almost 1.9 million new cancer cases are expected to be diagnosed in the U.S.

during 2021, adding to the 16.9 million already living with cancer.

In addition, we plan to advance therapies for hematologic malignancies and virally induced infectious diseases.

Innate Killing—the aNK Platform.

We have developed a unique NK cell platform, which we believe is capable of being manufactured as a cell-based “off-the-shelf” therapy that can be molecularly engineered in a variety of ways to boost its killing capabilities against cancers and virally infected cells.

Unlike normal natural killer cells, our NK cells do not express the key inhibitory receptors that diseased cells often exploit to turn off the killing function of natural killer cells and escape elimination.

We have developed a unique aNK cell, which omits key inhibitory receptors, while preserving critical activation receptors that enable selective innate targeting and killing of distressed and diseased cells.

They do so through the recognition and binding of stress-proteins that are overexpressed on the surfaces of

rapidly growing cancer cells due to oxidative and metabolic stress, nutrient deprivation and waste accumulation that typically occurs when cell growth outpaces the capacity of local circulation;

virally infected cells where the cellular machinery is hijacked to produce an abundance of viral proteins and virions.

Our aNK cells are also designed to deliver a more lethal blow to their target by delivering a larger payload of lytic enzymes and cytokines responsible for both direct and indirect killing when compared to other natural killer cells isolated from healthy donors.

This is due to the higher density of lytic granules and larger cell volume possessed by aNK cells when compared to that of donor-derived natural killer cells.

We believe that our aNK cells can be produced at commercial scale as a ‘living drug’ using our proprietary manufacturing and distribution processes to adequately address select global cancer markets.

Several phase I safety studies with unmodified aNK cells have been conducted in a variety of bulky hematological cancers and solid tumors , enrolling 46 patients in a range of dose levels and schedules with encouraging evidence of single-agent activity and a durable remission, including some complete responses in liquid tumors.

Based on these earlier clinical trials, we have further modified our aNK platform through virus-free molecular engineering designed to leverage additional modes of killing available to aNKs, including antibody - mediated killing, the haNK platform, and both antibody - mediated and CAR -directed antigen targeted killing, the t ‑ haNK platform.

Antibody-Mediated Killing—the haNK Platform.

We have genetically engineered our aNK cell platform using a virus-free method to overexpress high-affinity CD16 receptors, which bind to antibodies.

These antibody-targeted haNK cells are designed to directly bind to IgG1-type antibodies, such as avelumab, trastuzumab, cetuximab and rituximab with the intention of enhancing the cancer-killing efficacy of these antibodies by boosting the population of competent natural killer cells that can kill cancer cells through ADCC.

Antibody products are abundantly utilized to treat cancer and it is estimated that they generate over $100 billion in reported annual sales.

A growing number of studies suggest that clinically meaningful responses to these antibody therapies correlate directly with the overall health of a patient’s natural killer cell population and whether they express the high-affinity variant of the CD16 receptor.

Currently available literature estimates that only approximately 10% to 15% of the addressable patient population eligible for antibody therapies carry high-affinity CD16 receptors.

This implies that our haNK product candidate may have significant market potential as a combination therapy to potentially address a large number of patients who do not carry high-affinity CD16 receptors and, as a result, exhibit a poorer response to antibody therapies.

We therefore intend to develop our haNK product candidate as a combination therapy with widely-used U.S.

Food and Drug Administration, or FDA, approved antibody products such as avelumab, trastuzumab, cetuximab and rituximab.

Current Good Manufacturing Practice, or cGMP, master and working cell banks of our haNK product candidate have been successfully established and will serve as our source for product for our clinical trials and, if approved, commercialization going forward.

We have optimized our manufacturing process partly by designing our haNK product candidate to not require IL‑2 cytokine supplementation to the growth media every few days, thereby enabling us to overcome a technically challenging and costly limitation that many other natural killer cell-based therapies face.

We have also successfully established processes for large-scale production, cryopreservation and long-term storage of final dose forms, thereby optimizing production efficiencies and allowing for on-demand availability with minimal handling at the infusion sites.

Our cryopreserved haNK product candidate has been cleared for clinical testing in several phase Ib/II clinical trials, including our phase II Merkel cell cancer study.

CAR-Directed Killing—the taNK Platform.

We have genetically engineered our aNK platform to express CARs that target tumor-specific antigens found on the surfaces of cancers and virally infected cells.

Our taNK cells are designed to bind directly to these surface antigens and induce cell death through the release of toxic granules directly into the tumor cells and release of cytokines and chemokines to recruit additional innate and adaptive immune responses, including the recruitment of cytotoxic T‑cells.

These tumor antigens include checkpoint ligands, such as PD‑L1 and B7‑H4 as well as well-established tumor proteins such as CD19, HER2 and EGFR, all of which can be targeted individually by our engineered taNK products.

Preclinical evidence has been mounting which indicates that taNK cell activation through the binding of its CAR receptors to these cancer specific proteins may be potent enough to override many of the pre-existing inhibitory signals and immunosuppressive factors present in the tumor microenvironment that may be responsible for tumor resistance.

CAR-Directed and Antibody-Mediated Killing—the t‑haNK Platform.

Our newest and most promising platform for the development of therapeutic product candidates is an innovative, bioengineered combination of our haNK and taNK platforms that incorporates all the features of our haNK platform together with a CAR.

The resulting line of product candidates under this platform avails itself to all three modes of killing:

innate , antibody-mediated and CAR-directed killing .

These product candidates also include one or more additional expression elements such as functional cytokines, chemokines and trafficking factors, making them amongst the most versatile in our portfolio.

These product candidates are intended to be combined with commercially available therapeutic antibodies to effectively target either two different epitopes of the same cancer specific protein or two entirely different cancer specific proteins.

In addition to our two t‑haNK product candidates, PD‑L1.t‑haNK, currently in phase II testing, and CD19.t‑haNK, cleared to commence phase I testing, we believe a pipeline of prominent CARs for t‑haNK, including HER2 and EGFR, which are nearing IND submission, and others that are advancing through clinical enabling studies, will enable us to potentially address an even broader range of cancers as part of a chemotherapy-free combination regimen.

The Nant Cancer Vaccine.

The Nant Cancer Vaccine, or NCV, program is a personalized therapy regimen, which utilizes our “off-the-shelf” NK cell platform as the backbone of the regimen.

NCV consists of an initial tumor-conditioning regimen followed by a molecularly-informed immunologic conditioning therapy.

More specifically, NCV combines the novel delivery of metronomic, albumin-linked low-dose chemotherapy in conjunction with certain other agents, followed by a sequenced administration of tumor-associated antigen vaccines and an IL‑15 superagonist fusion protein, all of which potentiate our NK cell therapy to potentially drive immunogenic cell death while avoiding the ravages of toxic high-dose chemotherapy.

By inducing immunogenic cell death and enhancing a patient’s innate and adaptive immune system, NCV is designed to attain a long-term, durable response in multiple cancer types with a potential for lower toxicity and improved efficacy and quality of life in comparison with current standards of care.

We believe ultimately that employing our NK cell therapy in the context of NCV will be a highly effective combination for long term clinical success over available standards of care that employ maximum tolerated dose, tolerogenic cell death and immune system compromise.

Coronavirus Pandemic

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

In the same month, the President of the United States declared a State of National Emergency due to the pandemic.

Many jurisdictions, particularly in North America, Europe and Asia, as well as U.S.

states in which we operate, including California, have adopted or continue to consider laws, rules, regulations or decrees intended to address the pandemic, including travel restrictions, closing or re-opening of non-essential businesses or restricting daily activities.

However, due to the pandemic new restrictions might be imposed by various governmental authorities.

For example, many communities have limited, and may continue to limit, social mobility and gatherings in response to the continued rise in coronavirus cases and fatalities in the U.S.

Such restrictions and other impacts from the pandemic may have an impact on our business.

Given the unprecedented and continuously evolving nature of the pandemic, the future impact of these changes and potential changes on our 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 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.

The following discussion and analysis of our financial condition and results of operations should be read together with the description of our business appearing in Part I, Item 1.

“Business” and the consolidated financial statements and related notes thereto in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

This discussion contains forward-looking statements as a result of many factors, including those set forth under Part I, Item 1.

“Business—Forward-Looking Statements” and Item 1A.

“Risk Factors,” and elsewhere in this Annual Report.

These statements are based on the current expectations and assumptions of management that are subject to risks and uncertainties.

Actual results could differ materially from those discussed in or implied by such forward-looking statements.

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Part I, Item 1A.

“Risk Factors.” Except as required by law, we do not undertake any responsibility to update any of these factors or to announce publicly any revisions to any of the forward-looking statements contained in this or any document, whether as a result of new information, future events, or otherwise.

ImmunityBio, Inc.

is a clinical-stage biotechnology company developing next-generation therapies and vaccines that complement, harness, and amplify the immune system to defeat cancers and infectious diseases.

We strive to be a vertically-integrated immunotherapy company designing and manufacturing our products so they are more effective, accessible, more conveniently stored, and more easily administered to patients.

Our broad immunotherapy and cell therapy platforms are designed to attack cancer and infectious pathogens by activating both the innate immune system—NK cells, dendritic cells, and macrophages—and the adaptive immune system—B cells and T cells—in an orchestrated manner.

The goal of this potentially best-in-class approach is to generate immunogenic cell death thereby eliminating rogue cells from the body whether they are cancerous or virally infected and to ultimately establish an “immunological memory” that confers long-term benefit for the patient.

Our business is based on the foundation of multiple platforms that collectively act on the entire immune response with the goal of targeted, durable, coordinated, and safe immunity against disease.

These platforms and their associated product candidates are designed to overcome the limitations of the current standards of care in oncology and infectious disease, such as checkpoint inhibitors and antiretroviral therapies.

We have established one of the most comprehensive portfolios of immunotherapy and vaccine platforms, which include:

We believe that our innovative approach to orchestrate and combine therapies for optimal immune system response will become a therapeutic foundation across multiple clinical indications.

Although such designations may not lead to a faster development process or regulatory review and may not increase the likelihood that a product candidate will receive approval, Anktiva, our novel antibody cytokine fusion protein, has received Breakthrough Therapy and Fast Track designations in combination with BCG from the FDA for BCG -unresponsive NMIBC CIS .

B ased on the reported results of the trial, we have initiated discussions with the FDA to file a BLA for Anktiva (to be branded VesAnktiva for intravesical administration) plus BCG for BCG-unresponsive NMIBC CIS.

Additionally, we believe that data from multiple clinical trials indicates Anktiva has broad potential to enhance the activity of therapeutic mAbs, including checkpoint inhibitors (e.g., Keytruda ® ), across a wide range of tumor types.

Our platforms, which include 17 first-in-human therapeutic agents, are being studied in 26 actively recruiting clinical trials—17 of which are in Phase 2 or 3 development—across 13 indications in liquid and solid tumors, including bladder, pancreatic and lung cancers.

These are among the most frequent and lethal cancer types for which there are high failure rates for existing standards of care or, in some cases, no available effective treatment.

In infectious disease, our pipeline currently targets such pathogens as SARS-CoV-2 and HIV.

We believe SARS-CoV-2 currently lacks a vaccine that provides long-term protection against the virus, particularly its variants, while HIV affects tens of millions of people globally and currently has no known cure.

We have established GMP manufacturing capacity at scale with cutting-edge cell manufacturing expertise and ready-to-scale facilities, as well as extensive and seasoned R&D, clinical trial, and regulatory operations, and development teams.

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, the symbol for shares of the company’s common stock was changed to “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 and $10.3 million were recorded for the years ended December 31, 2021 and 2020, respectively.

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 consolidated financial statements presented in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

All material intercompany accounts and transactions have been eliminated in consolidation.

COVID-19 Pandemic

The COVID-19 pandemic continues to present a substantial public health and economic challenge around the world.

Through the date of this Annual Report, we have not seen a material adverse impact to our business from the pandemic.

However, given the unprecedented and continuously evolving nature of the pandemic, 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.

In addition, we anticipate that enrollment of patients in certain studies will likely take longer than previously forecasted and that our clinical trials may require additional time to complete which would in turn impact the timeline of 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, GMP manufacturing, and office facilities.

Our office-based employees have been working from home since mid-March 2020, while ensuring essential staffing levels for our research and development operations remain in place, including maintaining key personnel in our laboratory and GMP manufacturing facilities.

While we have not previously experienced or been notified of any anticipated impact amongst our third party vendors, 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.

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 year ended December 31, 2020 outside of the Joint COVID-19 Collaboration Agreement as described above, we anticipate that it could impact our business in the short-term due to factors such as fewer patients accessing treatment for cancer.

We continue to monitor the impact of the COVID-19 pandemic on our business, including our clinical trials, manufacturing facilities and capabilities, and ability to access necessary resources.

For a discussion of the risks presented by the COVID-19 pandemic to our results of operations and financial condition, see Part I, Item 1A.

“Risk Factors.”

Operating Results

To date, we have generated minimal revenue related to the non-clinical use of our cell lines and intellectual property.

We have not generated any revenue from product sales.

We have incurred net losses in each year since our inception and, as of December 31, 2020, we had an accumulated deficit of $754.6 million.

Our net losses were $92.4 million, $65.8 million and $96.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

From inception through the date of this Annual Report, 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 December 31, 2021, we had an accumulated deficit of $2.0 billion.

Our net losses attributable to ImmunityBio common stockholders were $346.8 million, $221.9 million, and $157.8 million for the years ended December 31, 2021, 2020 and 2019, 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.

1 unchanged sentence

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 10, Related Party Agreements , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report.

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.

We anticipate that our expenses will increase substantially 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;

incur additional legal, accounting and other expenses in operating as a public company;

incur additional costs associated with our proposed merger with ImmunityBio, including a higher expense rate for the operations of the combined company if the merger closes.

We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we do not expect to happen for at least the next several years, if ever.

Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our research and development programs or commercialization efforts.

Failure to receive additional funding could cause us to cease operations, in part or in full.

Viracta Investment

In March 2017, we participated in a Series B convertible preferred stock financing and invested $8.5 million in Viracta Therapeutics, Inc., or Viracta, a clinical stage drug development company, which was initially recorded at cost.

In May 2017, we executed an exclusive worldwide license with Viracta to develop and commercialize Viracta’s proprietary histone deacetylase inhibitor drug candidate for use in combination with NK cell therapy and possibly additional therapies.

We measure our equity securities without readily determinable fair values at cost, less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in the consolidated statements of operations.

Some factors we may consider in the impairment analysis include the extent to which the security has been in an unrealized loss position, the change in the financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions.

At December 31, 2020, our fair value assessment indicated that the recent offering of Viracta’s Series E preferred shares, at a lower offering price per share than the per share carrying amount of our investment in Viracta, is a directional indicator representing an observable price change in an orderly transaction for a similar investment.

On December 31, 2020, we reduced the carrying value by $1.4 million due to the observable price change, which has been included in other income and expense, net, on the consolidated statements of operations.

On a cumulative basis, we have recognized a reduction in carrying value of $1.4 million.

As of December 31, 2020, the carrying value of our investment in Viracta totaled $7.8 million.

For additional information, see Note 5, Viracta Investment , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report.

For additional information, see Note 8 , Related-Party Agreements, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

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 cell-based immunotherapy due to our broad and vertically integrated platform and through complementary strategic partnerships.

In addition to the collaboration and license agreements discussed below, we may enter into a commercial agreement relating to an IL‑15 superagonist product developed by an affiliate, and we are also pursuing supply arrangements for various investigational agents controlled by affiliates and third parties to be used in our clinical trials.

These collaboration and supply agreements do not typically specify how sales will be apportioned between the parties upon successful commercialization of the product.

As a result, we cannot guarantee that we will receive a percentage of the revenue that is at least proportional to the costs that we will incur in commercializing the product candidate.

Furthermore, if Dr.

Soon-Shiong was to cease his affiliation with us, ImmunityBio, or with NantWorks, these entities may be unwilling to continue these relationships with us on commercially reasonable terms, or at all, and as a result may impede our ability to control the supply chain for our combination therapies.

See Note 8, Collaboration and License Agreements , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report for a more detailed discussion regarding our collaboration and license 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 will 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 13 clinical trials studying our IL-15 superagonist fusion protein Anktiva in combination with complementary, approved therapies to determine if Anktiva may have broad potential to enhance the activity of those therapies, including mAbs 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 Consolidated Financial Statements” that appears in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report for a more detailed discussion regarding our collaboration and license agreements.

Agreements with Related Parties

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.

As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new genetically modified NK cells 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.

Under the NantWorks shared services agreement executed in November 2015, but effective August 2015, NantWorks provides corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy, and other support services.

We are charged for the services at cost plus reasonable allocations for indirect costs that relate to the employees providing the services.

For the years ended December 31, 2020, 2019 and 2018, we recorded $2.5 million, $2.1 million and $2.8 million, respectively, in selling, general and administrative expense, and $1.5 million, $1.5 million and $3.3 million, respectively, in research and development expense under this arrangement on the consolidated statements of operations.

These amounts exclude certain general and administrative expenses provided by third party vendors directly for our benefit, which have been reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks.

In June 2016, we amended the existing shared services agreement with NantWorks whereby we can provide support services to NantWorks and/or any of its affiliates.

For the years ended December 31, 2020, 2019 and 2018, we recorded expense reimbursements of $1.4 million, $1.2 million and $0.6 million, respectively, in selling, general and administrative expense and $1.6 million, $2.3 million and $2.6 million, respectively, in research and development expense.

In November 2015, we entered into a facility license agreement with NantWorks, which became effective in May 2015, for approximately 9,500 square feet in Culver City, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility.

In September 2020, we amended this agreement to extend the term of this lease through December 31, 2021, as further described in Note 9, Commitments and Contingencies , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report.

Lease expense for this facility for the years ended December 31, 2020, 2019 and 2018, is recorded in research and development expense on the consolidated statements of operations and was $0.6 million, $0.6 million, and $0.2 million, respectively.

Immuno-Oncology Clinic, Inc.

Beginning in 2017, we entered into multiple agreements with Immuno-Oncology Clinic, Inc., or the Clinic (dba Chan Soon-Shiong Institutes for Medicine, in El Segundo, California), to conduct clinical trials related to certain of our product candidates.

The Clinic is a related party as it is owned by one officer of NantKwest and NantWorks manages the administrative operations of the Clinic.

Prior to June 30, 2019, one of the company’s officers was an investigator or sub-investigator for all of the company’s trials conducted at the Clinic.

In July 2019, we entered into a new agreement with the Clinic (the Clinic Agreement), which became effective on July 1, 2019.

The Clinic Agreement, as amended on March 31, 2020, covers clinical trial and research related activities on a non-exclusive basis relating to our existing clinical trials, commenced prior to July 1, 2019, and prospective clinical trials and research projects.

The Clinic Agreement also specifies certain services and related costs that are excluded from the Clinic Agreement.

Prior to commencing any work under the Clinic Agreement, the parties have agreed to execute written work orders setting forth the terms and conditions related to specific services to be performed, including financial terms.

For clinical trials that commenced prior to July 1, 2019, fees incurred for services performed after July 1, 2019 are covered under the Clinic Agreement and applied towards the below-mentioned prepayments.

The Clinic Agreement allows for an automatic renewal and additional extensions beyond the initial one year term.

In consideration of the services to be performed under the Clinic Agreement, as amended on March 31, 2020, we agreed to make payments of up to $7.5 million to the Clinic, of which $3.75 million and $1.875 million were paid in July 2019 and October 2019, respectively.

As amended, a conditional payment of $1.875 million shall be due and payable at such time, if any, that the payments made in July 2019 and October 2019 have been earned by the Clinic through performance of services.

On a quarterly basis, our prepayment is increased by an interest credit computed in accordance with terms specified in the Clinic Agreement.

To the extent any portion of the prepayments remain unearned by the Clinic on the third anniversary of the Clinic Agreement, we may elect at our sole discretion either to (i) not extend the term of the Clinic Agreement and have the Clinic reimburse us for the total amount of any remaining unused portion of the prepayments, or (ii) extend the term of the Clinic Agreement for up to three additional one year periods, at which time the Clinic will reimburse us for the total amount of any remaining unused portion of the prepayments plus interest if reimbursement is not made within 60 days of expiration.

The Clinic may terminate this agreement upon each anniversary date upon sixty (60) days prior written notice and reimbursement in full to us of any outstanding unearned balance of the prepayments, provided that any such termination by the Clinic will not apply with respect to any work orders still in effect at the time of such termination.

In July 2019, we executed a clinical trial work order under the Clinic Agreement for an open-label, phase I study of PD‑L1.t‑haNK for infusion in subjects with locally advanced or metastatic solid cancers.

In July 2020, but effective on June 22, 2020, we and ImmunityBio executed a clinical trial work order under our existing master agreement with the Clinic for an open-label, randomized, comparative phase II study of ImmunityBio’s proprietary IL‑15 superagonist (N‑803) and Aldoxorubicin Hydrochloride (Aldoxorubicin) and our PD‑L1.t‑haNK with standard-of-care chemotherapy versus standard-of-care chemotherapy for first and second line treatment of locally or advanced metastatic pancreatic cancer.

During the years ended December 31, 2020, 2019 and 2018, $0.6 million, $1.1 million, and $2.7 million, respectively, was recognized in research and development expense on the consolidated statements of operations related to clinical trial and research related activities conducted for us by the Clinic.

ImmunityBio, Inc., or ImmunityBio, is a related party, as it is controlled by our Executive Chairman and principal stockholder, Dr.

Patrick Soon-Shiong.

On December 21, 2020, we entered into a merger agreement with ImmunityBio pursuant to which NantKwest and ImmunityBio agreed to combine their businesses.

The proposed merger is discussed in additional detail above under Agreement and Plan of Merger with ImmunityBio, Inc.

In September 2020, we entered into a sublease agreement with Altor Bioscience Manufacturing Company, LLC, a subsidiary of ImmunityBio, whereby we leased approximately 6,901 square feet in El Segundo, California, including laboratory space and related furniture, fixtures and equipment.

The agreement also includes certain non-lease components related primarily to the right to use certain common areas within the building and the related furniture and fixtures.

This facility will be used to manufacture and produce clinical products for our oncology product candidate trials.

The lease runs from August 2020 through July 2022, and includes an option to extend the lease for an additional one-year term through July 2023.

The monthly fixed charge related to the agreement is $0.2 million, a portion of which is subject to annual increases of 3% which began in November 2020.

In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses, both of which are variable lease expenses.

Lease expense for this facility is recorded in research and development expense on the consolidated statements of operations and was $0.9 million during the year ended December 31, 2020.

On August 21, 2020, we entered into a Collaboration Agreement with ImmunityBio as further described in Note 8, Collaboration and License Agreements , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report.

As of December 31, 2020, the joint research activity under the Collaboration Agreement totaled $8.4 million, which has been included in research and development expense on the consolidated statements of operations.

Expenses incurred during the year ended December 31, 2020 were primarily related to purchases of equipment of $5.0 million, to be utilized in the manufacture of the hAd5 COVID‑19 vaccine candidate, and net program related costs of $3.4 million, after applying the eligible cost sharing under the Collaboration Agreement.

Certain equipment purchases made by us during the year ended December 31, 2020, which are necessary for us to fulfil our manufacturing obligations related to the COVID‑19 program, were borne solely by us.

The equipment purchases do not have an alternative use and were therefore expensed as incurred within research and development expenses.

Prior to the effective date of the Collaboration Agreement, COVID‑19 related program costs incurred by us and ImmunityBio, including expenditures related to property, plant and equipment, were the responsibility of each party and not subject to the equal cost sharing.

In January 2020, but effective on October 1, 2019, we entered into a Cost Allocation Agreement with ImmunityBio, which (together with related work orders) is described further in Note 8, Collaboration and License Agreements , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report.

During the years ended December 31, 2020 and 2019, we incurred net costs of $1.1 million and $35,700, respectively, after applying the eligible costs sharing under the Cost Allocation Agreement, which have been recognized in research and development expense on the consolidated statements of operations.

In November 2018, we entered into an agreement with Etubics Corporation, or Etubics, a subsidiary of ImmunityBio.

Pursuant to this agreement we sold used laboratory equipment to Etubics for $ 0.3 million.

In conjunction with this sale, we recognized a loss on disposal of related laboratory equipment of $ 0.1 million, which was included in other income, net on the consoli dated statements of operations.

In June 2015, we entered into a supply agreement with ImmunityBio pursuant to which we have the right to purchase ImmunityBio’s proprietary bioreactors, made according to specifications mutually agreed to with ImmunityBio.

We also have the right to purchase reagents and consumables associated with such equipment from ImmunityBio.

When an upfront payment is made, it is included in prepaid expenses on the consolidated balance sheets until the product is received.

The agreement had an initial term of five years and renews automatically for successive one-year periods unless terminated earlier.

At December 31, 2020 and 2019, we had $3.2 million and $1.8 million, respectively, in equipment purchased from ImmunityBio pursuant to our supply agreement, which has been included in property, plant and equipment, net, on the consolidated balance sheets.

During the years ended December 31, 2020, 2019 and 2018, we recorded research and development expense associated with reagents and consumables purchased from ImmunityBio pursuant to our supply agreement of $0.3 million, $0.1 million and $0.1 million, respectively, on the consolidated statements of operations.

605 Doug St, LLC

In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman and principal stockholder, for approximately 24,250 square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP laboratory manufacturing facility.

The lease runs from July 2016 through July 2023.

We have the option to extend the lease for an additional three-year term through July 2026.

The monthly rent is $0.1 million with annual increases of 3% beginning in July 2017.

Lease expense for this facility for the years ended December 31, 2020, 2019 and 2018, is recorded in research and development expense on the consolidated statements of operations and was $0.9 million, $0.9 million and $0.2 million, respectively.

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 Promissory Notes

As of December 31, 2021, we have outstanding fixed-rate promissory notes with entities affiliated with Dr.

Soon-Shiong in an aggregate amount of $306.3 million, including accrued interest.

These notes bear interest at a per annum rate ranging from 3.0% to 6.0%, provide that the outstanding principal is due and payable on September 30, 2025, and accrued and unpaid interest is payable on either upon maturity 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 addition, as of December 31, 2021 we have a $300.0 million variable-rate promissory note with an entity affiliated with Dr.

Soon-Shiong that is due and payable on December 17, 2022.

This loan bears interest at Term SOFR + 5.4%, which is compounded annually and payable quarterly commencing on March 17, 2022.

As of December 31, 2021, the interest rate on this loan was 5.47%.

In the event of a default on the loan (as defined in the promissory note), including if we do not repay the loan at maturity, the company has the right, at its sole option, to convert the outstanding principal amount and accrued and unpaid interest due under this note into shares of the company’s common stock at price of $5.67 per share.

There can be no assurance that we can refinance this promissory note or what terms will be available in the market at the time of refinancing.

Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to the refinanced indebtedness would increase.

These risks could materially adversely affect our financial condition, cash flows and results of operations.

I mmuno-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.

In the second quarter of 2021, b ased on a review of our then updated clinical trial programs post-Merger, we updated our estimates of the investigator fees for the clinical trials that were underway or planned at the Clinic.

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

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

In November 2021, we completed a review of alternative structures that could support our more complex clinical trial requirements and made a decision to explore a potential transition of clinical trials at the Clinic to a new structure (including contracting with a new, non-affiliated professional corporation) to be determined and agreed upon by all parties and currently planned for the first half of 2022.

Based on this decision to explore a potential transition, we determined that it was more likely than not that the previously recorded prepaid asset would not result in the collection of fees for services performe d by the Clinic as contemplated in the original agreements.

As a r esult, we wrote down the remaining value of our prepaid asset and recorded approximately $2.5 million in research and development expense , on the consolidated statement of operations for the three months ended December 31, 2021.

Under the NantWorks shared services agreement executed in November 2015, but effective August 2015, NantWorks, a related party, provides corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy, and other support services.

We are charged for the services at cost plus reasonable allocations of employee benefits, facilities and other direct or fairly allocated indirect costs that relate to the employees providing the services.

NantBio, Inc.

In August 2018, NantBio, Inc., or NantBio, assigned an agreement to us for the use of a third-party research facility, which provides us with the exclusive right to use and access to a portion of the third party’s laboratory and vivarium premises.

NantBio is a related party as it is an affiliate of NantWorks.

In conjunction with the assignment, we reimbursed NantBio for upfront payments which it had made to the third party of $0.9 million, and paid $0.5 million directly to the third party for an aggregate value of $1.4 million.

The assigned agreement is for a term of ten years and expires in June 2027.

The agreement may be terminated by us at any time, with or without cause.

In case of termination of the agreement, the third party will reimburse us for a pro-rata amount based upon the passage of time.

In March 2016, NantBio and the National Cancer Institute entered into a cooperative research and development agreement.

The initial five-year agreement covers NantBio and its affiliates, including us.

Under the agreement, the parties are collaborating on the preclinical and clinical development of proprietary recombinant natural killer cells and monoclonal antibodies in monotherapy and in combination immunotherapies.

We benefited from the preclinical and clinical research conducted during the first four years under this agreement.

In each of the contractual years under the agreement we paid $0.6 million to the National Cancer Institute as a prepayment for services under the agreement.

We recognize research and development expense related to this agreement ratably over a 12-month period for each funding year and recorded $0.6 million of expense related to this agreement in each of the years ended December 31, 2020, 2019 and 2018.

NantHealth Labs, Inc.

In March 2018, we entered into an agreement with NantHealth Labs, Inc., or NantHealth Labs, to obtain blood-based tumor profiling services.

NantHealth Labs is a related party, as it is a wholly owned subsidiary of NantHealth, Inc., a majority owned subsidiary of NantWorks.

We are obligated to pay NantHealth Labs fixed, per-patient fees.

The agreement has an initial term of five years and renews automatically for successive one-year periods, unless terminated earlier.

During the years ended December 31, 2019 and 2018, $10,000 and $0.3 million, respectively, has been recognized in research and development expense on the consolidated statements of operations.

There were no expenses associated with this agreement during the year ended December 31, 2020.

In 2018, we entered into a supply agreement with NantCancerStemCell, LLC (NCSC), a 60% owned subsidiary of NantBio (with the other 40% owned by Sorrento).

Under this agreement, we agreed to supply VivaBioCell’s proprietary GMP-in-a-Box bioreactors and related consumables, made according to specifications mutually agreed to with both companies.

In 2018, we entered into a shared service agreement pursuant to which we are charged for services at cost, without mark-up or profit by NantBio, but including reasonable allocations of employee benefits that relate to the employees providing the services.

Duley Road, LLC

In 2017, Altor BioScience Corporation (succeeded by our wholly-owned subsidiary Altor BioScience, LLC), through its wholly-owned subsidiary, entered into a lease agreement with Duley Road, a related party that is indirectly controlled by our Executive Chairman and Global Chief Scientific and Medical Officer, for office and cGMP manufacturing facility space in El Segundo, California.

Effective in 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California.

Both floors of the building are used for research and development and office space.

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 to expand the rentable leased square feet.

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.

Brink Biologics, Inc.

In 2015, we entered into an agreement with Brink Biologics, Inc.

(Brink) whereby we granted to Brink worldwide exclusive licenses to the use of certain cell lines and intellectual property for non-clinical laboratory testing.

Brink is a related party as our Executive Chairman, Global Chief Scientific and Medical Officer and our principal stockholder, and our Chief Corporate Affairs Officer and member of our board of directors, collectively own more than 50% of Brink’s outstanding shares.

420 Nash, LLC

In September 2021, we entered into a lease agreement with 420 Nash, LLC, a related party, for a facility located at 420 Nash Street, El Segundo, California, to be used primarily for the warehousing and storage of drug manufacturing supplies, products and equipment and ancillary office space.

The company has options to extend the lease term for two additional consecutive periods of five years each.

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

“Financial Statements and Supplementary Data” of this Annual Report for a more detailed discussion regarding our related-party agreements.

Components of our Results of Operations

To date, we have derived substantially all of our revenue from non-exclusive license agreements with several pharmaceutical and biotechnology companies granting them the right to use our cell lines and intellectual property for non-clinical use.

These agreements generally include upfront fees and annual research license fees for such use, as well as commercial license fees for sales of our licensee’s products developed or manufactured using our intellectual property and cell lines.

Our license agreements may also include milestone payments, although to date, we have not generated any revenue from milestone payments.

To date, we have generated minimal revenue related to the non-clinical use of our cell lines and intellectual property.

We have no products approved for commercial sale and have not generated any revenue from product sales.

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 classify our operating expenses into research and development and selling, general and administrative 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 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

Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our product candidates, including collaborative arrangements.

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 expense primarily consists of:

Our research and development expenses primarily consist of:

• clinical trial and regulatory-related costs;

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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.

Substantially all of our research and development expenses to date have been incurred in connection with our product candidates.

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 as well as product candidates pursued as part of our collaboration efforts.

We expect our research and development expense 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.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming.

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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 as discussed in greater detail in Part I, Item 1A, “ Risk Factors ” of this Annual Report.

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:

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• the efficacy and safety profile of the product candidate.

We do not expect any of our product candidates to be commercially available for at least the next several years, if ever.

In addition, 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 and conduct our ongoing and planned clinical trials.

We have only one product candidate, Anktiva, currently planned for a BLA submission to the FDA in the near future.

However, there can be no assurance that it will be approved for commercial sale in the near term, if ever.

We do not expect any of our other product candidates to be commercially available for the foreseeable future, if ever.

Selling, General and Administrative

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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 for the year ended December 31, 2021 will increase as compared to the year ended December 31, 2020.

We expect that our selling, general and administrative expense 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.

Furthermore, we expect to continue to incur additional costs associated with our proposed merger with ImmunityBio and the operations of the combined company after closing.

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 expense relating to the sales and marketing of the approved product candidate.

Other Income and Expense

Other income and expense consists primarily of income from our investments in marketable debt securities, sublease rental income, unrealized losses related to observable price changes associated with our equity investment in Viracta, and foreign currency gains and losses.

Income taxes consists of U.S.

federal and state income taxes and foreign income taxes associated with our Korean subsidiary.

To date, we have not been required to pay U.S.

federal income taxes because of our current and accumulated net operating losses.

Our income tax expense to date primarily relates to minimum income taxes in the State of California.

Our income tax benefit to date relates primarily to the amortization of deferred tax liabilities at our Korean subsidiary.

Results of Operations

Comparison of the years ended December 31, 2020, 2019 and 2018 (in thousands):

Other income and expense consists primarily of interest income, interest expense, unrealized gains and losses on investments in equity securities and equity-method investments, realized gains and losses on both debt and equity securities, and gains and losses on foreign currency transactions.

We are subject to U.S.

federal income tax, as well as income tax in Italy, South Korea, California and other states.

From inception through December 31, 2021, we have not been required to pay U.S.

federal and state income taxes because of current and accumulated net operating losses.

Discussion of Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

For the Year Ended December 31,

2021 2020 $ Change % Change

($ in thousands)

Revenue $ 934 $ 605 $ 329 54.4 %

Operating expenses:

Research and development (including

amounts with related parties)

Selling, general and administrative (including

amounts with related parties)

Research and development (including amounts

with related parties) 195,958 139,507 56,451 40.5 %

Selling, general and administrative (including amounts

with related parties) 135,256 71,318 63,938 89.7 %

Impairment of intangible assets — 10,660 (10,660) (100.0) %

Total operating expenses 331,214 221,485 109,729 49.5 %

Loss from operations (330,280) (220,880) (109,400) 49.5 %

Other income (expense):

Investment income, net

Interest expense (including amounts

Other expense, net:

Interest and investment (loss) income, net (4,100) 2,435 (6,535) (268.4) %

Interest expense (including amounts with related parties) (14,849) (9,074) (5,775) 63.6 %

Loss on equity method investment (803) — (803) 100.0 %

Other income, net (including amounts

with related parties) 193 1,486 (1,293) (87.0) %

Other (expense) income, net (including

amounts with related parties)

Total other (expense) income

Loss before income taxes

Total other expense, net (19,559) (5,153) (14,406) 279.6 %

Loss before income taxes and noncontrolling interests (349,839) (226,033) (123,806) 54.8 %

Income tax (expense) benefit (9) 1,846 (1,855) (100.5) %

The change in revenue was minimal during the comparative periods and consisted of license fees and royalties.

Research and Development

Research and development expense increased $14.7 million during the year ended December 31, 2020, as compared to the year ended December 31, 2019.

The increase in research and development expense was primarily attributable to $8.4 million of expenses related to our Joint COVID‑19 Collaboration Agreement with ImmunityBio, including the acquisition of $5.0 million of equipment to be utilized in the manufacture of the hAd5 COVID‑19 vaccine candidate, and net program related costs of $3.4 million, after applying the eligible cost sharing under the Collaboration Agreement.

The equipment purchases do not have an alternative use and were therefore expensed as incurred within research and development expenses.

In addition, research and development expenses increased by $4.0 million due to higher laboratory and supplies expense mainly driven by our COVID‑19 programs, including additional expenses related to readying our new El Segundo manufacturing facility leased during the third quarter of 2020.

We also experienced a $3.2 million increase related to higher lease and facility operating costs, including an increase of $1.6 million related to our new El Segundo facility, and an increase of $1.6 million for other manufacturing and facility related expenses including higher depreciation expense and higher facilities and equipment maintenance costs.

Our new El Segundo facility is used to manufacture and produce clinical products for our oncology product candidate trials.

In addition, we incurred higher shared services costs of $0.6 million driven mainly by manufacturing services, and higher third party research agreement costs of $0.5 million.

These increases in research and development expenses were partially offset by a decrease of $0.9 million related to impairment of laboratory equipment during the year ended December 31, 2019, a decrease of $0.6 million in amortization expense due to the underlying asset being fully amortized as of March 2019, and a decrease of $0.5 million in clinical trial costs mainly driven by decreased activity.

We expect our research and development expense to increase significantly for the foreseeable future as we advance our product candidates, including collaboration product candidates, through clinical development and conduct our ongoing and planned clinical trials and those of ImmunityBio if the proposed merger closes.

Research and development expense decreased $5.9 million for the year ended December 31, 2019 , as compared to the year ended December 31, 2018.

The decrease in research and development expense was primarily attributable to decreases of $4.7 million in compensation and related expenses due to decreased staff and to fees for shared services rendered under our shared services agreement with NantWorks as a result of less clinical trial support activities, $2.0 million for pre-clinical and clinical trial costs mainly driven by decreased activity related to investigator sponsored trials and research agreements, and $1.7 million of intangible asset amortization expense due to the underlying asset being fully amortized as of March 2019.

These decreases were partially offset by a net increase of $1.6 million for laboratory and manufacturing facility related expenses, including increases related to third-party facility and manufacturing process validation and qualification costs, depreciation expense, and lease expense, mainly driven and associated with our El Segundo cGMP facility, and decreases related to third party testing services and laboratory supplies.

In addition, we recorded $0.9 million of expense related to impairment of laboratory equipment.

Selling, General and Administrative

Selling, general and administrative expense increased $9.2 million during the year ended December 31, 2020, as compared to the year ended December 31, 2019.

The increase in selling, general and administrative expense was primarily attributable to higher financial advisory, legal and other professional fees of $7.1 million driven primarily by strategic initiatives, including our proposed merger with ImmunityBio, as well as by higher costs associated with contracting, trademark, and patent related legal fees and other matters.

Selling, general and administrative expense also increased by $1.0 million due to higher compensation and related expenses, and higher insurance expense of $1.0 million which was driven by increases in directors’ and officers’ insurance rates.

In addition, we incurred higher shared services costs of $0.5 million driven mainly by legal and information technology related activities, an increase of $0.4 million due to higher software license fees, and higher corporate relations costs of $0.2 million driven by an increase in corporate communications, including press releases.

These increases in selling, general and administrative expense were offset in part by decreases in travel and tradeshow related expenses of $0.6 million and $0.4 million, respectively, due mainly to a decline in activity as a result of the ongoing COVID‑19 pandemic.

Selling, general and administrative expense decreased $24.7 million during the year ended December 31, 2019, as compared to the year ended December 31, 2018.

The decrease in selling, general and administrative expense was primarily attributable to a decrease of $20.8 million in stock-based compensation expense, which was primarily driven by a decrease due to vesting completed in July 2018 and March 2019 related to service-based equity awards issued to our Executive Chairman in 2015.

In addition, selling, general and administrative expense decreased by $2.3 million due to lower costs associated with litigation, $1.1 million due to decreased activity in shared services provided by NantWorks, and $0.6 million due to lower headcount related expenses.

These decreases in selling, general and administrative expense were partially offset by a $0.2 million increase in other administrative costs.

Other Income and Expense

Other income decreased by $2.7 million during the year ended December 31, 2020, as compared to the year ended December 31, 2019.

The decrease in other income resulted primarily from a $1.4 million unrealized loss attributable to an observable price change associated with our equity investment in Viracta, and a decrease of $1.3 million in investment income associated with our investments in marketable debt securities.

Investment income from our marketable debt securities decreased due primarily to a decline in the average yield on our marketable debt securities which was driven in part by shorter contractual securities lives and broader economic and market conditions.

Other income increased by $0.3 million during the year ended December 31, 2019, as compared to the year ended December 31, 2018.

The increase in other income resulted primarily from lower interest expense of $0.4 million, offset in part by a decrease in investment income related to use of our investments for operations of $0.2 million.

The change in income taxes was immaterial during the year ended December 31, 2020, as compared to the year ended December 31, 2019.

Income tax benefit decreased by $0.4 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018.

The decrease was due primarily to lower income tax benefits related to losses at our Korean subsidiary.

Liquidity and Capital Resources

Net loss $ (349,848) $ (224,187) $ (125,661) 56.1 %

Revenue increased $0.3 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020.

The increase was primarily driven by royalty revenue in 2021 from a sublicense agreement.

Research and Development Expense

Research and development expense increased $56.5 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020.

The increase in research and development expense was primarily driven by a $32.1 million increase in compensation expense, including an $18.6 million increase in stock-based compensation expense due to new grants issued to employees and executives and a $13.5 million increase in personnel costs due to higher headcount in support of our continued research and development efforts, a $6.9 million increase in clinical trial expenses and regulatory costs related to our Anktiva and COVID-19 programs, including a $4.4 million expense associated with the write down of a prepaid asset with the Clinic, a $6.6 million increase in facilities expense, primarily related to the expansion of one of our manufacturing facilities in El Segundo, California during 2021 and increased maintenance costs at our various facilities, a $5.5 million increase in quality control and research and development-related technology expense, a $3.5 million increase in laboratory supply expense related to our COVID-19 programs ramp up and NK-92 and M-ceNK cell therapy research, and a $2.4 million increase in shared services costs to support our growth.

These increases were partially offset by a $0.5 million decrease in consulting 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 $63.9 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020.

The increase in selling, general and administrative expense was primarily attributable to a $42.2 million increase in compensation expense, including a $36.4 million increase in stock-based compensation expense driven by awards granted to employees and executives and option modifications resulting in incremental stock-based compensation expense in 2021 and a $5.8 million increase in personnel costs related to higher headcount needed to support our business activities, a $19.3 million increase in professional services fees related to Merger costs, SOX compliance, the combined company audit, our recruitment and business growth strategy, various legal matters, and new system implementations, and a $3.2 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 an $0.8 million decrease in shared service costs and other general and administrative expense.

Impairment of Intangible Assets

During the year ended December 31, 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 $14.4 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020.

The increase was due to a $6.5 million decrease in interest and investment income, driven primarily by a $6.2 million net unrealized loss from equity securities and a $0.9 million decrease in interest income, partially offset by a $0.4 million decrease in accretion of investment premiums and $0.2 million of net realized gains on investments ;

a $5.8 million increase in interest expense driven primarily by higher related-party borrowings;

an $0.8 million loss on equity method investment;

and a $1.3 million decrease in other income in our subsidiaries and foreign exchanges losses.

Comparison of the Years Ended December 31, 2020 to 2019

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” in 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 for a discussion of the company’s results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Financial Condition, Liquidity and Capital Resources

Sources of Liquidity

Our principal sources of liquidity are our existing cash, cash equivalents, and marketable debt securities.

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.

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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.

On June 29, 2020, the company closed an underwritten public offering of an aggregate of 8,521,500 shares of common stock, which included 4,811,500 shares issued to the public at a price of $9.50 per share (which included 1,111,500 shares sold to the public upon full exercise of the underwriters’ option to purchase additional shares at a public offering price of $9.50 per share), less underwriting discounts and commissions, and 3,710,000 shares issued to our Executive Chairman and principal stockholder, Dr.

Patrick Soon-Shiong, at a price of $12.12 per share, less underwriting discounts and commissions.

All of the shares were offered by the company.

Including the underwriters’ option exercise, the aggregate gross proceeds from the offering were $90.7 million, before deducting underwriting discounts, commissions and other offering expenses of $4.4 million.

As of December 31, 2020, we had cash and cash equivalents, and restricted cash of $11.6 million compared to $15.7 million as of December 31, 2019.

The decrease was attributable to cash used in operating and investing activities of $70.5 million and $20.6 million, respectively, partially offset cash flows provided by financing activities of $87.0 million.

Investments in marketable debt securities were $54.8 million as of December 31, 2020, all of which were short-term investments, as compared to $37.6 million as of December 31, 2019, of which $36.1 million were short-term investments.

The following table sets forth our primary sources and uses of cash for the years ended December 31, 2020, 2019 and 2018 (in thousands):

As of December 31, 2021, we had cash and cash equivalents, and marketable securities of $317.9 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 year ended December 31, 2021, we received net proceeds totaling $164.5 million from the issuance of 13,295,817 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.

Although we made a decision to pause our ATM offering in the fourth quarter of 2021 after our $300.0 million promissory note financing with Nant Capital and do not have an active issuance notice with our sales agent, we expect to re-initiate activity at any time based on market dynamics and/or capital requirements.

As of December 31, 2021, we had $330.8 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.

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 December 31, 2021, our indebtedness totals $605.6 million (consisting of related-party promissory notes and accrued and unpaid interest, less unamortized debt issuance costs), held by entities affiliated with Dr.

Of this amount, $300.0 million is due and payable on December 17, 2022.

There can be no assurance that we can refinance this promissory note or what terms will be available in the market at the time of refinancing.

These risks could materially adversely affect our financial condition, cash flows and results of operations.

The remaining $306.3 million is due and payable on September 30, 2025, including any accrued and unpaid interest.

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 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).

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 be required to pay the other prior Altor stockholders up to $164.2 million in settlement of the CVRs relating to the regulatory milestone and up to $164.2 million of the CVRs relating to the sales milestone should they choose to have the CVRs paid in cash instead of common stock.

We may need to seek additional sources of capital to satisfy the CVR obligations if they are achieved.

• In connection with our acquisition of VivaBioCell, we are obligated to pay the former owners approximately $2.3 million of contingent consideration upon the achievement of a regulatory milestone relating to the GMP-in-a-Box technology.

Discussion of Consolidated Cash Flows

The following discussion of ImmunityBio’s cash flows is based on the consolidated statements of cash flows in Part II, Item 8.

“Financial Statements and Supplementary Data” and is not meant to be an all‑inclusive discussion of the changes in its cash flows for the periods presented below.

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

For the Year Ended December 31,

(in thousands)

Cash provided by (used in):

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Financing activities 505,443 150,675

Net decrease in cash, cash equivalents and restricted cash

Effects of exchange rate changes on cash, cash equivalents,

and restricted cash 48 (25)

Net change in cash, cash equivalents, and restricted cash $ 146,186 $ (40,886)

Operating Activities

For the year ended December 31, 2020, our net cash used in operating activities of $70.5 million consisted of a net loss of $92.4 million, partially offset by $16.7 million in adjustments for non-cash items, and $5.3 million of cash provided by net working capital changes.

Adjustments for non-cash items primarily consisted of $9.1 million in depreciation and amortization, $3.4 million of non-cash lease expense related to operating lease right-of-use assets, $2.1 million in stock compensation expense, $1.4 million of unrealized losses attributable to an observable price change associated with our equity investment in Viracta, and $0.8 million in amortization of premiums on marketable debt securities, reduced by $0.3 million in non-cash interest.

The change in net working capital consisted primarily of increases in amounts due to related parties of $5.0 million, accrued expenses of $3.7 million, and accounts payable of $2.1 million, partially offset by decreases related to operating lease liabilities of $3.9 million, other current assets of $1.3 million, and other long-term assets of $0.3 million.

The $9.1 million increase in cash used in operating activities, as compared to the year ended December 31, 2019, was primarily due to costs incurred in ongoing clinical trials, ramp-up of manufacturing, and Joint COVID‑19 Collaboration Agreement related activities as well as costs associated with our proposed merger with ImmunityBio.

For the year ended December 31, 2019, our net cash used in operating activities of $61.4 million consisted of a net loss of $65.8 million, and $10.9 million of cash used by net working capital changes, partially offset by $15.4 million in adjustments for non-cash items.

Adjustments for non-cash items primarily consisted of $9.0 million in depreciation and amortization, $2.6 million in stock compensation expense, $2.6 million of non-cash lease expense related to operating lease right-of-use assets, $0.9 million of impairment related to laboratory equipment, and $0.2 million in non-cash interest.

The decrease in net working capital consisted primarily of decreases related to accrued expenses of $12.0 million, other long-term assets of $4.0 million, operating lease liabilities of $3.1 million, and due to related parties of $1.1 million, partially offset by an increase related to prepaid expenses and other current assets of $9.3 million.

The $2.0 million decrease in cash used in operating activities, as compared to the year ended December 31, 2018, was primarily due to lower laboratory and manufacturing related costs and lower headcount and compensation costs including shared services, partially offset by higher clinical trial and related operational costs.

For the year ended December 31, 2018, our net cash used in operating activities of $63.4 million consisted of a net loss of $96.2 million, offset by $33.4 million in adjustments for non-cash items, primarily attributable to $23.4 million in stock-based compensation expense, as well as research and development and selling, general and administrative expenses, and a $0.6 million decrease of cash related to changes in working capital.

Adjustments for non-cash items primarily consisted of the $23.4 million in stock-based compensation expense, $9.6 million in depreciation and amortization, $0.5 million in amortization of premiums on marketable debt securities, $0.3 million in non-cash interest related to our marketable debt securities, and $0.2 million related to loss on disposal of assets, reduced by $0.5 million of deferred income tax benefit.

Changes in net working capital consisted primarily of increases related to prepaid and other current assets of $9.8 million, other assets of $1.2 million, accounts payable of $1.1 million, due to related parties of $0.7 million, and deferred rent of $0.5 million, partially offset by an increase in accrued expenses of $12.7 million.

For the year ended December 31, 2021, net cash used in operating activities of $274.4 million consisted of a net loss of $349.8 million and $19.1 million of cash used in net working capital changes, partially offset by $94.5 million in adjustments for non-cash items.

The changes in net working capital consisted primarily of decreases of $10.2 million with related parties, $4.2 million in operating lease liabilities, $4.0 million in investment and other assets, $3.7 million in accounts payable, and $2.2 million in prepaid and other current assets, partially offset by an increase of $5.2 million in accrued expenses and other liabilities.

Adjustments for non-cash items primarily consisted of $57.2 million in stock-based compensation expense, $14.2 million in depreciation and amortization expense, $12.5 million in non-cash interest related primarily to related-party promissory notes, $4.9 million in non-cash lease expense related to operating lease right-of-use assets, $4.6 million in unrealized losses on equity securities driven primarily by a decrease in the value of our investments, $0.8 million loss on our equity investment in the joint venture and $0.3 million in other non-cash items.

For the year ended December 31, 2020, net cash used in operating activities of $171.7 million consisted of a net loss of $224.2 million, partially offset by $36.1 million in adjustments for non-cash items and $16.4 million of cash provided by net working capital changes.

Adjustments for non-cash items primarily consisted of $12.7 million in depreciation and amortization, an impairment of intangible assets totaling $10.7 million, $8.5 million in non-cash interest items related primarily to related-party promissory notes, $5.2 million in non-cash lease expense related to operating lease right-of-use assets, $2.2 million in stock-based compensation expense, a $1.4 million unrealized loss on non-marketable equity investment, and $1.2 million in other non-cash items, partially offset by a $2.9 million change in deferred tax liability, and a $2.9 million unrealized gain on equity securities.

The changes in net working capital consisted primarily of increases related to $12.5 million in accrued expenses and other liabilities, $3.4 million with related parties, and $2.6 million in accounts payable, and a decrease related to $4.2 million in prepaid expenses and other current assets, partially offset by decreases related to $5.6 million in operating lease liabilities and $0.7 million in investment and other assets.

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 year ended December 31, 2020, net cash used in investing activities was $20.6 million, which included cash outflows of $91.6 million for purchases of marketable debt securities, and $2.6 million for purchases of property, plant and equipment, partially offset by cash inflows of $65.4 million and $8.3 million from maturities and sales of marketable debt securities, respectively.

Our investments in property, plant and equipment for the year ended December 31, 2020, related primarily to acquisitions of equipment which will be used to manufacture our ceNK and MSC product candidates.

For the year ended December 31, 2019, net cash provided by investing activities was $21.5 million, which was primarily attributable to cash inflows of $109.7 million and $2.5 million from maturities and sales of marketable debt securities, respectively, partially offset by cash outflows of $86.6 million for purchases of marketable debt securities, and $4.2 million for purchases of property, plant and equipment.

During the year ended December 31, 2019, our purchases of marketable debt securities included our investment of $39.2 million of cash proceeds received in March 2019 from the exercise of stock options and warrants, together with reinvestment of excess cash related to maturing securities.

Our investments in property, plant and equipment during the year ended December 31, 2019 mainly related to our El Segundo, California, facilities.

For the year ended December 31, 2018, net cash provided by investing activities was $57.1 million, which was primarily attributable to cash inflows of $165.3 million from maturities of marketable debt securities and $0.4 million from sales of laboratory equipment, partially offset by cash outflows of $94.8 million for purchases of marketable debt securities, driven by the reinvestment of excess cash resources, $13.1 million for purchases of property, plant and equipment, mainly related to our laboratory and cGMP build out in El Segundo, California, and $0.7 million for purchases of Viracta convertible notes.

For the year ended December 31, 2021, net cash used in investing activities was $84.9 million, which included $141.8 million of purchases of marketable debt securities and $33.6 million of purchases of property, plant and equipment, partially offset by cash inflows of $70.0 million from maturities and sales of marketable debt and equity securities, and $20.5 million in proceeds from the sale of 557 Doug St, LLC that were allocated to the book value of the property.

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 year ended December 31, 2020, net cash used in investing activities was $19.8 million, which included $91.8 million of purchases of marketable debt securities and $1.7 million of purchases of property, plant and equipment, partially offset by cash inflows of $73.7 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 year ended December 31, 2020, net cash provided by financing activities was $87.0 million, which consisted of proceeds from the issuance of 8,521,500 shares of common stock, net of issuance cost paid, of $86.3 million, and proceeds of $1.2 million resulting from exercises of stock options.

Net cash used in financing activities for the year ended December 31, 2020, consisted of $0.5 million related to net share settlement of vested RSUs for payment of employee payroll taxes.

For the year ended December 31, 2019, net cash provided by financing activities was $38.6 million, which primarily consisted of cash proceeds of $35.2 million and $4.1 million resulting from the exercise of warrants and stock options, respectively, by our Executive Chairman during March 2019, partially offset by $0.5 million used for stock repurchases, including commissions, and $0.1 million related to net share settlement of vested RSUs and option exercises for payment of employee payroll taxes.

For the year ended December 31, 2018, net cash used in financing activities was $0.8 million, which primarily related to $0.5 million of principal payments on our financing obligations, $0.2 million used for stock repurchases, and $0.1 million in net share settlement of exercised warrants and vesting of RSUs for payment of employee payroll taxes, partially offset by $0.1 million in proceeds from the exercise of warrants.

For the year ended December 31, 2021, net cash provided by financing activities was $505.4 million, which consisted of $338.5 million in net proceeds from issuances of related-party promissory notes, $164.5 million in net proceeds from the ATM offering, $5.5 million in proceeds from exercises of stock options and a $1.4 million capital contribution representing excess proceeds received over book value from the sale of 557 Doug St, LLC to an entity under common control.

Net cash used in financing activities consisted of $4.1 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 year ended December 31, 2020, net cash provided by financing activities was $150.7 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 $1.2 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.

Comparison of the Years Ended December 31, 2020 to 2019

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Cash Flows” in 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 for a discussion of the company’s consolidated cash flows for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Future Funding Requirements

To date, we have generated minimal revenue related to the non-clinical use of our cell lines and intellectual property, and we have no products approved for commercial sale and have not generated any revenue from product sales.

From inception through the date of this Annual Report, 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 and our proposed merger with ImmunityBio.

In addition, we expect our operating 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 including those related to our Joint CVOID-19 Collaboration agreement with ImmunityBio;

We expect that our operating 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;

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• incur additional legal, accounting and other expenses in operating as a public company.

complete our proposed merger with ImmunityBio.

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 debt securities, and our ability to borrow from affiliated entities, will be sufficient to fund operations through at least the next 12 months following the issuance date of the 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.

We have based this estimate on assumptions that may prove to be incorrect, and we may use our available capital resources sooner than we currently expect.

The successful development of any product candidate is highly uncertain.

Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates, if approved, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our product candidates.

Our future capital requirements will depend on many factors, including:

the timing of, and the costs involved in, preclinical and clinical development and obtaining any regulatory approvals for our product candidates;

the impacts of COVID‑19 on our operations;

the costs of manufacturing, distributing and processing our product candidates;

the number and characteristics of any other product candidates we develop or acquire;

our ability to establish and maintain strategic collaborations, licensing or other commercialization arrangements and the terms and timing of such arrangements including our arrangements with ImmunityBio and its subsidiaries and Viracta;

the degree and rate of market acceptance of any approved products;

the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of other products or treatments;

the expenses needed to attract and retain skilled personnel;

the costs associated with being a public company;

the costs associated with our proposed merger with ImmunityBio and costs of operations for the combined company if the merger closes;

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing intellectual property claims, including litigation costs and the outcome of such litigation;

the timing, receipt and amount of sales of, or royalties on, any approved products;

any product liability or other lawsuits related to our product candidates or the company.

Because all of our product candidates are in various stages of preclinical and clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of any of our product candidates or whether, or when, we may achieve profitability.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements.

We do not have any committed external source of funds.

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

Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations, Commitments and Contingencies

Contractual Obligations and Commitments

See Note 9, Commitments and Contingencies, Contractual Obligations – Leases , and Note 10, Related Party Agreements , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report.

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 material adverse effect on our business.

Regardless of 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, Significant Judgements and Use of Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which are prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

We continually evaluate our estimates and judgments, the most critical of which are those related to valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment 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 the company’s ability to fund its operations for at least the next twelve months from the date of issuance of these financial statements.

We base our estimates and judgments on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances.

Materially different results can occur as circumstances change and additional information becomes known, such as the economic considerations related to the impact that the ongoing coronavirus pandemic could have on our significant accounting estimates.

The following is not intended to be a comprehensive discussion of all of our significant accounting policies.

See the notes accompanying our financial statements appearing in this Annual Report for a summary of all of our significant accounting policies and other disclosures required by U.S.

Transactions with Related Parties

As discussed in additional detail above, we have various agreements with related parties.

Some are billed and settled in cash monthly.

Others are billed quarterly and settled in cash the following month.

Monthly accruals are made for all quarterly billing arrangements.

Collaboration Arrangements

We analyze our collaboration arrangements to assess whether they are within the scope of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements, or ASC 808.

A collaborative arrangement is a contractual arrangement that involves a joint operating activity.

These arrangements involve two or more parties who are active participants in the activity, and exposed to significant risks and rewards dependent on the commercial success of the activity.

This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

To the extent the collaboration agreement is within the scope of ASC 808, we also assess whether the arrangement contains multiple elements that are within the scope of other accounting literature.

If we conclude that some or all aspects of the agreement are distinct and represent a transaction with a customer, we account for those aspects of the arrangement within the scope of FASB ASC Topic 606, Revenue from Contracts with Customers , or ASC 606.

Amounts that are owed to collaboration partners that are within the scope of ASC 808 are recognized as an offset to research and development expenses as such amounts are incurred by the collaboration partner.

Where amounts owed to a collaboration partner exceed our collaboration expenses in each quarterly period, such amounts are classified as research and development expense.

Our collaboration arrangements require us to acquire certain equipment for exclusive use in the joint operating activities.

These equipment purchases do not have an alternative use and are therefore expensed as incurred within research and development expenses.

Our collaboration arrangements are further discussed within Note 8, Collaboration and License Agreements , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report.

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 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 external 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.

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 U.S., 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.

As of December 31, 2021, we had $330.8 million available for future stock issuances under the ATM.

See Note 9 , Stockholders’ Deficit , of the “Notes to Consolidated Financial Statements” that appear in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

To the extent that we raise additional capital through the sale of equity or equity-linked securities, including convertible debt or 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

We have material cash requirements to pay related party affiliates and third parties under various contractual obligations discussed below:

• We are obligated to make payments to several related party affiliates under written agreements and other informal arrangements.

We are also obligated to pay interest and to repay principal under our related-party notes payable.

For information regarding our financing obligations, see Note 8 , Related-Party Agreements—Related-Party Notes Payable, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

• We are obligated to make payments under our operating leases, which primarily consist of facility leases.

For information regarding our lease obligations, see Note 7 , Commitments and Contingencies—Lease Arrangements, and Note 8 , Related-Party Agreements, of the “Notes to Consolidated Financial Statements” that appear in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

• In connection with the acquisitions of Altor and VivaBioCell, we are obligated to pay contingent consideration upon the achievement of certain milestones.

For information regarding our contingent consideration obligations, see Note 7 , Commitments and Contingencies—Contingent Considerations Related to Business Combinations, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

• We have contractual obligations to make payments to related party affiliates and third parties under our unconditional purchase arrangements.

For information on these unconditional purchase obligations, see Note 7 , Commitments and Contingencies—Contingent Consideration Related to Business Combinations, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

• We have certain contractual commitments that are expected to be paid within one year, depending on the progress of build outs, completion of services, and the realization of milestones associated with third-party agreements.

This amount totals $72.7 million and is primarily related to capital expenditures, open purchase orders as of December 31, 2021 for the acquisition of goods and services in the ordinary course of business, and near term up-front milestone payments to third parties.

• In addition, we have contractual commitments that are expected to be paid in fiscal year 2023 and beyond based on the achievement of various development, regulatory and commercial milestones for agreements with third parties.

These payments may not be realized or may be modified and are contingent upon the occurrence of various future events, substantially all of which have a high degree of uncertainty of occurring.

As of December 31, 2021, the maximum amount that may be payable related to these commitments is $570.7 million.

On February 14, 2022 , we acquired a leasehold interest in the Dunkirk Facility.

In connection with this lease , w e committed to spend an aggregate of $1.52 billion on operational expenses during the initial 10 -year term, and an additional $1.50 billion on operational expenses if we elect to renew the lease for the additional 10 -year term.

These amounts are not included in the discussion above.

See “— Subse quent Events —Acquisition of cGMP ISO Class 5 Manufacturing Facility”.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of our consolidated financial statements requires us 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 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.

Actual results could differ from those estimates.

While our significant accounting policies are more fully described in the notes accompanying our consolidated financial statements that appear in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:

Revenue Recognition

We have primarily generated revenues from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables and grant programs.

The nonexclusive license agreements with a limited number of pharmaceutical and biotechnology companies grant them the right to use our cell lines and intellectual property for non-clinical use.

These agreements generally include upfront fees and annual research license fees for such use, as well as commercial license fees for sales of the licensee products developed or manufactured using our intellectual property and cell lines.

We have generated revenues from product sales of our proprietary GMP-in-a-Box bioreactors and related consumables to related parties.

Additionally, we also generated revenues from grant programs.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606.

A contract’s transaction price is allocated to each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied.

Under our license agreements with customers, we typically promise to provide a license to use certain cell lines and related patents, the related know-how, and future research and development data that affect the license.

We have concluded that these promises represent one performance obligation due to the highly interrelated nature of the promises.

We provide the cell lines and know-how immediately upon entering into the contracts.

Research and development data are provided throughout the term of the contract when and if available.

The license agreements may include non-refundable upfront payments, event-based milestone payments, sales-based royalty payments, or some combination of these.

The event-based milestone payments represent variable consideration and we use the most likely amount method to estimate this variable consideration.

Given the high degree of uncertainly around the achievement of these milestones, we do not recognize revenue from these milestone payments until the uncertainty associated with these payments is resolved.

We currently estimate variable consideration related to milestone payments to be zero and, as such, no revenue has been recognized for milestone payments.

We recognize revenue from sales-based royalty payments when or as the sales occur.

On a quarterly basis, we re-evaluate our estimate of milestone variable consideration to determine whether any amount should be included in the transaction price and recorded in revenue prospectively.

We also have sold our proprietary GMP-in-a-Box bioreactors and related consumables to affiliated companies.

The arrangements typically include delivery of bioreactors, consumables, and providing installation service and perpetual software licenses for using the equipment.

We recognize revenue when customers obtain control and can benefit from the promised goods or services, generally upon installation of the bioreactors, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

Upfront payments and fees are recorded as deferred revenue upon receipt and recognized as revenue when we satisfy our performance obligations under these arrangements.

Business Combinations

Business combinations are accounted for using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations (ASC 805).

These standards require that the total cost of acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition, with the excess purchase price recorded as goodwill.

The allocation of the purchase price is dependent upon certain valuations and other studies.

Acquisition costs are expensed as incurred.

Estimating fair value requires us to make significant judgments and assumptions.

Contingent consideration obligations incurred in connection with a business combination are recorded at their fair values on the acquisition date and re-measured at their fair values each subsequent reporting period until the related contingencies are resolved.

The resulting changes in fair values are recorded as research and development expense, on the consolidated statements of operations and comprehensive loss.

Changes in fair values reflect changes to our assumptions regarding probabilities of successful achievement of related milestones, the timing in which the milestones are expected to be achieved, and the discount rate used to estimate the fair value of the obligation.

Preclinical and Clinical Trial Accruals

As part of the process of preparing the financial statements, we are required to estimate expenses resulting from obligations under contracts with vendors, clinical research organizations and consultants.

As part of the process of preparing the consolidated financial statements, we are required to estimate expenses resulting from obligations under contracts with vendors, clinical research organizations and consultants.

The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

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Research and Development Costs

Major components of research and development costs include cash compensation and other personnel-related expenses, stock-based compensation, depreciation and amortization expense on research and development property and equipment and intangible assets, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on our behalf.

Major components of research and development costs include cash compensation and other personnel-related expenses, stock-based compensation, depreciation and amortization expense on research and development property and equipment and intangible assets, costs of preclinical studies, clinical trials costs, including CROs, and related clinical manufacturing, including CMOs, costs of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on our behalf.

Costs incurred in research and development are expensed as incurred.

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We record accruals for estimated costs under these contracts.

When evaluating the adequacy of the accrued liabilities, we analyze the progress of the studies or clinical trials, including the phase or completion of events, invoices received, contracted costs and purchase orders.

When evaluating the adequacy of the accrued liabilities, we analyze the progress of the preclinical studies or clinical trials, including the phase or completion of events, invoices received, contracted costs and purchase orders.

Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period based on the facts and circumstances known at that time.

Although we do not expect the estimates to be materially different from the amounts actually incurred, if the estimates of the status and timing of services performed differs from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period.

Although we do not expect the estimates to be materially different from the amounts actually incurred, if the estimates of the status and timing of services performed differ from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period.

Actual results could differ from our estimates.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents include highly liquid investments with an original maturity of three months or less from the date of purchase.

Restricted cash includes a certificate of deposit held as a substitute letter of credit for one of our leased properties.

This certificate of deposit is included in other assets on the consolidated balance sheets as the landlord is the beneficiary of the account and we are not able to access the funds during the term of the lease.

We minimize the credit risk associated with cash and cash equivalents by periodically evaluating the credit quality of our primary financial institutions.

While we maintain cash deposits in FDIC insured financial institutions in excess of federally insured limits, management believes we are not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

We have not experienced any losses on such accounts.

Marketable Debt Securities

We invest our excess funds in investment grade short- to intermediate-term corporate debt securities, government sponsored securities, and foreign government bonds and classify these investments as available-for-sale.

Marketable debt securities with remaining maturities of 12 months or less are classified as short-term and marketable debt securities with remaining maturities greater than 12 months are classified as long-term.

All marketable debt securities are reported at fair value and any unrealized gains and losses are reported as a component of accumulated other comprehensive loss on the consolidated statements of stockholders’ equity, with the exception of unrealized losses believed to be other-than-temporary, which are recorded in investment income, net, on the consolidated statements of operations.

Realized gains and losses are included in investment income, net, on the consolidated statements of operations.

Realized gains and losses from sales of securities and the amounts, net of tax, reclassified out of accumulated other comprehensive loss, if any, are determined on a specific identification basis.

We periodically evaluate whether declines in fair values of our investments below their book value are other-than-temporary.

This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as our ability and intent to hold the investment until a forecasted recovery occurs.

Additionally, we assess whether or not we have plans to sell the security or whether or not it is more likely than not we will be required to sell any investment before recovery of its amortized cost basis.

Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of our investments, duration and severity of the decline in value, and our strategy and intentions for holding the investment.

There were no other-than-temporary impairments recorded in the years ended December 31, 2020, 2019 and 2018.

We adjust the accruals in the period when actual costs become known.

Stock-Based Compensation

We account for stock-based compensation under the provisions of ASC Topic 718, Compensation—Stock Compensation (ASC 718).

We estimate fair value of each stock option award on the date of grant using the Black-Scholes option pricing model.

The Black-Scholes model requires the use of highly subjective assumptions, including, but not limited to, expected stock price volatility over the term of the awards and the expected term of the stock options.

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.

If factors change and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past.

For awards with service or performance conditions, we recognize the effect of forfeitures in compensation cost in the period that the award was forfeited.

Contingencies

We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated.

We accrue for the best estimate of a loss within a range;

however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range.

If we determine that a material loss is reasonably possible, we disclose the possible loss or range of loss, or that the amount of loss cannot be estimated at this time.

Because of the inherent uncertainty and unpredictability related to these matters, accruals are based on what we believe to be the best information available at the time of our assessment, including the legal facts and circumstances of the case, status of the proceedings, applicable law and the views of legal counsel.

Upon the final resolution of such matters, it is possible that there may be a loss in excess of the amount recorded, and such amounts could have a material adverse effect on our results of operations, cash flows or financial position.

We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause a change in the potential amount of the liability recorded or of the range of potential losses disclosed.

Moreover, we record gain contingencies only when they are realizable, and the amount is known.

Additionally, we record our rights to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and when receipt is deemed probable.

This includes instances when our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund.

Investment in Equity Securities

We own non-marketable equity securities that are accounted for using the measurement alternative under ASC 321 because the preferred stock held by us is not considered in-substance common stock and such preferred stock does not have a readily determinable fair value.

All investments are reviewed for possible impairment on a regular basis.

If an investment's fair value is determined to be less than its net carrying value, the investment is written down to its fair value.

Such an evaluation is judgmental and dependent on specific facts and circumstances.

Factors considered in determining whether an impairment indicator is present include:

the investees’ earnings performance and clinical trial performance, change in the investees’ industry and geographic area in which it operates, offers to purchase or sell the security for a price less than the cost of the investment, issues that raise concerns about the investee's ability to continue as a going concern, and any other information that we may be aware of related to the investment.

Factors considered in determining whether an observable price change has occurred include the price at which the investee issues equity instruments similar to those of our investment and the rights and preferences of those equity instruments compared to ours.

Fair Value of Financial Instruments

We record our available-for-sale investments at fair value.

At December 31, 2020, our cash equivalents and investments in marketable debt securities totaled $54.8 million.

FASB ASC Topic 820, Fair Value Measurements and Disclosures , or ASC 820, establishes three levels of inputs that may be used to measure fair value.

Each level of input represents varying degrees of subjectivity and difficulty involved in determining fair value.

Valuations using Level 1 and 2 inputs are generally based on price quotations and other observable inputs in active markets and do not require significant management judgment or estimation.

We utilize a third-party pricing service to assist us in obtaining fair value pricing for these investments.

While pricing for these securities is based on proprietary models, the inputs used are based on observable market information;

therefore, we have classified our inputs as Level 1 and Level 2.

For additional information, see Note 7, Fair Value Measurements , of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report.

Long-lived assets include property, plant and equipment and intangible assets.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability is measured by comparison of the carrying amount to the future net cash flows that the assets are expected to generate.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected undiscounted future cash flows arising from the assets using a discount rate determined by management to be commensurate with the risk inherent to our current business model.

During the year ended December 31, 2019, we determined that certain bioreactor laboratory equipment could no longer be utilized in the production process.

As a result, we recorded an impairment charge totaling $0.9 million, which is included in research and development expense on the consolidated statements of operations.

There were no impairment losses recognized during the years ended December 31, 2020 and 2018.

Lease Obligations

On January 1, 2019, we adopted FASB ASC Topic 842, Leases , or ASC 842.

For contracts entered into on or after the effective date, we determine if an arrangement is, or contains, a lease at lease inception.

Our assessment is based on:

(1) whether the contract involves the use of a distinct identified asset;

(2) whether we obtain the right to substantially all of the economic benefit from the use of the asset throughout the period;

and (3) whether we have the right to direct the use of the asset.

At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

Leases entered into prior to January 1, 2019, which were accounted for under ASC 840, Leases , were not reassessed as we elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allowed us to carry forward the historical lease classification.

We determine the lease term by assuming the exercise of renewal options that are reasonably assured.

The exercise of lease renewal options is at our sole discretion.

Several of our leases have renewal options, however, exercise of renewal is only assured for two of our current Good Manufacturing Practices, or cGMP, facilities, where we have made significant improvements or extended the lease.

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized.

The right-of-use asset represents the right to use the leased asset for the lease term.

At lease commencement, leases are classified as either finance leases or operating leases.

A lease is classified as a finance lease if any one of the following criteria are met:

(1) the lease transfers ownership of the underlying asset by the end of the lease term;

(2) the lease contains an option to purchase the underlying asset that is reasonably certain to be exercised;

(3) the lease term is for a major part of the remaining economic life of the underlying asset;

(4) the present value of the sum of the lease payments and any guaranteed residual value that is not already included in the lease payments equals or exceeds substantially all of the fair value of the underlying asset;

or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

A lease is classified as an operating lease if it does not meet any one of these criteria.

We do not currently have any leases classified as finance leases.

Our operating lease assets and liabilities are included in operating lease right-of-use assets, net, and current and long-term operating lease liabilities, respectively, on the consolidated balance sheets.

At the commencement date, operating lease right-of-use assets and operating lease liabilities are determined based on the present value of lease payments to be made over the lease term.

Operating lease right-of-use assets also include any rent paid prior to the commencement date, less any lease incentives received, and initial direct costs incurred.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have elected to combine our lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) with non-lease components (e.g., common-area maintenance costs and equipment maintenance costs) and as such, we account for lease and non-lease components as a single component.

Lease expense also includes amounts relating to variable lease payments.

Variable lease payments include amounts relating to common area maintenance and real estate taxes.

We also elected not to recognize right-of-use assets and lease liabilities for qualifying short-term leases with an initial lease term of 12 months or less at lease inception.

Such leases are expensed on a straight-line basis over the lease term.

The depreciable life of operating right-of-use-assets and leasehold improvements is limited by the expected lease term.

Stock-Based Compensation

We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation , or ASC 718, which applies to share-based payments issued to employees and nonemployees in exchange for goods or services.

Under ASC 718, the fair value of an equity-classified award is estimated on the grant date without regard to service or performance conditions.

The grant date fair values for options and warrants are estimated using the Black-Scholes-Merton option pricing model, and the grant date fair values for restricted stock units, or RSUs, are based upon the closing market price of our common stock on the date of grant.

We use the straight-line method to recognize stock-based compensation expense 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 commencing 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.

Stock Repurchases

In November 2015, the board of directors approved a share repurchase program, or the 2015 Share Repurchase Program, allowing the CEO or CFO, on behalf of the company, to repurchase from time to time, in the open market or in privately negotiated transactions, up to $50.0 million of our outstanding shares of common stock, exclusive of any commissions, markups or expenses.

The timing and amounts of any purchases were and will continue to be based on market conditions and other factors, including price, regulatory requirements and other corporate considerations.

The 2015 Share Repurchase Program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice.

We have financed, and expect to continue to finance, the purchases with existing cash balances.

As it is the intent for the repurchased shares to be retired, we have elected to account for the shares repurchased under the constructive retirement method.

For shares repurchased in excess of par, we allocate the purchase price in excess of par value to accumulated deficit.

Utilization of Net Operating Loss Carryforwards, or NOLs, and Research and Development Credits

As of December 31, 2020, we had federal, state and foreign income tax NOLs of $389.8 million, $350.3 million and $0.2 million, respectively.

Of the $389.8 million in federal NOLs, $226.4 million will not expire and will be able to offset 80% of taxable income in future years.

Of the $350.3 million in state NOLs, $4.4 million will not expire and will be able to offset 80% of taxable income in future years.

The remaining federal NOL carryforwards begin to expire in 2024, the remaining state NOL carryforwards begin to expire in 2030 and the foreign NOL carryforwards begin to expire in 2022.

As of December 31, 2020, we also had federal and state research and development tax credit carryforwards of $11.1 million and state research tax credits of $7.8 million, respectively.

The federal research tax credit carryforwards begin to expire in 2034 and certain state research tax credit carryforwards begin to expire in 2031.

The California research tax credits can be carried forward indefinitely.

These net operating loss and research and development tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss carry forwards and other pre-change tax attributes to offset its post-change income may be limited.

We have completed a study through March 2019 to determine the impact of ownership changes on our NOLs and we have undergone significant ownership changes in previous years.

Accordingly, some of our NOLs and research and development credits have been derecognized.

As of December 31, 2021, we recorded an accrual of $7.1 million contingency related to the dissenting share obligations in accrued and other current liabilities, on our consolidated balance sheets.

See further information in Note 7 , Commitments and Contingencies, of the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report.

Recent Accounting Pronouncements

Application of New or Revised Accounting Standards – Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update, or ASU, 2016‑13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The FASB subsequently issued amendments to ASU 2016‑13, which have the same effective date and transition dates as described below.

The new guidance supersedes existing U.S.

GAAP for measuring and recording of credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model.

Accordingly, these financial assets will be presented at the net amount expected to be collected.

This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than

reducing the carrying amount under the current, other-than-temporary-impairment model.

For public business entities that meet the definition of a Securities and Exchange Commission, or SEC, filer, except entities that are eligible to be a smaller reporting company as defined by the SEC, the standard is effective for annual periods beginning after December 15, 2019, and interim periods therein.

For all other entities, the standard is effective for annual periods beginning after December 15, 2022, and interim periods therein.

Early adoption is permitted for all entities for annual periods beginning after December 15, 2018.

With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption.

We continue to evaluate the impact that this new standard and its related amendments will have on our consolidated financial statements and we do not intend to early adopt this new standard .

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC during the three months ended December 31, 2020 did not, or are not expected to, have a material effect on our consolidated financial statements.

Refer to Note 2 , Summary of Significant Accounting Policies , of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report for a discussion of recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to us.

Subsequent Events

Increase in Shares of Common Stock Authorized for Issuance

Effective February 1, 2022, ImmunityBio amended its Amended and Restated Certificate of Incorporation to increase the number of shares that the company is authorized to issue from 500,000,000 shares of common stock, $0.0001 par value per share, to 900,000,000 shares of common stock, $0.0001 par value per share.

The number of shares of preferred stock, $0.0001 par value per share, that the company is authorized to issue remained unchanged at 20,000,000 shares.

Acquisition of cGMP ISO Class 5 Manufacturing Facility

On February 14, 2022, we acquired a leasehold interest in approximately 409,000 rentable square feet of cGMP ISO Class 5 pharmaceutical manufacturing space in western New York from Athenex.

The facility provides us with a state-of-the-art biotech production center that substantially expands and diversifies our existing manufacturing capacity in the U.S.

We paid approximately $40.0 million to Athenex, and the leasehold interest in the Dunkirk Facility was transferred to us.

Our annual lease payment will be $2.00 per year for an initial 10-year term, with an option to renew the lease under substantially the same terms and conditions for an additional 10-year term.

As part of the transaction, we assumed obligations under various third-party agreements, and committed to spend $1.52 billion on operational expenses during the initial term, and an additional $1.50 billion on operational expenses if we elect to renew the lease for the additional 10-year term.

We also committed to hiring 450 employees at the Dunkirk Facility within the first five years of operations, with 300 such employees to be hired within the first 2.5 years of operation.

We are eligible for certain sales-tax exemption savings during the development of the Dunkirk Facility, and certain property tax savings over the next 20 years, subject to certain terms and conditions, including performance of certain of the obligations described above.

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-K

Item 7. Management’s Discussion and Analysis