Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act) and Section 21E of the Exchange Act that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, but are not limited to:
• our ability to develop next-generation therapies and vaccines that complement, harness, and amplify the immune system to defeat cancers and infectious diseases;
• our ability to implement and support our SARS-CoV-2 vaccine and therapeutic programs;
• any impact of the coronavirus pandemic, or responses to the pandemic, on our business, clinical trials or personnel;
• our expectations regarding the potential benefits of our strategy and technology;
• our expectations regarding the operation of our product candidates and related benefits;
• our ability to utilize multiple modes to induce cell death;
• our beliefs regarding the benefits and perceived limitations of competing approaches, and the future of competing technologies and our industry;
• details regarding our strategic vision and planned product candidate pipeline, including that we eventually plan to advance vaccines and therapies for virally-induced infectious diseases;
• our beliefs regarding the success, cost and timing of our product candidate development activities and current and future clinical trials and studies, including study design and the enrollment of patients;
• our expectations regarding our ability to utilize the Phase 1/2 aNK and haNK ® clinical trials data to support the development of our product candidates, including our haNK, taNK, t‑haNK ™ , MSC, and M-ceNK ™ product candidates;
• our expectations regarding the development, application, commercialization, marketing, prospects and use generally of our product candidates, including Anktiva (N-803), self-amplifying RNA (saRNA), hAd5 and yeast constructs, recombinant sub-unit proteins, toll-like receptor-activating adjuvants, and aldoxorubicin;
• the timing or likelihood of regulatory submissions or other actions and related regulatory authority responses and approvals, including any planned investigational new drug (IND), BLA or New Drug Application (NDA) submissions to the FDA, including, without limitation, the progress of our BLA submission for our product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease, submitted to the FDA in May 2022 or the pursuit of accelerated regulatory approval pathways or orphan drug status and Breakthrough Therapy designations for applicable product candidates;
• our ability to implement an integrated discovery ecosystem and the operation of that planned ecosystem, including being able to regularly add neoepitopes and subsequently formulate new product candidates;
• the ability and willingness of strategic collaborators to share our vision and effectively work with us to achieve our goals;
• the ability and willingness of various third parties to engage in research and development activities involving our product candidates, and our ability to leverage those activities;
• our ability to attract additional third-party collaborators;
• our expectations regarding the ease of administration associated with our product candidates;
39
Table of Contents
• the ability to transition our clinical trials at the Clinic to a new structure on the anticipated timeline, if at all;
• our ability to finalize and execute definitive agreements with third parties with whom we have entered into term sheets or reached agreements in principle on various potential transactions;
• our expectations regarding patient compatibility associated with our product candidates;
• our beliefs regarding the potential markets for our product candidates and our ability to serve those markets;
• our expectations regarding the timing of enrollment and submission of our clinical trials, and protocols related to such trials;
• our ability to produce an antibody cytokine fusion protein, a DNA, RNA, or recombinant protein vaccine, a toll-like receptor-activating adjuvant, an NK-cell therapy, or a damage-associated molecular patterns (DAMP) inducer therapy;
• our beliefs regarding the potential manufacturing and distribution benefits associated with our product candidates, and our ability to scale up the production of our product candidates;
• our plans regarding our manufacturing facilities and our belief that our manufacturing is capable of being conducted in‑house;
• our belief in the potential of our antibody cytokine fusion proteins, DNA, RNA or recombinant protein vaccines, toll-like receptor-activating adjuvants, NK-cell therapy, or DAMP inducer platforms, and the fact that our business is based upon the success individually and collectively of these platforms;
• our belief regarding the magnitude or duration for additional clinical testing of our antibody cytokine fusion proteins, DNA, RNA or recombinant protein vaccines, toll-like receptor-activating adjuvants, NK-cell therapy, or DAMP inducers along with other product candidate families;
• even if we successfully develop and commercialize specific product candidates like our N-803 or PD-L1 t‑haNK, our ability to develop and commercialize our other product candidates either alone or in combination with other therapeutic agents;
• the ability to obtain and maintain regulatory approval of any of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;
• our ability to commercialize any approved products;
• the rate and degree of market acceptance of any approved products;
• our ability to attract and retain key personnel;
• the accuracy of our estimates regarding our future revenue, as well as our future operating expenses, capital requirements and needs for additional financing;
• our ability to obtain funding for our operations, including funding necessary to complete further development and any commercialization of our product candidates;
• our ability to obtain, maintain, protect and enforce intellectual property protection for our product candidates and technology and not infringe upon, misappropriate or otherwise violate the intellectual property of others;
• the terms and conditions of licenses granted to us and our ability to license additional intellectual property relating to our product candidates and technology;
• the impact on us, if any, if the CVRs held by former Altor stockholders become due and payable in accordance with their terms;
• regulatory developments in the U.S. and foreign countries; and
• the timing of the development and commercialization of our product candidates.
40
Table of Contents
Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q.
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.
Anktiva, ceNK, Conkwest, GlobeImmune, GlobeImmune (logo), haNK, haNK (Chinese characters), ImmunityBio, NantKwest, NK-92, Outsmart your disease, taNK, Tarmogen, VesAnktiva, and VivaBioCell are trademarks or registered trademarks of ImmunityBio, Inc., its subsidiaries, or its affiliates.
This Quarterly Report on Form 10-Q contains references to our trademarks and trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us, by any other companies.
In this Quarterly Report on Form 10-Q, “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio, Inc. and its subsidiaries.
41
Table of Contents
Our Business
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. Our ultimate goal is to employ this approach to 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 diseases, such as checkpoint inhibitors and antiretroviral therapies. We believe that we have established one of the most comprehensive portfolios of immunotherapy and vaccine platforms, which includes:
Our platforms include 9 first-in-human therapeutic agents that are currently being studied in 27 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.
42
Table of Contents
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. Additionally, we believe that data from multiple clinical trials indicates N-803 has broad potential to enhance the activity of therapeutic monoclonal antibodies (mAbs), including checkpoint inhibitors (e.g., Keytruda), across a wide range of tumor types. N-803 is currently being studied in 21 clinical trials (both ImmunityBio and investigator-sponsored) across 13 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, ImmunityBio’s novel antibody cytokine fusion protein, has received Breakthrough Therapy and Fast Track designations from the FDA in combination with BCG for the treatment of patients with BCG -unresponsive NMIBC with CIS with or without Ta or T1 disease . I n May 2022, we announced the submission of a BLA to the FDA for our product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease. In July 2022, we announced the FDA has accepted our BLA for review and set a target PDUFA action date of May 23, 2023. It is unclear when the FDA will approve our BLA, if at all.
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.
The Merger
On December 21, 2020 , NantKwest and NantCell entered into the Merger Agreement pursuant to which NantKwest and NantCell agreed to combine their businesses. The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell, 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, 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 newly issued shares of 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, RSU or warrant to purchase NantCell common stock was converted using the Exchange Ratio into an option, RSU or warrant, 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 NantKwest 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.”
Accounting Treatment of the Merger
The Merger represents a business combination pursuant to FASB ASC Topic 805-50, which is accounted for as a transaction between entities under common control as Dr. Soon‑Shiong and his affiliates were the controlling stockholders of both the company and NantCell for all of the periods presented in this report. As a result, all of the assets and liabilities of NantCell were combined with ours at their historical carrying amounts on the closing date of the Merger. We have recast our prior period financial statements to reflect the conveyance of NantCell’s common shares as if the Merger had occurred as of the earliest date of the condensed consolidated financial statements presented in Item 1. “Financial Statements” of this Quarterly Report on Form 10‑Q. All material intercompany accounts and transactions have been eliminated in consolidation.
43
Table of Contents
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 Quarterly Report on Form 10-Q, 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.
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.
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 II, Item 1A. “Risk Factors.”
Operating Results
From inception through the date of this Quarterly Report on Form 10-Q, we have generated minimal revenue from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables, and grant programs. We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. We have incurred net losses in each year since our inception and, as of September 30, 2022, we had an accumulated deficit of $2.3 billion. Our net losses attributable to ImmunityBio common stockholders were $308.4 million and $255.5 million for the nine months ended September 30, 2022 and 2021, respectively. Substantially all of our net losses resulted principally from costs incurred in connection with our ongoing clinical trials and operations, our research and development programs, and from selling, general and administrative costs associated with our operations, including stock-based compensation expense.
As of September 30, 2022, we had 760 employees. Personnel of related companies who provide corporate, general and administrative, certain research and development, 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 Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. In anticipation of the commercialization of select drug candidates, we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year. See “— Future Funding Requirements ” below for a discussion of our anticipated expenditures and sources of capital we expect to access to fund these expenditures.
44
Table of Contents
Collaboration Agreements
We anticipate that strategic collaborations will continue to be an integral part of our operations, providing opportunities to leverage our partners’ expertise and capabilities to gain access to new technologies and further expand the potential of our technologies and product candidates across relevant platforms. We believe we are well positioned to become a leader in immunotherapy due to our broad and vertically-integrated platforms and through complementary strategic partnerships.
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. Additionally, we believe that data from multiple clinical trials indicates N-803 has broad potential to enhance the activity of therapeutic mAbs, including checkpoint inhibitors (e.g., Keytruda), across a wide range of tumor types. N-803 is currently being studied in 21 clinical trials (both ImmunityBio and investigator-sponsored) across 13 indications. We may also enter into supply arrangements for various investigational agents to be used in our clinical trials. See Part I, Item 1. “ Business—Collaboration and License Agreements ”, of our Annual Report on Form 10-K filed with the SEC on March 1, 2022 for a more detailed discussion regarding our collaboration and license agreements.
The company was previously party to a term sheet with EnGeneIC executed during the fourth quarter of 2021 for an exclusive, worldwide license to develop, manufacture and commercialize their patented endosomal delivery vector (EDV) nanocell technology as a single agent in certain cancer fields and with respect to the treatment and prevention of COVID-19 and in combination with our COVID-19 vaccine and anti-cancer drugs in a more broadly defined field of use. However, prior to the execution of definitive agreements, the parties recently decided not to pursue the transaction.
Agreements with Related Parties
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 Debt
The following description of the company’s related-party promissory notes does not purport to be complete and is qualified in its entirety by reference to the full text of the notes, copies of which are filed in Part II, Item 6. “ Exhibits” of this Quarterly Report on Form 10-Q.
$125.0 million Variable-Rate Promissory Note
On August 31, 2022, the company executed a $125.0 million promissory note with Nant Capital that bears interest at Term SOFR plus 8.0% per annum. The accrued interest is payable quarterly on the last business day of March, June, September and December, commencing on September 30, 2022. The outstanding principal amount and any accrued and unpaid interest are due on December 31, 2023. The company may prepay the outstanding principal amount, together with any accrued interest at any time, in whole or in part, without premium or penalty.
The company received net proceeds of $124.4 million, net of a $0.6 million origination fee paid to the lender, which the company intends to use for commercialization efforts, clinical trials, working capital and general corporate purposes.
45
Table of Contents
$300.0 million Variable-Rate Promissory Note
As of September 30, 2022, the company has a $300.0 million variable-rate promissory note with Nant Capital. On August 31, 2022, the terms of this promissory note were amended and restated to extend the maturity date of the loan from December 17, 2022 to December 31, 2023, increase the spread on the loan from Term SOFR plus 5.4% per annum to Term SOFR plus 8.0% per annum, and reset the quarterly interest payment date from the 17th of the month to the last business day of March, June, September and December, commencing on September 30, 2022. No other material terms or conditions of this variable-rate promissory note were modified as part of this amendment and restatement. In the event of a default on the loan (as defined in the promissory note), including if the company does 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 a price of $5.67 per share.
There can be no assurance that the company can refinance the variable-rate promissory notes described above 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 the company’s financial condition, cash flows and results of operations.
Fixed-Rate Convertible Promissory Notes
As of September 30, 2022, the company has outstanding fixed-rate promissory notes held by entities affiliated with Dr. Soon-Shiong in an aggregate amount of $315.7 million (consisting of principal and accrued and unpaid 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. The company 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, now subject to an advance notice period of at least five business days, during which the lender can convert the amount requested to be prepaid by the company into shares of company common stock, as part of the amendment and restatement described below.
On August 31, 2022, the terms of each fixed-rate promissory note were amended and restated to include a conversion feature that gives each lender the right at any time, including upon notice of prepayment, at its sole option, to convert the entire outstanding principal amount and accrued and unpaid interest due under each note at the time of conversion into shares of the company’s common stock at a price of $5.67 per share. No other material terms or conditions of these fixed-rate promissory notes were modified as part of these amendments.
Immuno-Oncology Clinic, Inc.
We entered into multiple agreements with 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 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. 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 performed by the Clinic as contemplated in the original agreements. As a result, we wrote down the remaining value of our prepaid asset and recorded approximately $4.4 million in research and development expense , on the condensed consolidated statement of operations for the year ended December 31, 2021 .
For the nine months ended September 30, 2022 and 2021, we incurred $2.0 million and $1.4 million in research and development expense , on the condensed consolidated statements of operations related to clinical trial and transition services provided by the Clinic.
46
Table of Contents
NantWorks, LLC
On May 6, 2022, we amended our facility license agreement with NantWorks to expand the licensed premises to an aggregate total of 46,330 rentable square feet.
23 Alaska, LLC
On May 6, 2022, we entered into a lease agreement with 23 Alaska, LLC for a 47,265 rentable square foot facility located at 2335 Alaska Ave., El Segundo, California, to be used primarily for quality control and process science activities.
557 Doug St, LLC
Effective September 27, 2021, we entered into a lease agreement with Nant Capital under which we leased 557 South Douglas Street in El Segundo, California. Effective May 31, 2022, we executed a lease termination agreement with Nant Capital under which we received a full refund of the first month’s rent and security deposit totaling $0.2 million that we paid upon execution of the lease.
See Note 9 , Related-Party Debt, and Note 10 , Related-Party Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for more detailed discussions of our related-party agreements.
Components of our Results of Operations
Revenue
From inception through the date of this Quarterly Report on Form 10-Q, we have generated minimal revenue from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables, and grant programs. We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. If we fail to complete the development of our product candidates in a timely manner or fail to obtain regulatory approval for them, we may never be able to generate substantial future revenue.
Operating Expenses
We generally classify our operating expenses into research and development, and selling, general and administrative expenses. Personnel costs, including salaries, benefits, bonuses, and stock-based compensation expense comprise a significant component of our research and development, and selling, general and administrative expense categories. We allocate expenses associated with our facilities and information technology costs between these two categories, primarily based on the nature of each cost.
Research and Development
Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our technology and product candidates. This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred.
Our research and development expenses primarily consist of:
• clinical trial and regulatory-related costs;
• expenses incurred under agreements with investigative sites and consultants that conduct our clinical trials;
• expenses incurred under collaborative agreements;
• manufacturing and testing costs and related supplies and materials;
• employee-related expenses, including salaries, benefits, travel and stock-based compensation; and
• facility expenses dedicated to research and development.
47
Table of Contents
We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or development programs.
We expect our research and development expenses to continue to increase significantly for the foreseeable future as we advance our product candidates through clinical development, including the conduct of our ongoing and any future clinical trials.
The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates.
The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:
• per patient trial costs;
• the number of sites included in the clinical trials;
• the countries in which the clinical trials are conducted;
• the length of time required to enroll eligible patients;
• the number of patients that participate in the clinical trials;
• the number of doses that patients receive;
• the cost of comparative agents used in clinical trials;
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring or other studies requested by regulatory agencies;
• the duration of patient follow-up; and
• the efficacy and safety profile of the product candidate.
We have only one product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease, for which we submitted a BLA to the FDA in May 2022. In July 2022, we announced the FDA has accepted our BLA for review and set a target PDUFA action date of May 23, 2023. However, there can be no assurance that our product candidate will be approved for commercial sale by the target PDUFA action date, 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
Selling, general and administrative expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-based compensation, for employees performing functions other than research and development. This includes personnel in executive, finance, human resources, information technology, legal, and administrative support functions. Other selling, general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, professional fees for auditing, tax and legal services, advertising costs, expenses associated with strategic business transactions and business development efforts, obtaining and maintaining patents, consulting costs, royalties and licensing costs, and costs of our information systems.
We expect that our selling, general and administrative expenses will increase for the foreseeable future as we expand operations, build out information systems and increase our headcount to support continued research activities and the development of our clinical programs. We have incurred and expect that we will continue to incur in the future, additional costs associated with operating as a public company, including costs to comply with stock exchange listing and SEC requirements, future funding efforts, corporate governance, internal controls, investor relations, disclosure and similar requirements applicable to public companies. Additionally, if and when we believe that a regulatory approval of a product candidate appears likely, we expect to incur significant increases in our selling, general and administrative expenses relating to the sales and marketing of the approved product candidate.
48
Table of Contents
Other Income and Expense
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.
Income Taxes
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 September 30, 2022, we have not been required to pay U.S. federal and state income taxes because of current losses from operations.
Discussion of Condensed Consolidated Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
Three Months Ended
September 30, $ Change % Change
2022 2021
(Unaudited, $ in thousands)
Revenue $ 118 $ 66 $ 52 79 %
Operating expenses:
Research and development (including amounts
with related parties) 71,612 49,277 22,335 45 %
Selling, general and administrative (including amounts
with related parties) 19,310 29,625 (10,315) (35 %)
Total operating expenses 90,922 78,902 12,020 15 %
Loss from operations (90,804) (78,836) (11,968) 15 %
Other expense, net:
Interest and investment income (loss), net 857 (5,941) 6,798 (114 %)
Interest expense (including amounts with related parties) (16,764) (3,614) (13,150) 364 %
Loss on equity method investment (4,456) — (4,456) N/A
Other income (loss), net (including amounts
with related parties) 6 (38) 44 (116 %)
Total other expense, net (20,357) (9,593) (10,764) 112 %
Loss before income taxes and noncontrolling interests (111,161) (88,429) (22,732) 26 %
Income tax expense — — — N/A
Net loss $ (111,161) $ (88,429) $ (22,732) 26 %
Revenue
Revenue increased $0.1 million for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase was primarily driven by bioreactor revenue received in 2022.
49
Table of Contents
Research and Development Expense
Research and development expense increased $22.3 million during the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase in research and development expense was driven by $11.8 million of higher drug manufacturing costs, including costs for our product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease, a $6.4 million increase in personnel costs due to increased headcount, a $5.5 million increase in facilities and equipment expense primarily related to the expansion of our manufacturing facilities in California and New York that caused increases in lease expense, a $1.3 million increase in clinical trial costs driven by higher drug costs for our N-803 program, a $0.9 million increase in other operating expenses, primarily related to the impairment write-down of the Dunkirk Facility workforce intangible asset and increased property tax expense, and a $0.5 million increase in regulatory and consulting costs. These increases were partially offset by a $2.0 million reduction in lab supplies, a $1.1 million reduction of collaboration costs and a $1.0 million decrease in stock-based compensation expense.
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 decreased $10.3 million during the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The reduction in selling, general and administrative expense was primarily driven by a $13.7 million net decline in legal expenses that included litigation-related insurance reimbursements received during the quarter that offset current-period legal expenses, and a $2.2 million decrease in stock-based compensation expense. These decreases were partially offset by a $4.2 million increase in personnel costs due to higher headcount and increased travel costs, and a $1.4 million increase in other expenses.
Other Expense, Net
Other expense, net increased $10.8 million during the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The increase in other expense, net was mainly due to a $13.2 million increase in interest expense driven by higher related-party borrowings and a mortization of related-party notes discounts , and a $4.5 million loss on our equity method investment. These increases in other expense, net were partially offset by a $6.8 million increase in net unrealized gains related to our marketable equity securities, and a $0.1 million increase in other income, net.
50
Table of Contents
Comparison of the Nine Months Ended September 30, 2022 and 2021
Nine Months Ended
September 30, $ Change % Change
2022 2021
(Unaudited, $ in thousands)
Revenue $ 167 $ 544 $ (377) (69 %)
Operating expenses:
Research and development (including amounts
with related parties) 190,072 144,205 45,867 32 %
Selling, general and administrative (including amounts
with related parties) 76,493 107,345 (30,852) (29 %)
Total operating expenses 266,565 251,550 15,015 6 %
Loss from operations (266,398) (251,006) (15,392) 6 %
Other expense, net:
Interest and investment income, net 723 2,826 (2,103) (74 %)
Interest expense (including amounts with related parties) (34,953) (10,359) (24,594) 237 %
Loss on equity method investment (8,553) — (8,553) N/A
Other income, net (including amounts
with related parties) 187 252 (65) (26 %)
Total other expense, net (42,596) (7,281) (35,315) 485 %
Loss before income taxes and noncontrolling interests (308,994) (258,287) (50,707) 20 %
Income tax expense — (8) 8 (100 %)
Net loss $ (308,994) $ (258,295) $ (50,699) 20 %
Revenue
Revenue decreased $0.4 million for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The decrease was primarily driven by less bioreactor revenue received in 2022.
Research and Development Expense
Research and development expense increased $45.9 million during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase in research and development expense was primarily driven by a $17.3 million increase in personnel costs due to increased headcount and the acquisition of the Dunkirk Facility, $16.9 million of higher drug manufacturing costs, including costs for our product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease, a $14.6 million increase in facilities and equipment expense primarily related to the expansion of our manufacturing facilities in California and New York which caused increases in lease expenses, a $7.8 million increase in regulatory and consulting costs primarily related to the BLA submission of our product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease, and a $1.9 million increase in other operating costs. These increases were partially offset by a $6.2 million decrease in stock-based compensation expense, a $4.0 million reduction in collaboration costs and a $2.4 million reduction in lab supplies.
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.
51
Table of Contents
Selling, General and Administrative Expense
Selling, general and administrative expense decreased $30.9 million during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The reduction in selling, general and administrative expense was primarily driven by a $24.2 million net decline in legal expenses that included year-to-date litigation-related insurance reimbursements received that offset year-to-date legal expenses, a $9.9 million decrease in stock-based compensation expense, and a $9.0 million decrease in consulting costs, primarily due to Merger-related expenses incurred in the prior period. These decreases were partially offset by an $11.5 million increase in personnel costs due to higher headcount and travel-related costs, and a $0.7 million increase in other costs.
Other Expense, Net
Other expense, net increased $35.3 million during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The increase was due to a $24.6 million increase in interest expense driven by higher related ‑ party borrowings and a mortization of related-party notes discounts , an $8.6 million loss on our equity method investment, and a decrease of $2.1 million in net unrealized gains related to our marketable equity securities.
Financial Condition, Liquidity and Capital Resources
Sources of Liquidity
Our principal sources of liquidity are our existing cash, cash equivalents, and marketable securities. We have historically invested our cash primarily in investment grade short- to intermediate-term corporate debt securities, commercial paper, government-sponsored securities, U.S. treasury securities, and foreign government bonds and classify these investments as available-for-sale. Certain of these investments are subject to general credit, liquidity and other market risks. The general condition of the financial markets and the economy may increase those risks and may affect the value and liquidity of investments and restrict our ability to access the capital markets.
As of September 30, 2022, we had cash and cash equivalents, and marketable securities of $111.9 million compared to $317.9 million as of December 31, 2021. On April 30, 2021, we entered into a Sale Agreement with respect to an 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. We issued no shares under the ATM during the nine months ended September 30, 2022. As of September 30, 2022, 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.
52
Table of Contents
Uses of Liquidity
In addition to the cash used to fund our operating activities discussed in “ —Future Funding Requirements ” below, we will require cash to settle the following obligations:
• As of September 30, 2022, our indebtedness payable at maturity totals $740.7 million (excluding unamortized related-party notes discounts), held by entities affiliated with Dr. Soon-Shiong.
Of this amount, $425.0 million is due and payable on December 31, 2023. In the event of a default on the $300.0 million 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 the company can refinance these promissory notes 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 the company’s financial condition, cash flows and results of operations.
The remaining $315.7 million is due and payable on September 30, 2025, including any accrued and unpaid interest. The company can prepay the outstanding principal (together with accrued and unpaid interest), in whole or in part, at any time without premium or penalty and without the prior consent of the lender. On August 31, 2022, the terms of each fixed-rate promissory note were amended and restated to include a conversion feature that gives each lender the right at any time, including upon notice of prepayment, at its sole option, to convert the entire outstanding principal amount and accrued and unpaid interest due under each note at the time of conversion into shares of the company’s common stock at a price of $5.67 per share.
• In connection with our 2017 acquisition of Altor, we issued CVRs under which we agreed to pay the prior stockholders of Altor approximately $304.0 million contingent upon successful approval of a BLA, or foreign equivalent, for N-803 by December 31, 2022 and approximately $304.0 million contingent upon calendar-year worldwide net sales of N-803 exceeding $1.0 billion prior to December 31, 2026 (with amounts payable in cash or shares of our common stock or a combination thereof). Dr. Soon-Shiong and his related party hold approximately $279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of the company’s 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.
We have submitted the BLA, and in July 2022, we announced the FDA has accepted our BLA for review and set a target PDUFA action date of May 23, 2023. It is unclear when the FDA will approve our BLA, if at all. If the FDA does not approve our BLA by December 31, 2022, prior to its established target PDUFA action date, the $304.0 million related to the regulatory milestone will not be payable and the holders of these CVRs will not receive any cash or shares of our common stock on account of the regulatory milestone CVRs.
• In connection with our acquisition of VivaBioCell, we are obligated to pay the former owners approximately $2.0 million of contingent consideration upon the achievement of a regulatory milestone relating to the GMP-in-a-Box technology.
53
Table of Contents
Discussion of Condensed Consolidated Cash Flows
The following discussion of ImmunityBio’s cash flows is based on the condensed consolidated statements of cash flows in Item 1. “Financial Statements” 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 (in thousands):
Nine Months Ended
September 30,
2022 2021
(Unaudited)
Cash (used in) provided by:
Operating activities $ (246,782) $ (202,780)
Investing activities 46,191 52,916
Financing activities 123,673 179,490
Effect of exchange rate changes on cash, cash equivalents,
and restricted cash 123 (17)
Net change in cash, cash equivalents, and restricted cash $ (76,795) $ 29,609
Operating Activities
For the nine months ended September 30, 2022, net cash used in operating activities of $246.8 million consisted of a net loss of $309.0 million and $1.4 million of cash used in net working capital, partially offset by $63.6 million in adjustments for non-cash items. The changes in net working capital consisted primarily of an increase of $14.4 million in prepaid and other current assets, and decreases of $2.3 million in operating lease liabilities and $1.6 million with related parties, partially offset by an increase of $7.6 million in accounts payable, $7.2 million in accrued expenses and other liabilities, and decreases of $2.1 million in other assets. Adjustments for non-cash items primarily consisted of $30.8 million in stock-based compensation expense, $13.8 million in non-cash interest and debt discount amortization primarily related to related-party promissory notes, $13.0 million in depreciation and amortization expense, $4.3 million in non-cash lease expense related to operating lease right‑of‑use assets, $1.3 million in other non-cash items, and a non-cash $0.7 million loss on the impairment of intangible assets, reduced by $0.2 million in unrealized gains on equity securities driven by an increase in the value of our investments and $0.1 million of other.
For the nine months ended September 30, 2021, net cash used in operating activities of $202.8 million consisted of a net loss of $258.3 million and $12.3 million of cash used in net working capital, partially offset by $67.8 million in adjustments for non-cash items. The change in net working capital consisted primarily of increases of $4.8 million in other assets, $4.7 million with related parties, decreases of $3.6 million in operating lease liabilities, and a decrease of $0.2 million in accounts payable, partially offset by increases of $0.6 million in accrued expenses and other liabilities, and decreases of $0.4 million in other current assets. Adjustments for non-cash items primarily consisted of $47.0 million in stock-based compensation expense, $10.6 million in depreciation and amortization, $9.1 million in non-cash interest primarily related to related-party loans, $3.5 million in non ‑ cash lease expense related to operating lease right-of-use assets, and $0.3 million of non-cash amortization of net premiums and discounts on marketable debt securities reduced by $2.4 million in unrealized gains on marketable equity securities driven by an increase in the value of our investments and $0.3 million in other non-cash items.
We have historically experienced negative cash flows from operating activities, with such negative cash flows likely to continue for the foreseeable future.
54
Table of Contents
Investing Activities
For the nine months ended September 30, 2022, net cash provided by investing activities was $46.2 million, which included cash inflows of $162.0 million from maturities and sales of marketable debt and equity securities, partially offset by $59.3 million of purchases of property, plant and equipment (including construction in process and depreciable property acquired in the Dunkirk acquisition), $34.3 million of purchases of marketable debt securities, $21.2 million for purchase of intangible assets (related to the Dunkirk acquisition), and a $1.0 million investment in a joint venture. Our investments in property, plant and equipment are primarily related to acquisitions of equipment that will be used for the manufacturing of our product candidates and expenditures related to the build out of our manufacturing facilities.
For the nine months ended September 30, 2021, net cash provided by investing activities was $52.9 million, which included cash inflows of $58.3 million from maturities and sales of marketable debt securities and $20.5 million in net proceeds from sales of property, plant and equipment, mainly due to the sale of 557 Doug St, LLC, partially offset by $23.2 million of purchases of property, plant and equipment and $2.7 million in purchases of marketable debt securities. Our investments in property, plant and equipment were related primarily 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.
We expect to accelerate our capital spending as we scale our GMP manufacturing capabilities, which will require significant capital for the foreseeable future.
Financing Activities
For the nine months ended September 30, 2022, net cash provided by financing activities was $123.7 million, which consisted of $124.4 million in net proceeds from issuances of related-party promissory notes, partially offset by $0.4 million related to net share settlement of vested RSUs for payment of payroll tax withholding and $0.3 million payment for contingent consideration.
For the nine months ended September 30, 2021, net cash provided by financing activities was $179.5 million, which consisted of $137.0 million in net proceeds from the ATM offering, $40.0 million in net proceeds from issuances of related-party promissory notes, $5.1 million in proceeds from exercises of stock options and a $1.4 million capital contribution related to the sale of 557 Doug St, LLC to an entity under common control, partially offset by $3.6 million related to net share settlement of vested RSUs for payment of payroll tax withholding and a $0.4 million payment for contingent consideration.
Future Funding Requirements
From inception through the date of this Quarterly Report on Form 10-Q, 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 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.
55
Table of Contents
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;
• seek to discover and develop additional product candidates;
• establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval;
• seek to comply with regulatory standards and laws;
• maintain, leverage and expand our intellectual property portfolio;
• hire clinical, manufacturing, scientific and other personnel to support our product candidates’ development and future commercialization efforts;
• add operational, financial and management information systems and personnel; and
• incur additional legal, accounting and other expenses in operating as a public company.
As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support. However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including the ATM) and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the condensed consolidated financial statements based primarily upon our Executive Chairman and Global Chief Scientific and Medical Officer’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt. We may also seek to sell additional equity, through one or more follow-on public offerings, or in separate financings, or obtain a credit facility. However, we may not be able to secure such 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 (EMA) regulations;
• terms, timing and costs of our current and any potential future collaborations, business or product acquisitions, CVRs, milestones, royalties, licensing or other arrangements that we have established or may establish;
• time and cost necessary to respond to technological, regulatory, political and market developments; and
• costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights.
56
Table of Contents
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 September 30, 2022, we had $330.8 million available for future stock issuances under the ATM. See Note 11 , Stockholders’ Deficit , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q.
To the extent that we raise additional capital through the sale of equity or 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 promissory notes. For information regarding our financing obligations, see Note 9 , Related-Party Debt, of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q.
• We are obligated to make payments under our operating leases, which primarily consist of facility leases. For information regarding our lease obligations, see Note 8 , Lease Arrangements, and Note 10 , Related-Party Agreements, of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q.
• 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 Consideration Related to Business Combinations, of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q.
• We have contractual obligations to make payments to related-party affiliates and third parties under unconditional purchase arrangements. For information on these unconditional purchase obligations, see Note 7, Commitments and Contingencies—Unconditional Purchase Obligations, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K filed with the SEC on March 1, 2022.
• 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 $126.5 million and is primarily related to capital expenditures, open purchase orders as of September 30, 2022 for the acquisition of goods and services in the ordinary course of business, and near term upfront milestone payments to third parties.
57
Table of Contents
• 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 September 30, 2022, the maximum amount that may be payable related to these commitments is $594.7 million.
• In connection with our leasehold interest in the Dunkirk Facility, we 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 Note 6 , Collaboration and License Agreements and Acquisition , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for additional information.
Critical Accounting Policies and Estimates
In Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K filed with the SEC on March 1, 2022, we disclose those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant as of the date of this Quarterly Report on Form 10-Q.
Our discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP . The preparation of our condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these financial statements. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Refer to Note 2 , Summary of Significant Accounting Policies , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to us.
58
Table of Contents