What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-14 · 141 added, 113 removed, 250 unchanged (50% of the section changed)

1 unchanged sentence

Forward-Looking Statements

The following discussion and analysis should be read together with our condensed combined 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, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management.

The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) that are based on our management’s beliefs and assumptions and on information currently available to our management.

The forward-looking statements are contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

9 unchanged sentences

our beliefs regarding the success, cost and timing of our product candidate development activities and current and future clinical trials and studies, including study design;

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

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

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

Biologics License Application, or BLA;

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

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

Biologics License Application (“BLA”);

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

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

the ability and willingness of strategic collaborators, including certain affiliates of NantWorks, LLC, or NantWorks, to share our vision and effectively work with us to achieve our goals;

the ability and willingness of strategic collaborators, including certain affiliates of NantWorks, LLC (“NantWorks”) to share our vision and effectively work with us to achieve our goals;

the ability and willingness of various third parties to engage in research and development activities involving our product candidates, and our ability to leverage those activities;

6 unchanged sentences

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

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

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

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

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

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

7 unchanged sentences

the terms and conditions of licenses granted to us and our ability to license additional intellectual property relating to our product candidates and technology;

the impact on us, if any, if the contingent value rights, or CVRs, held by former Altor stockholders become due and payable in accordance with their terms;

regulatory developments in the United States, or U.S., and foreign countries.

the impact on us, if any, if the contingent value rights (“CVRs”) held by former Altor BioScience Corporation (“Altor”) stockholders become due and payable in accordance with their terms;

regulatory developments in the United States (“U.S.”) and foreign countries.

Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.

14 unchanged sentences

and its subsidiaries.

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

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

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

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

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

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

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

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

1 unchanged sentence

In December 2019, the U.S.

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

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

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

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

6 unchanged sentences

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 7 1 .

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.

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 E xecutive C hairman, and his affiliates beneficially own, in the aggregate, approximately 8 1.8 % of the outstanding shares of Company Common Stock.

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

We incurred costs totaling $23.2 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, of which $12.9 million was recorded during the three months ended March 31, 2021.

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

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

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

Accounting Treatment of the Merger

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 each of the company and NantCell for all the periods presented in this report.

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.

12 unchanged sentences

To date, we have seen no material adverse impact to our business from the pandemic.

We anticipate, however, that enrollment of patients in certain studies will likely take longer than forecasted in prior Securities and Exchange Commission, or 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.

We anticipate, however, that enrollment of patients in certain studies will likely take longer than forecasted in prior Securities and Exchange Commission (“ SEC ”) filings and that our clinical trials may require additional time to complete which would in turn impact the timeline in which we were previously forecasting BLA submissions of our product candidates and subsequent revenue generation.

These factors have been accounted for in the company’s anticipated upcoming milestones.

During any such delays in our clinical trials, we will continue to incur fixed costs such as selling, general and administrative expenses and operating expenses related to our laboratory, Good Manufacturing Practice, or GMP, manufacturing, and office facilities.

Many of our office-based employees have been working from home since mid-March 2020.

7 unchanged sentences

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 March 31, 2021, we had an accumulated deficit of $1.7 billion.

Our net losses attributable to ImmunityBio common stockholders were $79.6 million and $37.0 million for the three months ended March 31, 2021 and 2020, respectively, and $221.9 million and $157.8 million for the years ended December 31, 2020 and 2019, respectively.

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

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

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 March 31, 2021, we had 475 employees.

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

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

For additional information, see Note 9 , Related Party Agreements, of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appears in Item 1.

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

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

5 unchanged sentences

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

See Note 7 , Collaboration and License Agreements , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appears in Item 1.

See Note 6 , Collaboration and License Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1.

“Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our existing collaboration and license agreements.

4 unchanged sentences

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

As of March 31, 2021, we have outstanding promissory notes with certain entities affiliated with Dr.

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

Soon-Shiong in an aggregate amount of $300.3 million, including accrued interest.

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

As of March 31, 2021, the notes provide that all outstanding principal is due and payable on September 30, 2025, and accrued and unpaid interest is payable on either the maturity date or, with respect to one of the notes, on a quarterly basis beginning June 30, 2021.

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

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.

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, whereby we leased approximately 6,883 square feet in El Segundo, California.

This facility is used primarily for pharmaceutical development and manufacturing purposes.

The lease runs from January 2021 through December 2027, and includes an option to extend the lease for an additional three-year term through December 2030.

Base rent for the term of the lease is approximately $20,300 per month with an annual increase of 3% on January 1 of each year during the initial term and, if applicable, during the option term.

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

Promissory Note with Nant Capital

In February 2021, we executed a promissory note with Nant Capital.

The outstanding principal amount of each advance made by Nant Capital bears interest at a per annum rate of 6.0%, compounded annually and computed based on 365 or 366 days.

On February 26, 2021, we received a $40.0 million advance pursuant to this promissory note, all of which is outstanding as of March 31, 2021.

The accrued interest shall be paid quarterly commencing on June 30, 2021.

The outstanding principal amount and any accrued and unpaid interest are due on September 30, 2025.

We may prepay the outstanding principal amount and accrued interest at any time without premium or penalty and the prior consent of Nant Capital.

See Note 9 , Related Party Agreements , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appears in Item 1.

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

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

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

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

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

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

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

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

(the “Clinic”) to conduct clinical trials related to certain of our product candidates.

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

B ased on a review of our updated clinical trial programs post-Merger, we updated our estimates of the investigator fees for the clinical trials currently underway or planned at the Clinic.

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

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

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

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

“Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our related party agreements.

37 unchanged sentences

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 12 to 24 months, if ever.

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

Selling, General and Administrative

13 unchanged sentences

Results of Operations

Comparison of the three months ended March 31, 2021 and 2020

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

Three Months Ended

1 unchanged sentence

Operating expenses:

Research and development (including amounts with

related parties)

Research and development (including amounts

with related parties)

Selling, general and administrative (including amounts

2 unchanged sentences

Loss from operations

Other expense:

Interest and investment (expense) income, net

Interest expense (including amounts with related parties)

Other income, net (including amounts

with related parties)

Total other expense

Loss before income taxes and noncontrolling interests

Income tax expense

Research and Development Expense

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

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

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

Selling, General and Administrative Expense

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

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

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

Other Expense

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

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

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

Six Months Ended

(Unaudited, $ in thousands)

Operating expenses:

Research and development (including amounts

with related parties)

Selling, general and administrative (including amounts

with related parties)

Total operating expenses

Loss from operations

Other income (expense):

1 unchanged sentence

Interest expense (including amounts with related parties)

Other income, net (including amounts with

related parties)

Other income, net (including amounts

with related parties)

Total other income (expense)

2 unchanged sentences

Research and Development Expense

Research and development expense increased $13.8 million during the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

The increase in research and development expense was primarily driven by higher laboratory supply expenses of $4.9 million mainly driven by our COVID ‑ 19 programs, increased stock compensation expense of $2.7 million due to new grants issued, higher compensation related expenses including shared services costs of $1.9 million driven by additional headcount needed to support our business activities, increased clinical trial expenses and regulatory costs of $1.7 million related to our COVID ‑ 19 programs, higher third party testing services of $1.3 million driven by release testing related to various product candidates, and higher manufacturing costs, including facilities expenses and equipment maintenance costs of $1.1 million related to our Anktiva and COVID ‑ 19 programs.

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

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

Selling, General and Administrative Expense

Selling, general and administrative expense increased $35.8 million during the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

The increase in selling, general and administrative expense was primarily attributable to higher financial advisory, legal, public company and other professional fees of $21.0 million related to our merger which was announced in December 2020 and closed in March 2021 as well as higher costs associated with ongoing litigation, contracting, trademark, and patent related legal fees and other matters, higher stock compensation expense of $12.1 million driven by stock options and RSUs granted as well as stock option modifications resulting in incremental stock based compensation expense in the first quarter of 2021, increased insurance costs of $2.0 million due mostly to higher directors’ and officers’ renewal rates and increased coverage related to the combined company, and higher compensation related expenses including shared services costs of $0.6 million.

Other Inc ome and Expense

Other income increased $6.5 million during the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

This increase was mainly due to unrealized gains of $8.8 million related to our equity investments.

These gains were partially offset by a $1.3 million increase in interest expense driven primarily by additional related party borrowings and a decrease in other income of $1.1 million related to Receptome, LLC.

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

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

Other Income and Expense

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

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

Liquidity and Capital Resources

5 unchanged sentences

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 March 31, 2021, we had cash and cash equivalents, and marketable securities of $84.3 million compared to $97.0 million as of December 31, 2020.

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

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

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

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

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

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

3 unchanged sentences

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 March 31, 2021, we had related-party notes payable together with accrued interest thereon of $297.5 million compared to $254.4 million as of December 31, 2020.

During the three months ended March 31 2021, we received a $40.0 million advance pursuant to a related-party promissory note.

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

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

Such notes bear interest at 3% to 6% per year and may be prepaid by us without penalty.

5 unchanged sentences

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

Three Months Ended

Six Months Ended

(Unaudited, in thousands)

Cash provided by (used in):

2 unchanged sentences

Financing activities

Effect of exchange rate changes on cash, cash equivalents,

Effects of exchange rate changes on cash, cash equivalents,

and restricted cash

1 unchanged sentence

Operating Activities

For the three months ended March 31, 2021, net cash used in operating activities of $60.5 million consisted of a net l oss of $80.5 m i llion, part i a l ly o f fset by $14.5 m illi o n in ad j us t ments f o r no n -cash items and $5.5 m ill i on of cash p rovi d ed by net work i ng capital chan g e s.

A d justmen t s f or non - cash i tems pr i mari l y consisted of $15.3 mil l ion in s t ock compe n sati o n expense, $3.4 mill i on in non - cash i n terest related p ri m a r ily to related party l oans, $3.0 mill i on in depreciati o n and amo r tizati o n, $1.6 m ill i on of non - cash l e ase expense related to operat i ng lease righ t -of-use assets, and $0.2 m ill i on in a m or t iza t ion of net premiums and discounts on mar k e t a b le debt securi t ies, reduced b y $8.8 m illion in u n realized gains on marketa b le e q u i ty secur i ties dri v en pr i mari l y by an i ncrease i n the val u e o f our in v e st m ents.

The change in net working capi t al co n sisted pr i mari l y of increases i n accoun t s pa y a b le of $6.5 m i llio n, amounts due t o related p a rties of $2.6 m illi o n, and o ther l ong-term asse t s o f $0.7 mill i on.

T h ese increases i n net wo r king ca p ital were p a r tially of f s et b y de creases in accrued expenses and other liabilities of $1.9 m illi o n, o p e r ating lease liab i lities of $1.5 m ill i on and prepaid e x pens e s and o ther current assets of $0.9 m i llion includ i ng changes related t o insurance claim receivables and prepaid ma n ufacturing serv i c es.

For the three months ended March 31, 2020, net cash used in operating activities of $31.1 million consisted of a net l oss of $37.4 m i llion, partially offset by $6.3 mil l ion i n adjustmen t s f or non-cash i t e m s and $0.1 million of cash provided by net w o rki n g capital changes.

Adjust m e n ts for non-cash items p r ima r ily consisted o f $3.5 m i llion in dep r ec i a t ion and a m ort i za t ion, $2.0 m illion in n o n-cash inte r e st items, $1.2 m i llion of n on-cash lease ex p e n s e r e l ated to o p e r ating lease ri g ht- o f- u se assets, $0.5 m i llion in stock co m pensa t ion expense, and $0.2 million in unrealized losses on marketab l e e q uity secur i ties, partially offset by a $1.1 million change in deferred tax liability.

The changes in net wor k ing capi t al consis t ed pr i mari l y of in c r eases related t o acc r ued expenses of $8.2 m illi o n and other assets of $0.3 million, partially offset by decreases in prepaid expenses and other current assets of $4.0 mill i on, d u e to related parties of $2.4 m ill i on, accou n ts payable of $1.7 m illi o n, and ope r a t ing lease liabi l ities of $0 .3 m illi o n.

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

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

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

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

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

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

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

Investing Activities

For the three months ended March 31, 2021, net cash provided by investing activities was $31.8 million, which included cash inflows of $3 1 .9 m i llion a n d $7.1 mill i on f rom matu r ities and sales o f m a r ketable sec u rit i es, respectively, partially offset by $7.1 mil l ion f or p urchases of p r opert y , plant and equip m ent, Our invest m e n ts in p r opert y , plant a n d equip m ent related p ri m a r ily t o acquisiti o ns of equ i pment w hich wi l l be used f o r the m anufactu r ing o f our p r oduct cand ida te s and expenditures related to the build out of our manufacturing facilities .

For the three months ended March 31, 2020, net cash provided by investing activities was $14.0 million, which included cash inflows of $23.1 m i llion a n d $1.5 mill i on f rom matu r ities and sales o f m a r ketable sec u rit i es, re spect i vely, partially offset by $10.3 million of purchases of marketable debt securities and $0.3 mil l ion f or p urchases of p r opert y , plant and equip m ent.

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

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

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

Financing Activities

For the three months ended March 31, 2021, net cash provided by financing activities was $38.5 million, which consisted of net proceeds f rom iss u a n c es of related party notes of $40 million a n d p r oceeds of $1.1 mil l ion r e su l ting f rom exercises o f stock o p tions.

Net cash used in financi n g a ctivi t ies consisted of $2.6 m illi o n related t o net share settle m e n t of ves t ed RSUs for pay m e n t of e m ployee pay r oll t a x e s .

For the three months ended March 31, 2020, net cash used in financing activities was minimal.

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

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

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

Future Funding Requirements

To date, we have generated minimal revenue, and we have no products approved for commercial sale and have not generated any revenue from product sales.

To date, we have generated minimal revenue, and we have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development.

We do not expect to generate significant revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, this will occur.

14 unchanged sentences

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.

To date, we have in part relied on borrowings from entities affiliated with our Executive Chairman and principal stockholder, Dr.

Soon-Shiong, to fund our capital requirements.

We have no lines of credit or committed sources of financing;

however, we may have access to incremental draws on the promissory notes we have with entities associated with Dr.

We believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings and our potential 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 condensed combined consolidated financial statements based primarily upon our Executive Chairman’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt.

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.

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

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

progr e s s, timing, scope and costs of our clinical tr i a ls, in c luding the a bil i ty t o t im e ly i nit i a t e c l i nic a l s i tes, enro l l sub j ec t s and m a nufac t ure Anktiva and other therapies for the treat m ent of patients in our on g oing, plan n e d a nd po t ent i al future c lin i c a l t ria l s ;

t ime and cost necessary to obtain regulatory approvals that may be required by regula t ory a uthori t ies t o e xe c ute c l ini c al tr i als;

our ability to successfully commercialize any product candidates, if approved;

our ability to have clinical and commercial products successfully manufact u red consistent with FDA and European Medicines Agency regulations;

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

sales and marketing costs associated w i th commercializing any product candidates, if approved, including the cost and timing o f building our marketing and s a l e s c a pab i li t ies;

c ost of building, staffing and validating our own manufacturing facilities in t he U.S.

t erms and timing of our current and any pote n tial future collaborations, CVRs , m i lestones, r o yalti e s, licensing or other arrangements that we have established or may establish;

c ash requirements of any fut u r e acquisitions or the developme n t of other product candidates;

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

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

However, we may not be able to secure such financing in a timely manner or on favorable terms.

Without additional funds, we may choose to delay or reduce our operating or investment expenditures.

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

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

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

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

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

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

t ime and cost of regulatory approvals;

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

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

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

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

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

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

c osts associated with any po t e n tial business or product acquis i tions, strategic collaborations, licensing agreements or other arrangements that we may establish.

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

In that connection we intend to issue additional shares in one or more future capital raising transactions, including but not limited to the offering, issuance and sale by us of up to a maximum aggregate offering of $500.0 million of our common stock that may be issued and sold under an “at-the-market” sales agreement with Jefferies LLC, or the ATM.

Additional funds may not be available when we seek to raise capital or need funds on terms that are acceptable to us, or at all.

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

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

See Note 9 , Stockholders’ Deficit , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1.

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

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

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

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

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 agreements may also be terminated if we are unable to meet the payment obligations under those agreements.

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.

To the extent that we raise additional capital through the sale of additional equity or convertible debt securities, including through the ATM or other offerings, the ownership interest of our stockholders 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, 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 unfavorable terms.

On April 30, 2021, we entered into an Open Market Sale Agreement (the “Agreement”) with respect to an at-the-market (“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 million.

See Note 13 , Subsequent Events , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appear in Item 1.

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

Contractual Obligations, Commitments and Contingencies

Contractual Obligations and Commitments

See Note 8 , Commitments and Contingencies – Lease Arrangements , and Note 9 , Related Party Agreements , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appear in Item 1.

See Note 7 , Commitments and Contingencies – Lease Arrangements , and Note 8 , Related-Party Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1.

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

12 unchanged sentences

There have been no material changes to those policies that we consider to be significant since the filing of our Current Report on Form 8-K/A on April 22, 2021.

The accounting principles used in preparing our condensed combined consolidated financial statements conform in all material respects with accounting principles generally accepted in the United States of America, or U.S.

The accounting principles used in preparing our condensed consolidated financial statements conform in all material respects with accounting principles generally accepted in the United States of America (“U.S.

Use of Estimates

The preparation of condensed combined consolidated financial statements in conformity with U.S.

GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed combined consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates, including those related to 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, and fair value measurements.

The preparation of condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the reporting period.

On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these financial statements.

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

2 unchanged sentences

Stock-Based Compensation

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

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

We measure the fair value of an equity-classified award at the grant date and recognize the stock-based compensation expense over the period of vesting on the straight-line basis for our outstanding share awards that do not contain a performance condition.

2 unchanged sentences

Recent Accounting Pronouncements

Refer to Note 2 , Summary of Significant Accounting Policies , of the “Notes to Unaudited Condensed Combined Consolidated Financial Statements” that appears in Item 1.

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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis