ImmunityBio, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-Looking Statements The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, but are not limited to: • our ability to pioneer immunotherapy, harness the power of the innate immune system, implement precision cancer medicine and change the current paradigm of cancer care; • our ability to implement and support our COVID ‑ 19 vaccine and therapeutic programs; • any impact of the coronavirus pandemic, or responses to the pandemic, on our business, clinical trials or personnel; • our expectations regarding the potential benefits of our strategy and technology; • our expectations regarding the operation of our product candidates and related benefits; • our ability to utilize multiple modes to induce cell death; • our beliefs regarding the benefits and perceived limitations of competing approaches, and the future of competing technologies and our industry; • details regarding our strategic vision and planned product candidate pipeline, including that we eventually plan to advance therapies for virally induced infectious diseases; • our beliefs regarding the success, cost and timing of our product candidate development activities and current and future clinical trials and studies, including study design; • our expectations regarding our ability to utilize the Phase I and II aNK and haNK clinical trials data to support the development of our product candidates, including our haNK, taNK, t‑haNK, MSC and M-ceNK product candidates; • our expectations regarding the development, application, commercialization, marketing, prospects and use generally of our product candidates, including Anktiva, hAd5 and aldoxorubicin; • the timing or likelihood of regulatory filings or other actions and related regulatory authority responses, including any planned investigational new drug (“IND”); Biologics License Application (“BLA”); or New Drug Application (“NDA”) filings or pursuit of accelerated regulatory approval pathways or orphan drug status and Breakthrough Therapy designations; • our ability to implement an integrated discovery ecosystem and the operation of that planned ecosystem, including being able to regularly add neoepitopes and subsequently formulate new product candidates; • the ability and willingness of strategic collaborators, including certain affiliates of NantWorks, LLC (“NantWorks”) to share our vision and effectively work with us to achieve our goals; • the ability and willingness of various third parties to engage in research and development activities involving our product candidates, and our ability to leverage those activities; • our ability to attract additional third-party collaborators; • our expectations regarding the ease of administration associated with our product candidates; • our expectations regarding the patient compatibility associated with our product candidates; • our beliefs regarding the potential markets for our product candidates and our ability to serve those markets; • our ability to produce an “off-the-shelf” therapy; • 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; 36 Table of Contents • our plans regarding our manufacturing facilit ies and our belief that our manufacturing is capable of being conducted in ‑house; • our belief in the potential of our antibody cytokine fusion protein, vaccine technology and NK-92 and M-ceNK cell therapy technology, and the fact that our business is based upon the success individually and collectively of our platforms; • our antibody cytokine fusion protein, vaccine technology and NK-92 and M-ceNK cell therapy technology along with other product candidate families, will require significant additional clinical testing; • even if we successfully develop and commercialize specific product candidates like our Anktiva or haNK and t‑hank, we may not be successful in developing and commercializing our other product candidates either alone or in combination with other therapeutic agents; • the ability to obtain and maintain regulatory approval of any of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate; • our ability to commercialize any approved products; • the rate and degree of market acceptance of any approved products; • our ability to attract and retain key personnel; • the accuracy of our estimates regarding our future revenue, as well as our future operating expenses, capital requirements and needs for additional financing; • our ability to obtain funding for our operations, including funding necessary to complete further development and any commercialization of our product candidates; • our ability to obtain, maintain, protect and enforce intellectual property protection for our product candidates and technology and not infringe upon, misappropriate or otherwise violate the intellectual property of others; • the terms and conditions of licenses granted to us and our ability to license additional intellectual property relating to our product candidates and technology; • the impact on us, if any, if the contingent value rights (“CVRs”) held by former Altor BioScience Corporation (“Altor”) stockholders become due and payable in accordance with their terms; and • regulatory developments in the United States (“U.S.”) and foreign countries. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q . Given these uncertainties, you should not place undue reliance on these forward-looking statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q . 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. 37 Table of Contents This Quarterly Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q , including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us , by any other companies. In this Quarterly Report on Form 10-Q, “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio, Inc. and its subsidiaries. Overview We established ImmunityBio to advance next-generation immunotherapies and address unmet needs within oncology and infectious disease. Our platform is designed to overcome limitations of the current standards of T cell-based immunotherapies, including checkpoint inhibitors and CAR-T cells and is based on our four key modalities: (1) activating natural killer (“NK”) and T cells using antibody cytokine fusion proteins, (2) activating tumoricidal macrophages using low-dose synthetic immunomodulators, (3) generating memory T cells using vaccine candidates developed with our second-generation adenovirus (“hAd5”) technology, and (4) off-the-shelf natural killer cells from the NK-92 cell line and memory-like cytokine-enhanced natural killer cells (“M-ceNK”) from allogenic and autologous donors. We own a broad, clinical-stage immunotherapy pipeline, including an antibody cytokine fusion protein (an IL-15 superagonist (“N-803”) known as Anktiva), an albumin-associated anthracycline synthetic immunomodulator (aldoxorubicin), second-generation adenovirus (“hAd5”) and yeast vaccine technologies (targeting tumor-associated antigens and neoepitopes), off-the-shelf genetically engineered natural killer cell lines inducing cancer and virally infected cell death through a variety of concurrent mechanisms (including innate killing, antibody-mediated killing, and CAR-directed killing), patient specific NK cell product for cancer that is an autologous memory cytokine enhanced NK cells (“M-ceNK”), macrophage polarizing peptides, and bi-specific fusion proteins targeting CD20, PD-L1, TGF- b and IL-12. Our immunotherapy clinical pipeline consists of over 40 clinical trials in Phase 1, 2, or 3 development across 19 indications in solid and liquid cancers and infectious diseases. We have an expansive clinical-stage pipeline and intellectual property portfolio with 17 first-in-human assets in 25 Phase II to III clinical trials. 38 Table of Contents In December 2019, the U.S. Food and Drug Administration (“ FDA ”) granted Breakthrough Therapy designation to Anktiva for bacillus Calmette-Guérin (“ BCG ”) unresponsive carcinoma in situ non-muscle invasive bladder cancer. Based on patient reado ut data that was submitted with our application to obtain our Breakthrough Therapy designation, Anktiva achieved its primary endpoint of complete response rate at any time in the ongoing registrational Phase II / III trial . Other indications currently with registration- potential studies include BCG unresponsive papillary bladder cancer, first- and second-line lung cancer, and metastatic pancreatic cancer. The Merger On December 21, 2020, we and NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) (“NantCell”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which we and NantCell agreed to combine our businesses. The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell (the “Merger”), with NantCell surviving the Merger as a wholly-owned subsidiary of the company. On March 9, 2021, we completed the Merger pursuant to the terms of the Merger Agreement. Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 (the “Exchange Ratio”) newly issued shares of common stock, par value $ 0.0001 per share, of the company (“Company Common Stock”), with cash paid in lieu of any fractional shares. At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase NantCell common stock was converted using the Exchange Ratio into an option, warrant or restricted stock unit, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock. Immediately following the Effective Time, the former stockholders of NantCell held approximately 71.5% of the outstanding shares of Company Common Stock and the stockholders of the company as of immediately prior to the Merger held approximately 28.5% of the outstanding shares of Company Common Stock. As a result of the Merger and immediately following the Effective Time, Dr. Patrick Soon-Shiong, our Executive Chairman, and 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 both the company and NantCell for all of the periods presented in this report. As a result, all of the assets and liabilities of NantCell were combined with ours at their historical carrying amounts on the closing date of the Merger. We have recast our prior period financial statements to reflect the conveyance of NantCell’s common shares as if the Merger had occurred as of the earliest date of the condensed consolidated financial statements presented in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. All material intercompany accounts and transactions have been eliminated in consolidation. Coronavirus Pandemic In March 2020, the World Health Organization declared the novel strain of coronavirus disease (SARS‑CoV‑2) a pandemic. To date, our operations have not been significantly disadvantaged by the pandemic. However, we cannot at this time predict the specific extent, duration, or full impact that this pandemic may have on our financial condition and results of operations, including ongoing and planned clinical trials. More specifically, the pandemic may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist for the foreseeable future. The impact of the pandemic on our financial performance will depend on future developments, including the duration and spread of the outbreak, impact of potential variants and the related governmental advisories and restrictions. These developments and the impact of the ongoing pandemic on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected. 39 Table of Contents Given the unprecedented and continuously evolving nature of the pandemic, the future impact of these changes and potential changes on the company are unknown at this time. To date, we have seen no material adverse impact to our business from the pandemic. We anticipate, however, that enrollment of patients in certain studies will likely take longer than forecasted in prior Securities and Exchange Commission (“ SEC ”) filings and that our clinical trials may require additional time to complete which would in turn impact the timeline in which we were previously forecasting BLA submissions of our product candidates and subsequent revenue generation. These factors have been accounted for in the company’s anticipated upcoming milestones. During any such delays in our clinical trials, we will continue to incur fixed costs such as selling, general and administrative expenses and operating expenses related to our laboratory, Good Manufacturing Practice (“ GMP ”) manufacturing, and office facilities. Many of our office-based employees have been working from home since mid-March 2020. Essential staffing levels for our research and development operations remain in place, including maintaining key personnel in our laboratory and GMP manufacturing facilities. It is likely that the pandemic and resulting mitigation efforts could have an impact in the future on our third-party suppliers who manufacture laboratory supplies required for our in-house manufacturing process, which in turn could have an impact on having sufficient clinical product supply available for our clinical trials. We have addressed this in part by ensuring that we have sufficient supplies on hand to weather interruptions in our supply chain. There is significant uncertainty about the progression and ultimate impact of the pandemic on our business and operations. While the pandemic did not materially impact our results during the periods presented in this Quarterly Report on Form 10-Q, we anticipate that it could impact our business in the future due to factors such as fewer patients accessing treatment for cancer. Operating Results To date, we have generated minimal revenue from non-exclusive license a g reements related to our cell li n es, the sale of our bioreactors and related consumables and grant programs. We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. We have incurred net losses in each year since our inception and, as of June 30, 2021, we had an accumulated deficit of $1.8 billion. Our net losses attributable to ImmunityBio common stockholders were $167.9 million and $88.5 million for the six months ended June 30, 2021 and 2020, respectively. Substantially all of our net losses resulted principally from costs incurred in connection with our ongoing clinical trials and operations, our research and development programs, and from selling, general and administrative costs associated with our operations, including stock-based compensation expense. As of June 30, 2021, we had 511 employees. Personnel of related companies who provide corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy and other support services under our shared services agreement with NantWorks are not included in this number. For additional information, see Note 8 , Related-Party Agreements, of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q . We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year. See “— Future Funding Requirements ” below for a discussion of our anticipated expenditures and sources of capital we expect to access to fund these expenditures. Collaboration Agreements We anticipate that strategic collaborations will become an integral part of our operations, providing opportunities to leverage our partners’ expertise and capabilities to further expand the potential of our technologies and product candidates. We believe we are well positioned to become a leader in immunotherapy due to our broad and vertically integrated platform and through complementary strategic partnerships. We may also enter into supply arrangements for various investigational agents to be used in our clinical trials. See Note 6 , Collaboration and License Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our existing collaboration and license agreements. 40 Table of Contents Agreements with Related Parties We conduct business with several affiliates under written and informal arrangements. Our Executive Chairman, and principal stockholder, founded and has a controlling interest in NantWorks, which is a collection of multiple companies in the healthcare and technology space. We have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline. Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman. As of June 30, 2021, we have outstanding promissory notes with certain entities affiliated with Dr. 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 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. 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. 41 Table of Contents Components of our Results of Operations Revenue To date, we have generated minimal revenue from non-exclusive license a g reements related to our cell li n es, the sale of our bioreactors and related consumables and grant programs. 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 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 expense primarily consists of: • clinical trial and regulatory-related costs; • expenses incurred under agreements with investigative sites and consultants that conduct our clinical trials; • expenses incurred under collaborative agreements; • manufacturing and testing costs and related supplies and materials; • employee-related expenses, including salaries, benefits, travel and stock-based compensation; and • facility expenses dedicated to research and development. We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or development programs. We expect our research and development expenses to continue to increase significantly for the foreseeable future as we advance our product candidates through clinical development, including the conduct of our ongoing and any future clinical trials. 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; 42 Table of Contents • the duration of patient follow-up; and • the efficacy and safety profile of the product candidate. We do not expect any of our product candidates to be commercially available for the foreseeable future, if ever. Selling, General and Administrative Selling, general and administrative expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-based compensation, for employees performing functions other than research and development. This includes personnel in executive, finance, human resources, information technology, legal, and administrative support functions. Other selling, general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, professional fees for auditing, tax and legal services, advertising costs, expenses associated with strategic business transactions and business development efforts, obtaining and maintaining patents, consulting costs, royalties and licensing costs, and costs of our information systems. We expect that our selling, general and administrative expenses will increase for the foreseeable future as we expand operations, build out information systems and increase our headcount to support continued research activities and the development of our clinical programs. We have incurred and expect that we will continue to incur in the future, additional costs associated with operating as a public company, including costs to comply with stock exchange listing and SEC requirements, future funding efforts, corporate governance, internal controls, investor relations, disclosure and similar requirements applicable to public companies. Additionally, if and when we believe that a regulatory approval of a product candidate appears likely, we expect to incur significant increases in our selling, general and administrative expenses relating to the sales and marketing of the approved product candidate. Other Income and Expense Other income and expense consists primarily of interest income, interest expense, unrealized gains and losses on investments in equity securities, realized gains and losses on both debt and equity securities, and gains and losses on foreign currency transactions. Income Taxes The company is subject to taxation in the United States, various state, and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. To date, we have not been required to pay U.S. federal income taxes or foreign income taxes because of our or our subsidiaries’ current and accumulated net operating losses. 43 Table of Contents Results of Operations Comparison of the three months ended June 30, 2021 and 2020 Three Months Ended June 30, 2021 2020 $ Change % Change (Unaudited, $ in thousands) Revenue $ 339 $ 436 $ (97 ) (22 %) Operating expenses: Research and development (including amounts with related parties) 53,800 33,005 20,795 63 % Selling, general and administrative (including amounts with related parties) 32,445 18,347 14,098 77 % Total operating expenses 86,245 51,352 34,893 68 % Loss from operations (85,906 ) (50,916 ) (34,990 ) 69 % Other expense: Interest and investment (expense) income, net (177 ) 986 (1,163 ) (118 %) Interest expense (including amounts with related parties) (3,577 ) (2,123 ) (1,454 ) 68 % Other income, net (including amounts with related parties) 277 81 196 242 % Total other expense (3,477 ) (1,056 ) (2,421 ) 229 % Loss before income taxes and noncontrolling interests (89,383 ) (51,972 ) (37,411 ) 72 % Income tax expense (2 ) (45 ) 43 (96 %) Net loss $ (89,385 ) $ (52,017 ) $ (37,368 ) 72 % 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. 44 Table of Contents 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 June 30, 2021 2020 $ Change % Change (Unaudited, $ in thousands) Revenue $ 478 $ 601 $ (123 ) (20 %) Operating expenses: Research and development (including amounts with related parties) 94,928 60,379 34,549 57 % Selling, general and administrative (including amounts with related parties) 77,720 27,840 49,880 179 % Total operating expenses 172,648 88,219 84,429 96 % Loss from operations (172,170 ) (87,618 ) (84,552 ) 97 % Other income (expense): Interest and investment income, net 8,767 1,064 7,703 724 % Interest expense (including amounts with related parties) (6,745 ) (4,012 ) (2,733 ) 68 % Other income, net (including amounts with related parties) 290 1,185 (895 ) (76 %) Total other income (expense) 2,312 (1,763 ) 4,075 (231 %) Loss before income taxes and noncontrolling interests (169,858 ) (89,381 ) (80,477 ) 90 % Income tax expense (8 ) (63 ) 55 (87 %) Net loss $ (169,866 ) $ (89,444 ) $ (80,422 ) 90 % Research and Development Expense Research and development expense increased $34.5 million during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. The increase in research and development expense was primarily driven by a $15.3 million increase in compensation expense, including an $11.3 million increase in stock compensation expense due to new grants issued and a $4.0 million increase in the personnel costs due to higher headcount in support of our continued research and development efforts, a $5.1 million increase in clinical trial expenses and regulatory costs related to our Anktiva and COVID ‑ 19 programs, including a $1.9 million expense associated with the write down of a prepaid asset with the Clinic, a $4.7 million increase in laboratory supply expenses and other preclinical research and development costs, a $4.5 million increase in manufacturing costs for contract manufacturing of clinical materials, a $2.8 million increase in facilities expense, primarily related to the expansion of our manufacturing facility in El Segundo, California during 2021, and a $2.1 million increase in license and collaboration costs, primarily driven by new license agreements entered in the second quarter of 2021. 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. 45 Table of Contents Selling, General and Administrative Expense Selling, general and administrative expense increased $49.9 million during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. The increase in selling, general and administrative expense was primarily attributable to a $22.4 million increase in compensation expense, including a $21.0 million increase in stock compensation expense driven by new grants issued and option modifications resulting in incremental stock-based compensation expense in 2021 and a $1.4 million increase in personnel-related expenses due to higher headcount needed to support our business activities, a $24.3 million increase in financial advisory, legal, public company and other professional fees (including fees related to our Merger, which was announced in December 2020 and closed in March 2021), as well as higher costs associated with ongoing litigation, patent-related legal fees and other matters, and a $3.2 million increase in insurance costs, primarily due to higher directors’ and officers’ insurance renewal rates and increased insurance coverage. Other Income and Expense Other income increased $4.1 million during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. The increase was mainly due a $7.7 million increase in unrealized gains from our equity investments, which were partially offset by a $2.7 million increase in interest expense driven primarily by higher related-party borrowings and a $0.9 million decrease in other income. 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 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. Furthermore, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to raise even greater amounts of funds sooner if we choose to expand more rapidly than we presently anticipate. Moreover, our fixed expenses such as rent and other contractual commitments are substantial and are expected to increase in the future. Uses of Liquidity In addition to the cash used to fund our operating activities discussed in “ —Future Funding Requirements ” below, we will require cash to settle the following obligations: As of 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. The notes allow for additional advances as we may request with the consent of the applicable lender. With the exception of interest on the recent $40.0 million advance, all outstanding principal and accrued and unpaid interest on these notes are due and payable on September 30, 2025. 46 Table of Contents In connection with our acquisition of Altor, we issued CVRs under which we have agreed to pay the prior stockholders of Altor approximately $304.0 million upon successful approval of the BLA or foreign equivalent for Anktiva by December 31, 2022 and approximately $304.0 million upon the first calendar year prior to December 31, 2026 in which worldwide net sales of Anktiva exceed $1.0 billion (with payments payable in cash or shares of our common stock or a combination thereof). Dr. Soon-Shiong and his related party hold approximately $279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of common stock in satisfaction of their CVRs. We may need to seek additional sources of capital to satisfy the CVR obligations if they are achieved. Cash Flows The following table sets forth our primary sources and uses of cash for periods indicated: Six Months Ended June 30, 2021 2020 (Unaudited, in thousands) Cash provided by (used in): Operating activities $ (130,064 ) $ (77,129 ) Investing activities 42,334 29,268 Financing activities 136,834 87,217 Effects of exchange rate changes on cash, cash equivalents, and restricted cash (61 ) 5 Net change in cash, cash equivalents, and restricted cash $ 49,043 $ 39,361 Operating Activities For the six months ended June 30, 2021, net cash used in operating activities of $130.1 million consisted of a net l oss of $169.9 million and $0.4 million of cash used in net working capital changes, part i a l ly offset by $40.2 million in ad j us t ments f o r no n -cash items. A d justmen t s f or non - cash i tems pr i mari l y consisted of $33.2 million in s t ock compe n sati o n expense, $7.0 million in depreciati o n and amo r tizati o n expense, $6.2 million in non - cash i n terest related primarily to related party loans, $2.3 million in non - cash l e ase expense related to operat i ng lease righ t -of-use assets, and $0.2 million in a m or t iza t ion of net premiums and discounts on mar k e t a b le debt securi t ies, reduced b y $8.4 million in u n realized gains on e q u i ty secur i ties dri v en pr i mari l y by an i ncrease i n the val u e o f our in v e st m ents, $0.2 million in realized gains on sales of equity securities, and a $0.1 million change in the fair value of contingent consideration. The change in net working capi t al co n sisted pr i mari l y of increases of $5.4 million in prepaid and other current assets and $2.6 million in each of accounts payable and related parties. T h e increases i n net wo r king ca p ital were p a r tially of f s et b y de creases of $4.2 million in other assets, $3.8 million in accrued expenses and other liabilities and $3.0 million in o p e r ating lease liab i lities. For the six months ended June 30, 2020, net cash used in operating activities of $77.1 million consisted of a net l oss of $89.4 million, partially offset by $11.9 million i n adjustmen t s f or non-cash i t e m s and $0.4 million of cash provided by net w o rki n g capital changes. Adjust m e n ts for non-cash items p r ima r ily consisted of $7.0 million in dep r ec i a t ion and a m ort i za t ion, $4.0 million in n o n-cash inte r e st items, $2.0 million in non-cash lease ex p e n s e r e l ated to o p e r ating lease ri g ht- o f- u se assets, and $0.8 million in stock co m pensa t ion expense, partially offset by a $1.0 million change in deferred tax liability, a $0.5 million unrealized gain on equity securities and a $0.4 million change in the fair value of contingent consideration obligation. The changes in net working capital consisted primarily of increases related to $10.2 million in accrued expenses and other liabilities and $2.3 million in accounts payable, partially offset by decreases related to $5.6 million in prepaid expenses and other current assets, $4.7 million in due to related parties and $1.8 million in ope r a t ing lease liabi l ities. Investing Activities For the six months ended June 30, 2021, net cash provided by investing activities was $42.3 million, which included cash inflows of $57.7 million f rom matu r ities and sales o f m a r ketable sec u rit i es , partially offset by $15.1 million of p urchases of p r opert y , plant and equip m ent and $0.3 million of purchases of marketable debt securities. Our invest m e n ts in p r opert y , plant a n d equip m ent related p ri m a r ily t o acquisiti o ns of equ i pment w hich wi l l be used f o r the m anufactu r ing o f our p r oduct cand ida te s and expenditures related to the build out of our manufacturing facilities . 47 Table of Contents 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 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 clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. We do not expect to generate significant revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, this will occur. In addition, we expect our expenses to significantly increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We have also incurred and expect that we will continue to incur in the future additional costs associated with operating as a public company as well as costs related to future fundraising efforts. In addition, subject to obtaining regulatory approval of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. We expect that our expenses will increase substantially if and as we: • continue research and development, including preclinical and clinical development of our existing product candidates; • potentially seek regulatory approval for our product candidates; • seek to discover and develop additional product candidates; • establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval; • seek to comply with regulatory standards and laws; • maintain, leverage and expand our intellectual property portfolio; • hire clinical, manufacturing, scientific and other personnel to support our product candidates’ development and future commercialization efforts; • add operational, financial and management information systems and personnel; and • incur additional legal, accounting and other expenses in operating as a public company. As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support. However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including the ATM) and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the condensed consolidated financial statements based primarily upon our Executive Chairman’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. 48 Table of Contents 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; and • c osts of filing, prosecuting, maintaining, defending and enforcing any patent claims a n d other intellectual property rights. Unless and until we can generate a suffic i ent amount of reve n ues, we m a y finance f uture cash needs through pu b lic or private equity offerings, license agreements, debt financings, col l abor a t i ons, str a teg i c al l ian c e s and marketing or dis t ribution arrangements. 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 and collaboration agreements may also be terminated if we are unable to meet the payment obligations under those agreements. As a result, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Contractual Obligations, Commitments and Contingencies Contractual Obligations and Commitments See Note 7 , Commitments and Contingencies – Lease Arrangements , and Note 8 , Related-Party Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. 49 Table of Contents Contingencies From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints. If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules. Critical Accounting Policies and Significant Judgments In the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 and the Management’s Discussion and Analysis of Financial Condition and Results of Operations of ImmunityBio, Inc. filed as Exhibit 99.3 to our Current Report on Form 8-K/A filed with the SEC on April 22, 2021, we have disclosed those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of our Current Report on Form 8-K/A on April 22, 2021. The accounting principles used in preparing our condensed consolidated financial statements conform in all material respects with accounting principles generally accepted in the United States of America (“U.S. GAAP”) . Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these financial statements. We base our estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the ongoing coronavirus pandemic could have on our significant accounting estimates. Actual results could differ from those estimates. Stock-Based Compensation We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). We measure the fair value of an equity-classified award at the grant date and recognize the stock-based compensation expense over the period of vesting on the straight-line basis for our outstanding share awards that do not contain a performance condition. For awards subject to performance-based vesting conditions, we assess the probability of the individual milestones under the award being achieved and stock-based compensation expense is recognized over the service period using the graded vesting method once management believes the performance criteria is probable of being met. For awards with service or performance conditions, we recognize the effect of forfeitures in compensation cost in the period that the award was forfeited. Recent Accounting Pronouncements Refer to Note 2 , Summary of Significant Accounting Policies , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to us. 50 Table of Contents