What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-02-28 · 224 added, 297 removed, 832 unchanged (39% of the section changed)

29 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

VIE Accounting Considerations for the PACT Transaction

Accrued clinical expenses

Description of the Matter

As described in notes 2, 3, 5 and 6 to the consolidated financial statements, in October 2022, the Company entered into a settlement agreement with PACT Pharma, Inc.

(PACT) to resolve their outstanding legal dispute.

In connection with the settlement agreement, the parties entered into a stock purchase agreement, pursuant to which PACT issued shares of PACT’s Series D convertible preferred stock, representing approximately 80% of PACT’s fully diluted shares, to the Company in exchange for the Company’s tender of its PACT Series C-1 convertible preferred stock and resolution of the arbitration.

The Company consolidates a variable interest entity (VIE) if it has a variable interest, and it is the primary beneficiary.

The primary beneficiary of a VIE has both:

(i) the power to direct activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

If the Company is not the primary beneficiary of a VIE, it accounts for its interest under other applicable GAAP, according to the nature of the investment.

We identified the initial accounting for the PACT Series D convertible preferred shares as a critical audit matter as there was significant complexity and judgment by management in assessing whether the Company was the primary beneficiary.

This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating the audit evidence obtained related to this assessment.

During 2023, the Company incurred $182.9 million of research and development expenses and accrued $5.3 million for research and development expenses as of December 31, 2023, which includes clinical expenses.

As described in Note 2 to the consolidated financial statements, clinical expenses are a component of research and development expense.

The Company accrues and expenses clinical trial services performed by third parties based upon actual work completed in accordance with agreements established with its service providers.

The Company estimates the actual costs through discussions with internal personnel and external service providers as to the progress of the clinical services and the agreed-upon fee to be paid for such services.

Auditing management’s accounting for accrued clinical expenses is especially challenging because amounts owed to external service providers are accrued based upon estimates of the progress of the clinical services with each respective contract.

These estimates require the application of judgment by management that is dependent on inputs, such as the number of sites activated, the number of patients enrolled and the number of patient visits which may be compiled from multiple sources.

How We Addressed the Matter in Our Audit

To test the Company’s accounting for its interest in PACT, we engaged in discussions with management regarding the governance of PACT and inspected transaction documents, including the settlement agreement, preferred stock purchase agreement, amended and restated voting rights agreement and PACT’s amended and restated certificate of incorporation, assessed management’s judgments and conclusions regarding the primary beneficiary determination, and evaluated the effectiveness of controls related to management’s assessment.

We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the completeness and measurement of accrued clinical expenses.

To test the accrued clinical expenses, our audit procedures included, among other things, testing the accuracy and completeness of the underlying data used in the estimate, inspecting contracts with third-party service providers and obtaining information directly from third parties.

/s/ Ernst & Young LLP

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Prepaid expenses and other current assets

11,143 11,492

Total current assets

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Success payment liabilities

Deferred revenue (1)

Total current liabilities

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56,894 63,168

Deferred revenue, non-current (2)

Other non-current liabilities

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10,000 shares authorized at December 31, 2023 and 2022, respectively;

zero shares issued and outstanding at December 31, 2022 and 2021

no shares issued and outstanding at December 31, 2023 and 2022

Common stock, $ 0.0001 par value;

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$ 750,029 $ 937,561

(1) Includes amounts from a related-party of zero and $ 4,988 as of December 31, 2022 and December 31, 2021, respectively.

(2) Includes amounts from a related-party of zero and $ 79,665 as of December 31, 2022 and December 31, 2021, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

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Other comprehensive loss:

Net unrealized loss on marketable securities

Net unrealized gain (loss) on marketable securities

7,505 ( 5,976 ) ( 1,879 )

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$ ( 227,127 ) $ ( 189,094 ) $ ( 252,098 )

Net loss attributed to common stockholders:

$ ( 183,118 ) $ ( 250,219 ) $ ( 204,472 )

Deemed dividends upon repurchase of convertible preferred stock

— — ( 3,582 )

Net loss attributed to common stockholders

$ ( 183,118 ) $ ( 250,219 ) $ ( 208,054 )

Net loss per common share, basic and diluted

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250,983 247,080 135,918

(1) Includes related-party revenue of $ 84,653 , $ 10,509 and $ 7,756 for the years ended December 31, 2022, 2021 and 2020, respectively.

(1) Includes related-party revenue of zero , $ 84,653 and $ 10,509 for the years ended December 31, 2023, 2022 and 2021, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

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194,474 $ 1,010,968 15,570 $ 2 $ 41,357 $ 256 $ ( 334,143 ) $ ( 292,528 )

Issuance of Series C convertible preferred stock, net of $ 533 in issuance costs

Proceeds from initial public offering, net of $ 33,198 in issuance costs

— — 25,000 2 391,800 — — 391,802

Issuance of common stock to strategic partners — — 275 — 1,004 — — 1,004

Issuance of common stock for asset acquisition — — 688 — 4,000 — — 4,000

Conversion of convertible preferred stock to common stock ( 194,474 ) ( 1,010,968 ) 194,474 20 1,010,948 — — 1,010,968

Issuance of common stock upon exercise of stock options — — 2,750 — 9,442 — — 9,442

Stock-based compensation — — 4,944 — 62,201 — — 62,201

Repurchase of convertible preferred stock ( 547 ) ( 662 ) — — ( 3,582 ) — — ( 3,582 )

Repurchase of common stock — — ( 2,032 ) — ( 11,806 ) — — ( 11,806 )

Other comprehensive loss — — — — — ( 1,879 ) — ( 1,879 )

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— $ — 242,738 $ 24 $ 1,515,748 $ ( 1,623 ) $ ( 584,362 ) $ 929,787

Proceeds from initial public offering, net of $ 33,198 in issuance costs

— — 25,000 2 391,800 — — 391,802

Conversion of convertible preferred stock to common stock ( 194,474 ) ( 1,010,968 ) 194,474 20 1,010,948 — — 1,010,968

Issuance of common stock upon exercise of stock options

— — 3,601 1 9,576 — — 9,577

Issuance of common stock under employee stock purchase plan — — 475 — 1,519 — — 1,519

Issuance of common stock in connection with restricted stock units, net of tax — — 153 — ( 461 ) — — ( 461 )

Stock-based compensation — — 2,600 — 81,924 — — 81,924

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— — — — 47,084 — — 47,084

Other comprehensive loss

Other comprehensive income

— — — — — 7,505 — 7,505

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Impairment of other investments 12,923 5,000 36,447

Net amortization and accretion on marketable securities

( 9,596 ) ( 930 ) 1,901

Change in fair value of success payment liabilities

( 2,780 ) ( 5,130 ) 3,713

Gain on other investments ( 2,923 ) — —

Lease expense, net of gain on lease remeasurement

Non-cash lease (income) expense

( 1,873 ) ( 1,553 ) 911

Loss on property and equipment disposals, net 1,509 103 1,210

Change in fair value of equity warrant

1,067 256 ( 1,323 )

Net amortization and accretion on marketable securities

( 930 ) 1,901 539

Loss (gain) on property and equipment disposals, net 103 1,210 ( 4,884 )

Expense in connection with asset acquisition

Gain on other investments — ( 2,923 ) —

Gain on net operating lease liability disposal — — ( 308 )

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Accounts payable

667 91 ( 278 )

Accrued liabilities and other current liabilities

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663,614 419,052 617,396

Purchases of other investments

— — ( 43,448 )

Net cash used in investing activities

Net cash provided by (used in) investing activities

184,048 ( 11,540 ) ( 121,573 )

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Proceeds from initial public offering, net of issuance costs — — 391,802

Proceeds from issuance of convertible preferred stock, net of issuance costs

Payments for the repurchase of common stock

— — ( 11,806 )

Payments for the repurchase of convertible preferred stock

— — ( 4,244 )

Net cash provided by financing activities

1,743 10,635 401,244

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

22,097 ( 170,460 ) 153,422

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SUPPLEMENTAL CASH FLOW INFORMATION

Cash received for amounts related to tenant improvement allowances

$ 4,761 $ 13,295 $ 2,966

Cash paid for amounts included in the measurement of lease liabilities

$ 10,845 $ 10,870 $ 8,546

Cash received for amounts related to tenant improvement allowances

$ — $ 4,761 $ 13,295

Non-cash investing and financing activities:

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Conversion of convertible preferred stock to common stock upon closing of initial public offering $ — $ — $ 1,010,968

Operating lease right-of-use assets obtained in exchange for lease obligations

$ — $ — $ 30,475

Other investments received for sale of assets

$ — $ — $ 6,000

The accompanying notes are an integral part of these consolidated financial statements.

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(the “Company”) was incorporated in Delaware in June 2018.

The Company is a clinical-stage cell therapy company advancing a pipeline of therapies for patients with solid tumors utilizing our proprietary ex vivo genetic and epigenetic T‑cell reprogramming technologies.

The Company’s primary activities since incorporation have been to develop T‑cell therapies, perform research and development, enter into strategic collaboration and license arrangements, build manufacturing capabilities, enable manufacturing activities in support of its product candidate development efforts, acquire technology, organize and staff the Company, conduct business planning, establish its intellectual property portfolio, raise capital and provide general and administrative support for these activities.

The Company is a clinical-stage cell therapy company advancing a pipeline of product candidates for patients with solid tumors utilizing its proprietary ex vivo genetic and epigenetic T‑cell reprogramming technologies.

The Company’s primary activities since incorporation have been to develop T‑cell therapies, conduct research and development, acquire technology, enter into strategic collaboration and license arrangements, enable and execute manufacturing activities in support of its product candidate development efforts, organize and staff the Company, conduct business planning, establish its intellectual property portfolio, submit regulatory submissions, execute clinical trials, raise capital and provide general and administrative support for these activities.

Initial Public Offering

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The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.

All significant intercompany transactions and balances are eliminated in consolidation.

Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation.

All significant intercompany transactions and balances have been eliminated in consolidation.

Liquidity and Management’s Plan

The Company is currently working on long-term product candidates that involve experimental technologies.

The Company discovers and develops product candidates that involve experimental technologies.

The product candidates may require several years and substantial expenditures to complete and ultimately may be unsuccessful.

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Actual results could differ materially from those estimates.

In June 2022, the Company recorded adjustments to revenue related to changes in estimates in connection with the Collaboration and License Agreement, entered into in 2019 and amended in June 2020 and December 2021 (“GSK Agreement”) with GlaxoSmithKline Intellectual Property (No.

In June 2022, the Company recorded adjustments to revenue related to a change in estimate in connection with the Collaboration and License Agreement, entered into in 2019 and amended in June 2020 and December 2021 (“GSK Agreement”) with GlaxoSmithKline Intellectual Property (No.

5) Limited and Glaxo Group Limited (together, “GSK”).

These changes in estimates were driven by the mutual agreement to conclude certain research activities in June 2022 and GSK’s termination of the GSK Agreement, effective December 24, 2022, both of which resulted in changes to the measure of proportional cumulative performance.

The Company and GSK mutually agreed to conclude research activities on an undisclosed target for hematological cancers in June 2022.

As a result, the Company decreased the related estimated project costs, which resulted in an increase in the measure of proportional cumulative performance.

These adjustments increased revenue by $ 83.6 million, decreased net loss by $ 83.6 million and resulted in a $ 0.34 reduction in the Company’s basic and diluted net loss per common share for the year ended December 31, 2022 .

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Cash equivalents consist primarily of amounts invested in commercial paper and money market accounts.

Restricted cash is cash held in bank accounts and is used as collateral for letters of credits issued in conjunction with the Company’s lease agreements and collateral associated with the Company’s corporate credit card program.

Restricted cash is cash held in a bank account and is used as collateral associated with the Company’s corporate credit card program.

Marketable Securities

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Each reporting period, the Company evaluates whether declines in fair value below carrying value are due to expected credit losses, as well as the Company’s ability and intent to hold the investment until a forecasted recovery occurs.

Expected credit losses are recor ded as an allowance through other income (expense), net.

Expected credit losses, if any, are recorded as an allowance through other income (expense), net.

Valuation of Other Investments

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As of December 31, 2023 and 2022, there were no VIEs for which the Company was the primary beneficiary.

The Company accounts for its strategic equity interests in common stock and in- su bstance common stock in non‑publicly traded companies for which it does not have the ability to exercise significant influence in accordance with Accounting Standards Codification (“ASC”) 321, Investments – Equity Securities (“ASC 321”).

The Company accounts for its strategic equity interests in common stock and in-substance common stock in non‑publicly traded companies for which it does not have the ability to exercise significant influence in accordance with Accounting Standards Codification (“ASC”) 321, Investments – Equity Securities (“ASC 321”).

Upon acquisition, these investments are measured at cost, which represents the then fair value.

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Property and equipment are stated at cost less accumulated depreciation and amortization.

Depreci ation is calculated using the straight-line method based on the estimated useful lives of the related assets, which are generally three to five years .

F or leasehold improvements, amortization is calculated using the straight‑line method based on the shorter of the useful life or the lease term.

When assets are retired or otherwise disposed of, the cost and related a ccumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is recorded in other income (expense), net in t he period realized.

Deprec iation is calculated using the straight-line method based on the estimated useful lives of the related assets, which are generally three to five years .

For leasehold improvements, amortization is calculated using the straight‑line method based on the shorter of the useful life or the lease term.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is recorded in other operating income, net in the period realized.

Maintenance and repairs are expensed as incurred.

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If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset.

There has been no impairment of long-lived assets for any of the periods presented.

The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

If the screen is met, the transaction is accounted for as an asset acquisition.

If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the requirements of a business in which case the transaction is accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, and that the fair value of acquired intangibles be recorded on the balance sheet.

Transaction costs are expensed as incurred.

Any excess of the purchase price over the assigned fair values of the net assets acquired is recorded as goodwill.

If the Company determines an acquisition does not meet the definition of a business combination under the acquisition method of accounting, the transaction is accounted for as an asset acquisition.

In an asset acquisition, upfront payments allocated to in-process research and development (“IPR&D”) are recorded in research and development expense if it is determined that there is no alternative future use, and subsequent milestone payments are recorded in research and development expense when achieved for technology that has not yet met product feasibility.

There has been no i mpairment of long-lived assets for any of the periods presented.

The Company leases certain office, laboratory and manufacturing spaces.

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As the Company’s leases do not provide an implicit rate, an incremental borrowing rate at each lease commencement date is used to determine the present value of future lease payments.

The incremental borrowing rate is the rate of interest that the Company would pay to borrow equivalent funds

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

on a collateralized basis at the lease commencement date.

The incremental borrowing rate is the rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis at the lease commencement date.

To estimate the incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating.

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The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs.

The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality.

The fair value hierarchy applies only to the valuation inputs used in

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

determining the reported fair value of the investments and is not a measure of the investment credit quality.

The hierarchy defines three levels of valuation inputs:

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As described in Note 5, Other Investments , other investments are carried at cost, minus impairment and any changes, plus or minus, resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Deemed Dividends Upon Repurchase of Convertible Preferred Stock

In March 2020, 546,806 shares of the Company’s Series A convertible preferred stock were repurchased by the Company at the then estimated fair value of $ 7.76 per share, which was higher than the carrying value of those shares.

See Note 10, Convertible Preferred Stock .

As a result, the Company recorded deemed dividends of $ 3.6 million for the year ended December 31, 2020.

The transaction decreased convertible preferred stock by $ 0.7 million and reduced additional paid-in capital by $ 3.6 million.

The deemed dividends increased the net loss attributed to common stockholders by $ 3.6 million.

Revenue Recognition

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Milestone and other forms of variable consideration that the Company may earn are subject to significant uncertainties of research and development related achievements, which generally are deemed not probable until such milestones are actually achieved.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Additionally, the Company develops assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract.

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Upfront payments and milestones paid to third parties in connection with technology platforms that have not reached technological feasibility and do not have an alternative future use are expensed as incurred.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

Clinical expenses are a component of research and development expense.

The Company accrues and expenses clinical trial services performed by third parties based upon actual work completed in accordance with agreements established with its service providers.

The Company estimates the costs through discussions with internal personnel and external service providers as to the progress or stage of completion of services and the agreed-upon fees to be paid for such services.

General and Administrative Expense

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The success payments are accounted for under A SC 718, Compensation – Stock Compensation , with the expense being recorded in research and development expenses.

Once the service period is complete, the instrument is accounted for under ASC 815, Derivatives and Hedging , and continues to be remeasured each reporting period with all changes in value recognized immediately in other income (expense), net.

The success payment liability is estimated at fair value at inception and at each subsequent reporting period, and the expense is accreted over the service period of the research and collaboration agreement.

Once the service period is complete, the instrument continues to be remeasured each reporting period with all changes in value recognized immediately in other income (expense), net.

The success payment liability is estimated at fair value at inception and at each subsequent reporting period, and the expense is accreted over th e service period of the research and collaboration agreement.

To determine the estimated fair value of the success payments, the Company uses a Monte Carlo simulation methodology which models the future movement of stock prices based on several key variables combined with empirical knowledge of the process governing the behavior of the stock price.

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The computation of expected volatility was estimated based on available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

Concentrations of Credit Risk and Off-balance Sheet Risk

The Company maintains its cash, cash equivalents and restricted cash with high quality, accredited financial institutions.

These amounts, at times, may exceed federally insured limits.

Restricted cash is cash held in a bank account and is used as collateral associated with the Company’s corporate credit card program.

Cash, cash equivalents and restricted cash amounts, at times, may exceed federally insured limits.

The Company also makes short-term investments in money market funds, U.S.

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If the likelihood of an adverse outcome is only reasonably possible (as opposed to probable), or if an estimate is not determinable, the Company provides disclosure of a material claim or contingency.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

Stock-based Compensation

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The expected term of stock option grants represents the period the options are expected to remain outstanding and is based on the “simplified” method where the expected term is the midpoint between the vesting date and the end of the contractual term for each option.

The Company used the simplified method as provided for under the applicable guidance for entities with a limited history of relevant stock option exercise activity.

The Company generally uses the simplified method as provided for under the applicable guidance for entities with a limited history of relevant stock option exercise activity.

The Company bases the risk-free interest rate on the interest rate payable on U.S.

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In reference to the expected dividend yield assumption, the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend.

Prior to the closing of the IPO, the Company utilized significant estimates and assumptions in determining the fair value of its common stock for financial reporting purposes.

The Company recorded expense for RSAs and stock options at prices not less than the estimated fair market value of its common stock as determined by the board of directors, taking into consideration input from management and an independent third-party valuation analysis, and in accordance with the American Institute of Certified Public Accountants (“AICPA”) Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation .

Following the closing of the IPO, the fair value of the Company’s common stock is based on its closing price as reported on the NASDAQ Global Select Market on the date of grant.

Stock-based compensation expense for RSAs, RSUs and stock options is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award.

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The deferred tax assets and liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

A valuation allowance is recorded when it is more

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

likely than not that the deferred tax asset will not be recovered.

A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be recovered.

The Company applies judgment in the determination of the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

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The Company views its operations and manages its business in one operating segment and one reportable segment.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

Segment Reporting

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources.

Entities with a single reportable segment are required to provide all the updated and existing segment disclosures required by Topic 280.

The amendments are effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years

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Notes to Consolidated Financial Statements—(Continued)

beginning after December 15, 2024 on a retrospective basis.

The Company is assessing the effect of the new disclosure requirements and does not anticipate the adoption will have a material impact.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.

The amendments are effective for annual periods beginning after December 15, 2024 and may be applied either prospectively or retrospectively.

The Company is assessing the effect of the new disclosure requirements and does not anticipate the adoption will have a material impact.

License, Collaboration and Success Payment Agreements

License Agreement - In 2018, the Company entered into a license agreement with Fred Hutch that grants the Company a worldwide, sublicensable license under certain patent rights (exclusive) and certain technology (non-exclusive), to research, develop and commercialize products and processes for all therapeutic uses for the treatment of human cancer.

The Company is also required to pay Fred Hutch annual license maintenance payments of $ 50,000 on the second anniversary of the effective date, and each anniversary of the effective date thereafter until the first commercial sale of a licensed product.

License Agreement - In 2018, the Company entered into a license agreement with Fred Hutch that grants the Company a worldwide, sublicensable license under certain patent rights (exclusive) and certain technology (non-exclusive) to research, develop and commercialize products and processes for all fields of use employing chimeric antigen receptors (“CARs”) and/or T-cell receptors (“TCRs”), subject to certain exceptions.

The Company is required to pay Fred Hutch annual license maintenance payments of $ 50,000 on the second anniversary of the effective date, and each anniversary of the effective date thereafter until the first commercial sale of a licensed product.

Collaboration - In 2018, the Company entered into a research and collaboration agreement with Fred Hutch (“Fred Hutch Collaboration Agreement”) focused on research and development of cancer immunotherapy products.

The Company funded aggregate research performed by Fred Hutch of $ 12.0 million under the Fred Hutch Collaboration Agreement and the research is conducted in accordance with a research plan and budget approved by the parties.

The Company funded aggregate research performed by Fred Hutch of $ 12.0 million under the Fred Hutch Collaboration Agreement with the research conducted in accordance with a research plan and budget approved by the parties.

The Fred Hutch Collaboration Agreement has a six-year term.

During 2021, one of the research plans on which the success payment service term is based, was extended from January 31, 2022 to December 31, 2022.

The Company incurred $ 0.9 million, $ 1.7 million and $ 4.2 million in expense in connection with the Fred Hutch Collaboration Agreement for the years ended December 31, 2023, 2022 and 2021, respectively.

Success Payments - In 2018, the Company granted Fred Hutch rights to certain success payments, pursuant to the terms of the Fred Hutch Collaboration Agreement.

The potential payments for the Fred Hutch success payments are based on multiples of increased value ranging from 10 x to 50 x based on a comparison of the per share fair market value of the Company’s common stock (as all shares of Series A convertible preferred stock were converted into an equivalent number of shares of common stock upon the closing of the IPO) relative to its original $ 1.83 per share issuance price.

The aggregate success payments to Fred Hutch are not to exceed $ 200.0 million, which would only occur upon a 50 times increase in value.

The potential payments for the Fred Hutch success payments are based on multiples of increased value ranging from 10 x to 50 x based on a comparison of the per share fair market value of the Company’s common stock relative to the original $ 1.83 per share issuance price of the Company’s Series A convertible preferred stock, which converted into an equal number of shares of the Company’s common stock in connection with the Company’s IPO.

The aggregate success payments to Fred Hutch are not to exceed $ 200.0 million, which would only occur upon a 50 x increase in value.

Each threshold is associated with a success payment, ascending from $ 10.0 million at $ 18.29 per share to $ 200.0 million at $ 91.44 per share, payable if such threshold is reached during the measurement period.

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$ 10 $ 40 $ 90 $ 140 $ 200

The success payments will be owed if the per share fair value of the Company’s common stock on the contractually specified valuation measurement dates during the term of the success payment agreement equals or exceeds

The valuation measurement dates are triggered by the following events:

the one-year anniversary of the Company ’ s IPO and each two-year anniversary of the Company ’ s IPO thereafter, the closing of a change in control transaction and the last day of the term of the success payment agreement, unless the term has ended due to the

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

the above outlined multiples.

The valuation measurement dates are triggered by the following events:

closing of a change of control transaction.

As of December 31, 2023, no success payments have been incurred as the per share fair value of the Company’s common stock was below the price required for payment.

The estimated fair values of the success payments to Fred Hutch as of December 31, 2022 and 2021 were $ 2.5 million a nd $ 8.5 million, respectively.

The success payment liability is estimated at the fair value at inception and at each subsequent reporting period and the expense is accreted over the service period of the Fred Hutch Collabor ation Agreement.

The success payment liability was estimated at fair value at inception and at each subsequent reporting period and the associated expense was accreted over the service period of the success payment obligations as research and development expense through 2022 .

As of December 31, 2022, the Company’s associated success payment liability was fully accreted to fair value as Fred Hutch had provided the requisite service obligation to earn the potential success payment consideration under the continued collaboration.

For the year ended December 31, 2023 and future periods, the change in the Fred Hutch success payment liability fair value is recognized in other income (expense), net.

The success payment liability was $ 0.7 million and $ 2.5 million as of December 31, 2023 and 2022, respectively.

With respect to the Fred Hutch Collaboration Agreement success payment obligations, the Company recognized a gain of $ 3.9 million for the year ended December 31, 2022 , and success payment expense of $ 1.2 million and $ 4.8 million for the years ended December 31, 2021 and 2020, respectively.

With respect to the Fred Hutch Collaboration Agreement success payment obligations, the Company recognized gains of $ 1.9 million and $ 3.9 million fo r the years ended December 31, 2023 and 2022, respectively and success payment expense of $ 1.2 million for the year ended December 31, 2021.

License Agreement - In 2019, the Company entered into a license agreement with Stanford to license specified patent rights.

The Company is also required to pay Stanford annual license maintenance payments of $ 50,000 on the second anniversary of the effective date, and each anniversary of the effective date thereafter until the date of the first commercial sale of a licensed product.

The Company is required to pay Stanford annual license maintenance payments of $ 50,000 on the second anniversary of the effective date, and each anniversary of the effective date thereafter until the date of the first commercial sale of a licensed product.

Milestone payments to Stanford of up to a maximum of $ 3.7 million per target are payable upon achievement of certain specified clinical and regulatory milestones.

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The Company is committed to fund aggregate research performed by Stanford of $ 12.0 million under the Stanford Collaboration Agreement, and the research will be conducted in accordance with a research plan and budget approved by the parties.

The Company incurred $ 3.0 million, $ 3.0 million and $ 0.8 million in expense in connection with the Stanford Collaboration Agreement for the years ended December 31, 2022, 2021, and 2020, respectively.

The Company incurred $ 3.0 million in expense in connection with the Stanford Collaboration Agreement for each of the years ended December 31, 2023, 2022, and 2021, respectively.

Success Payments - In October 2020, the Company granted Stanford rights to certain success payments, pursuant to the terms of the Stanford Collaboration Agreement.

The potential payments for the Stanford Collaboration Agreement success payments are based on multiples of increased value ranging from 10 x to 50 x based on a comparison of the per share fair market value of the Company’s common stock (as all shares of Series A convertible preferred stock were converted into an equivalent number of shares of common stock upon the closing of the IPO) relative to its original $ 1.83 per share issuance price.

The potential payments for the Stanford Collaboration Agreement success payments are based on multiples of increased value ranging from 10 x to 50 x based on a comparison of the per share fair market value of the Company’s common stock relative to the original $ 1.83 per share issuance price of the Company’s Series A convertible preferred stock, which converted into an equal number of shares of the Company’s common stock in connection with the closing of the Company’s IPO.

The aggregate success payments to Stanford are not to exceed $ 200.0 million, which would only occur upon a 50 times increase in value.

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The estimated fair values of the success payments to Stanford as of December 31, 2023 and 2022 were $ 1.1 million and $ 3.3 million, respectively.

The success payment liability is estimated at the fair value at inception and at each subsequent reporting period and the expense is accreted over the service period of the Stanford Collaboration Agreement.

The success payment liability was $ 0.9 million and $ 1.9 million as of December 31, 2023 and 2022, respectively.

With respect to the Stanford Collaboration Agreement success payment obligations, the Company recognized a gain of $ 1.2 million for the year ended December 31, 2022 , and success payment expense of $ 2.5 million and $ 0.6 million for the years ended December 31, 2021 and 2020, respectively.

In 2019, the Company entered into the GSK Agreement with GSK for potential T‑cell therapies that apply the Company’s platform technologies and cell therapy innovations with T‑cell receptors (“TCRs”) or chimeric antigen receptors (“CARs”) under distinct collaboration programs.

The GSK Agreement defined two initial collaboration targets, LYL331 and LYL132, and allowed GSK to nominate seven additional targets through July 2024, noting no additional targets were nominated over the life of the GSK Agreement.

With respect to the Stanford Collaboration Agreement success payment obligations, the Company recog nized gains of $ 0.9 million and $ 1.2 million for the year ended December 31, 2023 and 2022, respectively and success payment expense of $ 2.5 million for the year ended December 31, 2021.

In 2019, the Company entered into the GSK Agreement with GSK for potential T‑cell therapies that apply the Company’s platform technologies and cell therapy innovations with TCRs or CARs under distinct collaboration programs.

The GSK Agreement defined two initial collaboration targets, LYL331 and LYL132, and allowed GSK to nominate seven additional targets through July 2024, though no additional targets were nominated over the life of the GSK Agreement.

The Company was expected to perform research and development services for each selected target up until a defined point (the “GSK Option Point”), at which time GSK would decide whether or not to exercise an option to obtain a license from the Company (“License Option”) and take over the future development and commercialization.

In April 2021, GSK exercised the License Option on LYL331 (NY-ESO-1 TCR with c-Jun) and assumed sole responsibility for future development and commercialization of the program at its own cost and expense.

The IND application for LYL132 was cleared in January 2022, though no patients were treated, and the IND for LYL331 was not submitted to the U.S.

The investigational new drug (“IND”) application for LYL132 was cleared in January 2022, though no patients were treated, and the IND for LYL331 was not submitted to the U.S.

Food and Drug Administration.

GSK terminated the GSK Agreement effective December 24, 2022 and Lyell has discontinued any further work on these programs.

GSK terminated the GSK Agreement effective December 24, 2022 and Lyell has also discontinued any further work on these programs.

There are no future performance obligations associated with the GSK Agreement.

The Company received a non-refundable upfront payment of $ 45.0 million under the GSK Agreement.

In connection with the GSK Agreement, in May 2019, the Company also entered into a stock purchase agreement with GSK (“GSK Stock Purchase Agreement”), pursuant to which the Company agreed to sell 30,253,189 shares of Series AA convertible preferred stock at a price of $ 6.78 per share, which was above the issuance date estimated fair value of $ 4.84 per share.

In connection with the GSK Agreement, in May 2019, the Company also entered into a stock purchase agreement with GSK, pursuant to which the Company agreed to sell 30,253,189 shares of Series AA convertible preferred stock at a price of $ 6.78 per share, which was above the issuance date estimated fair value of $ 4.84 per share.

The difference between the per share values resulted in $ 58.6 million additional deemed consideration, bringing the total upfront consideration of the GSK Agreement to $ 103.6 million.

The GSK Agreement was deemed to be within the scope of ASC 606 because GSK engaged the Company to initially provide research and development services, which were outputs of its ongoing activities, in exchange for consideration.

During the year ended December 31, 2022 , the Company recorded adjustments to revenue related to changes in estimates to complete its performance obligations under the GSK Agreement.

These changes in estimates were driven by the mutual agreement to conclude certain research activities in June 2022 and the termination of the GSK Agreement, effective December 24, 2022, both of which resulted in changes to the measure of proportional cumulative performance.

The GSK Agreement was deemed to be within the scope of ASC 606, Revenue from Contracts with Customers , because GSK engaged the Company to initially provide research and development services, which were outputs of its ongoing activities, in exchange for consideration.

In June 2022, the Company recorded adjustments to revenue related to a change in estimate in connection with the GSK Agreement due to GSK and the Company mutually agreeing to conclude research activities on an undisclosed target for hematological cancers.

The change in estimate decreased the related estimated project costs, which resulted in an increase in the measure of proportional cumulative performance.

The Company recognized revenue related to the research and development services related to the two initial targets of $ 84.7 million , $ 10.5 million and $ 7.8 million for the years ended December 31, 2022, 2021 and 2020 respectively.

No license revenue was recognized for the year ended December 31, 2022.

As of December 31, 2022 and 2021, the Company had deferred revenue of zero and $ 84.7 million, respectively, related to the GSK Agreement.

The Company recognized revenue related to the research and development services related to the two initial targets of zero , $ 84.7 million and $ 10.5 million for the years ended December 31, 2023, 2022 and 2021 respectively.

As of December 31, 2023, there were no contract assets or contract liabilities related to the license contract.

In June 2020, the Company entered into a commitment agreement (“PACT Commitment Agreement”) with PACT to jointly develop and test a next generation personalized anti-cancer T‑cell therapy against solid tumors.

The Company paid PACT an upfront non-refundable payment of $ 50.0 million upon execution of the PACT Commitment Agreement.

In November 2020, the parties agreed to suspend research and development activity under the PACT Commitment Agreement, and neither party would be required to conduct any further work under the development plan (including manufacturing development) nor incur any financial obligations (including milestone payments) that might otherwise arise, for as long as the parties continued to negotiate in good faith to resolve the issues that have arisen between them relating to the PACT Commitment Agreement.

In June 2020, the Company entered into a commitment agreement (“PACT Commitment Agreement”) with PACT Pharma, Inc.

(“PACT”) to jointly develop and test an anti-cancer T-cell therapy against solid tumors, in connection with which it also purchased PACT Series C-1 convertible preferred stock, which was recorded in other investments at $ 36.4 million in the Company’s Consolidated Balance Sheet.

In December 2021, the Company recorded a $ 36.4 million impairment expense for its investment in PACT.

In February 2021, the Company filed a demand for arbitration seeking, among other things, rescission of the PACT Commitment Agreement.

On October 1, 2022, the Company entered into a settlement agreement to resolve its outstanding legal dispute with PACT, pursuant to which PACT issued shares of PACT’s Series D convertible preferred stock to the Company in exchange for the Company’s tender of its PACT Series C-1 convertible preferred stock.

The settlement agreement also included the termination of the PACT Commitment Agreement.

The Company recorded a gain

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

In June 2020 in connection with the entry into the PACT Commitment Agreement, the Company also entered into a stock purchase agreement with PACT (“PACT SPA”), pursuant to which the Company purchased 17,806,901 shares of PACT Series C-1 convertible preferred stock at a purchase price of $ 2.81 per share.

As of the purchase date, the estimated fair value of the Series C-1 convertible preferred stock was $ 2.05 per share, and the difference between the estimated fair value of the preferred stock as of the purchase date and the purchase price of $ 13.6 million was deemed to be additional consideration for the PACT Commitment Agreement and recognized as research and development expense.

As a result, the total upfront consideration paid in connection with the PACT Commitment Agreement was $ 63.6 million and was included in research and development expenses.

The remaining $ 36.4 million associated with the PACT Series C-1 convertible preferred stock was recorded in other investments.

In the fourth quarter of 2021, the Company fully impaired the remaining balance of $ 36.4 million.

of $ 2.9 million in October 2022 for the estimated fair value of the PACT Series D convertible preferred stock, which was included in other investments in the Company’s Consolidated Balance Sheet as of December 31, 2022.

In September 2023, the Company performed a qualitative assessment of potential indicators of impairment of the PACT Series D convertible preferred stock investment, resulting in $ 2.9 million impairment expense for the year ended December 31, 2023.

See Note 5, Other Investments , for additional details regarding the PACT investment impairment.

In February 2021, the Company filed a demand for arbitration seeking, among other things, rescission of the PACT Commitment Agreement and the PACT SPA and recovery of the consideration paid thereunder.

Arbitration hearings occurred in March and April 2022.

On October 1, 2022, the Company entered into a settlement agreement with PACT, pursuant to which the parties agreed to resolve their outstanding legal dispute.

In connection with the settlement agreement, the parties also entered into a stock purchase agreement, pursuant to which PACT issued shares of PACT’s Series D convertible preferred stock to the Company in exchange for the Company’s tender of its PACT Series C-1 convertible preferred stock and resolution of the arbitration.

The issuance of PACT’s Series D convertible preferred stock, which are non-voting, have limited conversion rights and carry no right to appoint directors, resulted in the Company’s ownership increasing to approximately 80 % of PACT’s fully diluted shares outstanding.

The settlement agreement also included the termination of the PACT Commitment Agreement to jointly develop a next generation anti-cancer T‑cell therapy against solid tumors.

The Company recorded a gain of $ 2.9 million on October 1, 2022 for the estimated fair value of the PACT Series D convertible preferred stock received as part of the settlement agreement.

The PACT Series D convertible preferred stock was recorded at its estimated fair value as of the settlement date and is included in other investments in the Company’s Consolidated Balance Sheets.

Cash Equivalents and Marketable Securities

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Total cash equivalents and marketable securities

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2022

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Total cash equivalents and marketable securities

The fair value of securities held by the Company in an unrealized loss position for less than 12 months were $ 287.8 million and $ 602.9 million, as of December 31, 2022 and 2021, respectively.

The fair value of securities held by the Company in an unrealized continuous loss position for greater than 12 months were $ 278.7 million and zero as of December 31, 2022 and 2021, respectively.

The fair values of securities held by the Company in an unrealized loss position for less than 12 months were $ 117.8 million and $ 287.8 million, as of December 31, 2023 and 2022, respectively.

The fair values of securities held by the Company in an unrealized loss position for greater than 12 months were $ 43.6 million and $ 278.7 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, all of the Company’s marketable securities had a maturity date of two years or less, were available for use and were classified as available-for-sale.

The Company does not intend to sell these securities nor does the Company believe that it will be required to sell these securities before recovery of their amortized cost basis.

The Company determined that there was no material change in the credit risk of the above investments during the years ended December 31, 2022 and 2021.

The Company determined that there was no material change in the credit risk of the above investments as of both December 31, 2023 and 2022.

As such, an allowance for credit losses has not been recognized.

Gross realized gains and losses were de minimis for the years ended December 31, 2022 and 2021 and as a result, amounts reclassified out of accumulated other comprehensi ve loss for the years ended December 31, 2022 and 2021 were also de minimis .

Gross realized gains and losses were de minimis for the years ended December 31, 2023 and 2022 and as a

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

result, amounts reclassified out of accumulated other comprehensi ve loss for the years ended December 31, 2023 and 2022 were also de minimis .

See Note 6, Fair Value Measurements , for additional information regarding cash equivalents and marketable securities.

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These investments are measured at initial cost, minus impairment, if any, and plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

In connection with the preparation of the financial statements for 2022, the Company performed a qualitative assessment of potential indicators of impairment and determined that indicators existed for one of the Company’s other investments with a carrying amount of $ 5.0 million.

While there was no single event or factor, the Company considered the underlying company’s operating cash flow requirements over the next year and liquid asset balances to fund those requirements and the underlying company’s inability to raise funds as indicators of impairment.

Due to these indicators, the Company assessed the valuation of the investment and determined the fair value to be negligible and the impairment to be other-than-temporary in nature.

As a result, the Company recorded a $ 5.0 million impairment expense for the investment for the year ended December 31, 2022 , which was recorded within impairment of other investments on the Consolidated Statement of Operations and Comprehensive Loss and as a reduction to the investment balance within other investments on the Consolidated Balance Sheet.

No other investments were impaired for the year ended December 31, 2022 .

In October 2022, the Company received non-voting preferred stock pursuant to the settlement agreement with PACT (See Note 3, License, Collaboration and Success Payment Agreements ).

The Company determined that PACT is a VIE as PACT does not have sufficient equity at risk.

The Company evaluated whether it was the primary beneficiary of PACT, including the Company’s ongoing rights and responsibilities, to assess whether the Company has the power to direct the activities of PACT.

The Company’s only involvement in PACT is its PACT Series D convertible preferred stock investment, which are non-voting, have limited conversion rights and carry no right to appoint directors.

Based on the above noted factors, the Company determined that it is not the primary beneficiary and does not consolidate PACT since it does not have the power to direct the activities that most significantly impact PACT’s economic performance.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

Company does not have the ability to exercise significant influence over PACT and accounts for its investment in PACT preferred stock under the measurement alternative.

The Company recognized its investment in PACT preferred stock at its estimated fair value of $ 2.9 million on October 1, 2022, which is included in the Company’s Consolidated Balance Sheets within other investments.

The Company’s maximum exposure to loss from PACT is limited to the carrying value of its investment in PACT preferred stock.

In connection with the preparation of the financial statements for 2021, the Company performed a qualitative assessment of potential indicators of impairment and determined that indicators existed for its $ 36.4 million investment in PACT Series C-1 convertible preferred stock .

While there was no single event or factor, the Company considered PACT’s operating cash flow requirements over the next year and liquid asset balances to fund those requirements and PACT’s inability to raise funds as indicators of impairment.

Due to these indicators, the Company assessed the valuation of the investment in PACT as of December 31, 2021 and determined the fair value to be negligible and the impairment to be other-than-temporary in nature.

As a result, the Company recorded a $ 36.4 million impairment expense for the PACT investment in the fourth quarter of 2021, which was recorded within impairment of other investments on the Consolidated Statement of Operations and Comprehensive Loss and as a reduction to the investment balance within other investments on the Consolidated Balance Sheet.

Aside from the investment in PACT, no other investments were impaired for the year ended December 31, 2021.

In November 2020, the Company made a strategic equity investment of $ 13.0 million in Outpace Bio, Inc.

(“Outpace”), a privately-held company, which represented a minority ownership interest at the time of the strategic investment.

Outpace is engaged in the research and development of protein and cell technology platforms and has financed its activities via issuances of preferred stock.

The Company determined that Outpace is a VIE and the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest.

The Company does not have majority voting rights, representation on Outpace’s board of directors or the power to direct the activities of this entity, and therefore it is not the primary benefic iary.

As of both December 31, 2022 and 2021, the carrying value of the Company’s investment in Outpace was $ 13.0 million, which is recorded in other investments.

Cumulative impairments of strategic investments in equity investments without readily determinable fair values still held as of December 31, 2023 and 2022 were $ 15.0 million and $ 5.0 million, respectively.

As a part of the acquisition of each of the Company’s other investments, the Company determines whether an investment or other interest is considered a variable interest.

The Company held an interest in one entity as of December 31, 2023 and two entities as of December 31, 2022, that were concluded to be variable interests for which the Company was not the primary beneficiary as the Company did not have the not have the power to direct the activities that most significantly impact the economic performance of the VIEs.

As of December 31, 2023 and 2022 , the carrying value and maximum exposure to loss of the Company’s variable interests were $ 13.0 million and $ 15.9 million, respectively, which are recorded in other investments in the Company’s Consolidated Balance Sheets.

In October 2022, the Company received shares of PACT’s Series D non-voting convertible preferred stock (See Note 3, License, Collaboration and Success Payment Agreements ).

The Company recognized its investment in PACT preferred stock at its estimated fair value of $ 2.9 million on October 1, 2022, which was included in the Company’s Consolidated Balance Sheet within other investments as of December 31, 2022.

During the years ended December 31, 2023, 2022 and 2021, the Company performed qualitative assessments of potential indicators of impairment and determined that indicators existed for certain of its other investments.

While there was no single event or factor in each instance, the Company considered the underlying companies’ operating cash flow requirements over the next year, liquid asset balances to fund those requirements and the underlying companies’ inability to raise funds as indicators of impairment.

Due to these indicators, the Company assessed the valuation of these investments and determined the fair values to be negligible and the impairments to be other-than-temporary in nature.

As a result, the Company recorded impairment expenses of $ 2.9 million for the PACT Series D convertible preferred stock investment and $ 10.0 million for another investment for the year ended December 31, 2023, $ 5.0 million for an investment for the year ended December 31, 2022 and $ 36.4 million for the PACT Series C-1 convertible preferred stock investment for the year ended December 31, 2021 .

The impairment expenses were recorded within impairment of other investments on the Consolidated Statements of Operations and Comprehensive Loss and as reductions to the investment balances within other investments on the Consolidated Balance Sheets.

Fair Value Measurements

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— 220,681 — 220,681

Equity warrant investment — — 1,067 1,067

Total financial assets

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Treasury securities, U.S.

government agency securities and corporate debt securities.

The Company’s Level 2 securities are valued using third-party pricing sources.

government agency securities and corporate debt securities, which securities are valued using third-party pricing sources.

The pricing services applied industry standard valuation models.

Inputs utilized include market pricing based on real-time trade data for the same or similar securities and other significant inputs derived from or corroborated by observable market data.

The Level 3 financial instruments include an equity warrant investment and the success payment liabilities.

For the year ended December 31, 2022, in conjunction with the impairment of one of the Company’s other investments, the associated equity warrant investment’s fair value was determined to be negligible as of December 31, 2022.

The Company reduced the equity warrant investment’s fair value from $ 1.1 million as of December 31, 2021 to zero as of December 31, 2022.

See Note 5, Other Investments , for additional details regarding the impairment of the other investment.

The Company’s Level 3 financial instruments are valued using valuation models which include the Black-Scholes model for valuing the equity warrant investment and a Monte Carlo simulation for the success payment liabilities.

To determine the estimated fair value of the success payment liabilities, the Company uses a Monte Carlo simulation methodology that models the future movement of stock prices based on several key variables combined with empirical knowledge of the process governing the behavior of the stock price.

The Company’s success payment liabilities are Level 3 financial instruments, which are estimated using Monte Carlo simulations.

Monte Carlo simulations model the future movement of stock prices based on several key variables combined with empirical knowledge of the process governing the behavior of the stock price.

The following variables were incorporated in the estimated fair value of the success payment liabilities:

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Expected term (in years)

The Company utilizes estimates and assumptions in determining the estimated success payment liabilities and associated changes in fair value.

A small change in the valuation of the Company’s common stock may have a relatively large change in the estimated fair value of the success payment liability and associated changes in fair value.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

The Company utilizes estimates and assumptions in determining the estimated success payment liabilities and associated expense.

A small change in the valuation of the Company’s common stock may have a relatively large change in the estimated fair value of the success payment liability and associated expense.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets and liabilities (in thousands):

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Change in fair value (1)

( 1,067 ) ( 5,130 )

Balance at December 31, 2023

(1) The changes in fair value associated with the equity warrant investment held are recorded in other income (expense) , net and the changes in fair value associated with success payment liabilities are recorded in research and development expense .

In October 2022, the Company received non-voting series D preferred stock pursuant to the settlement agreement with PACT (See Note 3, License, Collaboration and Success Payment Agreements ).

The Company determined the fair value of PACT was a fraction of the aggregate liquidation preference of the Company’s PACT Series D preferred stock.

The Company determined that the fair value of its investment in PACT preferred stock is approximated by the fair value of the PACT business since the Company is the only party invested in PACT preferred stock series D as of October 1, 2022, the most senior class of stock issued by PACT.

The fair value of PACT was estimated at $ 2.9 million as of October 1, 2022 using the cost approach.

(1) The change in the fair value associated with the Fred Hutch success payment liabilities f or the year ended December 31, 2023 is recorded in other income (expense), net .

The change in the fair value associated with the Fred Hutch success payment liabilities f or the year ended December 31, 2022, and t he change in the fair value associated with the Stanford success payment liabilities f or the years ended December 31, 2023 and 2022, respectively, are recorded as research and development expenses .

(See Note 3, License, Collaboration and Success Payment Agreements).

Changes in fair value associated with the equity warrant investment held are recorded in other income (expense), net.

In October 2022, the Company received non-voting PACT Series D convertible preferred stock with an estimated fair value of $ 2.9 million using the cost approach (See Note 3, License, Collaboration and Success Payment Agreements ).

Under this approach, the fair value of an asset is measured by the cost to reconstruct or replace such asset with another one of like utility.

1 unchanged sentence

Accordingly, the Company classified the fair value measurement of PACT preferred stock on October 1, 2022 as Level 3 under the fair value hierarchy.

In June 2023, the Company performed a qualitative assessment of potential indicators of impairment of the PACT Series D convertible preferred stock investment, resulting in a $ 2.9 million impairment expense for the year ended December 31, 2023 .

See Note 5, Other Investments , for additional details regarding the PACT investment impairment.

Property and Equipment, Net

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Accrued compensation and related benefits $ 14,634 $ 15,447

Accrued property and equipment 732 4,055

Accrued legal 930 2,619

Accrued research and development expenses 4,760 2,449

Current lease liabilities 6,273 4,534

Accrued research and development expenses 5,331 4,760

Other 1,493 2,352

Accrued legal 395 930

Accrued property and equipment — 732

Total accrued liabilities and other current liabilities $ 28,126 $ 28,755

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The Company has two five‑year options to extend the lease, which are not reasonably assured.

In 2019, the Company entered into an operating lease for approximately 34,000 square feet of office and laboratory space in South San Francisco, California.

In December 2020, the Company exercised its early termination right and remeasured the remaining consideration in the contract, resulting in a gain of $ 2.9 million, which was recognized in other operating income, net.

The lease termination was effective October 2021, resulting in a gain of $ 0.3 million, which was recognized in other operating income, net for the year ended December 31, 2021.

Additionally, the Company recognized a loss of $ 0.6 million at lease termination on leasehold improvements unable to be moved to its new corporate headquarters in South San Francisco, California, which was recognized in other operating income, net for the year ended December 31, 2021.

In 2019, the Company entered into two operating lease agreements for a combined approximately 73,000 square feet of space to develop a cell therapy manufacturing facility located in Bothell, Washington, with initial terms expiring in May 2030.

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In January 2021, the Company amended the lease term to extend the lease expiration to March 2031, which resulted in an increase to the right-of-use asset and lease liability of $ 4.2 million.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

The following table summarizes the Company’s future minimum operating lease commitments, including expected lease incentives to be received, as of December 31, 2023 (in thousands):

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Total $ 63,167

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

The operating lease costs for all operating leases were $ 9.0 million, $ 9.3 million and $ 9.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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Variable lease costs for operating leases were $ 5.4 million, $ 5.1 million and $ 4.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The weighted-average remaining lease terms for operating leases were 7.8 and 8.8 years as of December 31, 2022 and 2021, respectively.

The weighted-average discount rates for operating leases were 8.5 % and 8.4 % as of December 31, 2022 and 2021, respectively.

The weighted-average remaining lease terms for operating leases were 6.8 years and 7.8 years as of December 31, 2023 and 2022, respectively.

The weighted-average discount rates for operating leases were 8.5 % as of both December 31, 2023 and 2022.

In May 2021, the Company entered into a sublease, whereby the Company agreed to sublease approximately 11,000 square feet of its space in South San Francisco, California currently leased by the Company.

The sublease is classified as an operating lease and will expire in March 2031.

The Company recognized sublease income for this sublease of $ 0.8 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively.

The Company recognized sublease income for this sublease of $ 0.8 million for both the years ended December 31, 2023 and 2022 and $ 0.4 million for the year ended December 31, 2021.

In September 2021, the Company entered into a sublease with Sonoma Biotherapeutics, Inc.

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The sublease is classified as an operating lease and will expire in March 2031.

The Company recognized Sonoma sublease income of $ 1.9 million and $ 0.6 million for the years ended December 31, 2022 and 2021, respectively.

The Company recognized Sonoma sublease income of $ 1.9 million for both the years ended December 31, 2023 and 2022 and $ 0.6 million for the year ended December 31, 2021.

The Company’s sublease income is recognized within other operating income, net in the Consolidated Statements of Operations and Comprehensive Loss.

Convertible Preferred Stock

In March 2020, the Company sold 42,905,042 shares of its Series C convertible preferred stock at a price of $ 11.49 per share for proceeds of $ 492.5 million, net of issuance costs of $ 0.5 million.

In March 2020, the Company repurchased 546,806 shares of its Series A convertible preferred stock from a related party for a purchase price of $ 4.2 million.

Upon the closing of the IPO, 194,474,431 shares of convertible preferred stock then outstanding converted into an equal number of shares of common stock.

As of December 31, 2023, no shares of convertible preferred stock were outstanding.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

Stockholders’ Equity

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The Company is authorized to issue 500.0 million shares of common stock with a par value of $ 0.0001 per share.

As of December 31, 2022 and 2021, there wer e 249,567,343 shares and 242,738,350 shares of the Company’s common stock outstanding, respectively, excluding zero and 2,600,002 shares, respectively, of RSAs outstanding that are subject to vesting requirements.

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of the Company’s common stock are entitled to receive dividends out of funds legally available if the Company’s board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that the Company’s board of directors may determine.

In March 2020, the Company repurchased 2,032,166 shares of its common stock from a related party for a purchase price of $ 11.8 million .

On August 4, 2022, the Company entered into an Equity Distribution Agreement with Goldman Sachs & Co.

LLC (“Goldman Sachs”) and BofA Securities, Inc.

(“BofA”, and together with Goldman Sachs, “the Agents”) with respect to an at-the-market offering program (the “Equity Distribution Agreement”).

In accordance with the terms of the Equity Distribution Agreement, the Company may offer and sell from time to time through the Agents shares of the Company’s common stock having an aggregate offering amount of up to $ 200.0 million (“the Placement Shares”).

Sales of the Placement Shares, if any, will be made at prevailing market prices on Nasdaq at the time of sale, or as otherwise agreed with the Agents, by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415 of the Securities Act of 1933, as amended.

The Company will pay commissions to the Agents of up to 3.0 % of the gross proceeds of the sale of the Placement Shares sold under the Equity Distribution Agreement and reimburse the Agents for certain expenses.

Neither the Company nor the Agents are obligated to sell any shares and, to date, the Company has not made any sales under the Equity Distribution Agreement.

As of December 31, 2023 and 2022, there wer e 253,957,709 shares and 249,567,343 shares of the Company’s common stock outstanding, respectively.

Stock-based Compensation

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In addition, the number of shares reserved for issuance under the 2021 Plan automatically increases on January 1 of each year for a period of ten years , beginning on January 1, 2022 and continuing through January 1, 2031, in an amount equal to (1) 5 % of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Company’s board of directors no later than December 31 of the immediately preceding year.

On January 1, 2022, the Company reserved an additional 12,266,917 shares of common stock for issuance under the 2021 Plan representing 5 % of the total common shares outstanding as of December 31, 2021.

On January 1, 2023, the Company reserved an additional 12,478,367 shares of common stock for issuance under the 2021 Plan representing 5 % of

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

the total common shares outstanding as of December 31, 2022.

Under the 2021 Plan, the Company may grant incentive stock options, non-statutory stock options, RSAs, RSUs, stock appreciation rights, performance awards and other stock‑based awards.

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As of December 31, 2023 , 26,390,351 shares were available for future issuance pursuant to the 2021 Plan.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

2021 Employee Stock Purchase Plan

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provided, however, that the Company’s board of directors may act to provide a lesser increase in number of shares.

On January 1, 2022, the Company reserved an additional 2,453,383 common shares for issuance under the 2021 ESPP representing 1 % of the total common shares outstanding as of December 31, 2021.

The Company’s board of directors elected to reserve no additional shares under the 2021 ESPP for the year beginning January 1, 2023 .

The Company may specify offerings with durations not more than 27 months and may specify shorter purchase periods within each offering.

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Stock Options and RSA Modifications

In November 2023, the Board of Directors of the Company approved, effective November 16, 2023, a one-time repricing of certain stock option awards that had been granted to date under the 2021 Plan and 2018 Plan.

The repricing

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

impacted stock options with exercise prices greater than $ 2.37 held by employees who remained employed as-of November 16, 2023 and were not impacted by the reduction in workforce.

The original exercise prices of the repriced stock options ranged from $ 2.61 to $ 17.95 per share for 200 total grantees with 23,416,860 shares repriced.

Each stock option was repriced to have a per share exercise price of $ 1.87 , which was the closing price of the Company’s common stock on November 16, 2023.

To receive the new exercise price, option holders must remain employed with the Company through November 15, 2024.

Additionally, the vesting schedule for the unvested shares underlying repriced stock options held by executives at the level of senior vice president and above was extended for an additional year.

There were no changes to the vesting schedules for employees below the level of senior vice president.

No changes were made to the expiration dates of or number of shares underlying the repriced stock options.

Incremental stock-based compensation expense resulting from the repricing was $ 8.9 million in the aggregate.

Expense for vested awards will be recognized through November 15, 2024 and expense for unvested awards will be recognized over the remaining service life of the option.

In December 2022, the Company’s former chief executive officer (“CEO”) resigned.

Under the terms of the separation agreement, the former CEO will be available to provide consulting services to the Company through June 15, 2024, with vested options continuing to be exercisable and unvested options continuing to vest through that date.

The Company concluded that the obligation to provide consulting services is nonsubstantive, and therefore resulted in a modification of their options due to the reduction of their service level.

As their remaining service period was determined to be nonsubstantive, the entire incremental expense of $ 3.7 million associated with the modification was recognized in the fourth quarter of 2022.

The Company concluded that the obligation to provide consulting services was nonsubstantive, and therefore resulted in a modification of their options due to the reduction of their service level.

As the remaining service period was determined to be nonsubstantive, the entire incremental expense of $ 3.7 million associated with the modification was recognized in the fourth quarter of 2022.

In 2021, the Company had modifications due to the reduction in the service level for a previous CEO, who resigned as Executive Chairman in the fourth quarter of 2021, as well as an increase to certain awards’ post-termination exercise periods.

In 2020, the Company had modifications due to the reduction in the service level for a previous CEO,

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

changes in vesting schedules for certain individuals and increases to certain awards’ post-termination exercise periods.

The 2021 and 2020 modifications impacted both vested and unvested awards.

The modifications in 2021 impacted both vested and unvested awards.

Expense associated with vested awards is recognized in the period of the modification and expense associated with unvested awards is recognized over the remaining service life of the options or RSAs.

The following table shows the total incremental stock-based compensation expense associated with modifications by the year in which the modification occurred in the years December 31, 2022, 2021 and 2020 (in thousands):

The Company also had option modifications in 2021 for one individual resulting in incremental stock-based compensation expense of $ 1.0 million.

The following table shows the total incremental stock-based compensation expense associated with modifications for previous CEOs by the year in which the modification occurred in the years December 31, 2023, 2022 and 2021 (in thousands):

2023 2022 2021

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Previous CEO - Options (2)

— 21,948 15,052

Other - Options (3)

— 1,019 4,717

Previous CEO - RSA (2)

$ — $ 3,741 $ 32,856

Other - RSA (5)

$ 3,741 $ 33,875 $ 49,597

(1) The modification for Previous CEO - Options for 2022 is for Ms.

Elizabeth Homans, who resigned in December 2022.

(2) The modifications for Previous CEO - Options for 2021 and 2020 is for Dr.

Richard Klausner, who resigned as Executive Chairman in October 2021 and is now the Chair of Lyell’s Board.

(3) The modifications for Other - Options are represented by one individual in 2021 and four individuals in 2020.

(4) The modifications for Previous CEO - RSAs for 2021 and 2020 are for Dr.

(2) The modifications for Previous CEO - Options and Previous CEO - RSA for 2021 are for Dr.

Richard Klausner, who resigned as Executive Chairman in October 2021 and is now the Chair of Lyell’s Board.

(5) The modifications for Other - RSAs are represented by three individuals in 2020.

At December 31, 2023, total stock-based compensation cost related to unvested awards not yet recognized was $ 65.3 million, which is expected to be recognized over a remaining weighted-average period of 2.7 years.

Restricted Stock Awards

A summary of the Company’s RSA activity was as follows:

Number of Shares Weighted-Average

Value at Grant Date

Unvested shares as of December 31, 2021

2,600,002 $ 0.0001

( 2,600,002 ) $ 0.0001

Unvested shares as of December 31, 2022

The fair value of RSAs vested during the years ended December 31, 2022, 2021 and 2020 was $ 15.2 million, $ 57.1 million and $ 29.4 million, respectively.

The Company had no unvested RSAs as of both December 31, 2023 and 2022.

The fair value of RSAs vested during the years ended December 31, 2023, 2022 and 2021 was zero , $ 15.2 million and $ 57.1 million, respectively.

Lyell Immunopharma, Inc.

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Unvested RSUs as of December 31, 2022

872,077 $ 5.98

RSUs granted 2,621,177 $ 2.22

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2,072,855 $ 2.96

The fair value of RSUs vested during the year ended December 31, 2022 w as $ 1.5 million .

No RSUs vested during the years ended December 31, 2021 and 2020.

The fair value of RSUs vested during the years ended December 31, 2023 and 2022 w as $ 1.4 million and $ 1.5 million, respectively .

No RSUs vested during the year ended December 31, 2021 .

Stock Options

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This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

As of December 31, 2023, the Company had a capital loss carryforward of $ 52.5 million, which will expire in 2028.

A reconciliation of income taxes computed using the U.S.

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Tax credit carryforwards

22,409 14,317

Capital loss carryforward

Accrued liabilities and allowances

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Investment basis difference

14,235 13,587

Lease liability

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The Company has included the impact of this provision, which results in a deferred tax asset of approximately $ 51.2 million as of December 31, 2023.

The Company maintains a full valuation allowance on its net U.S.

deferred tax assets.

The assessment regarding whether a valuation allowance is required considers the evaluation of both positive and negative evidence when concluding

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

whether it is more likely than not that deferred tax assets are realizable.

The Company maintains a full valuation allowance on its net U.S.

deferred tax assets.

The assessment regarding whether a valuation allowance is required considers the evaluation of both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable.

In making this assessment, significant weight is given to evidence that can be objectively verified.

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The Company is generally subject to examination by the U.S.

federal and local income tax authorities for all tax years in which a loss carryforward is available.

federal and local income tax auth orities for all tax years in which a loss carryforward is available.

The Company is currently not under examination by the Internal Revenue Service or other jurisdictions for any tax years.

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Ending balance $ 400 $ 400

The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.

Net Loss Per Share

Basic and diluted net loss per share attributed to common stockholders is calculated by dividing net loss attributed to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.

The Company’s potentially dilutive shares, which include preferred stock, unvested RSAs, unvested RSUs and options to purchase common stock, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

Shares subject to options to purchase common stock, preferred stock, unvested RSAs and unvested RSUs were all excluded from consideration in the calculation of diluted net loss per share in all periods presented due to their anti-dilutive effects.

Basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.

The Company’s potentially dilutive shares, which include unvested RSAs, unvested RSUs and options to purchase common stock, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

Shares subject to options to purchase common stock, unvested RSAs and unvested RSUs were all excluded from consideration in the calculation of diluted net loss per share in all periods presented due to their anti-dilutive effects.

Employee Benefit Plan

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Beginning in 2022, the Company sponsors a defined-contribution savings plan with matching 401(k) contributions based upon the amount of the employees’ contributions subject to certain limitations.

The Company made matching contributions to the 401(k) Plan on behalf of participants of $ 1.0 million for the year ended December 31, 2022 and none for the years ended December 31, 2021 and 2020.

Commitments and Contingencies

Collaboration and License Agreements

The Company has entered into certain collaboration and license agreements, including those identified in Note 3, License, Collaboration and Success Payment Agreements above, with third parties that include the funding of certain development, manufacturing and commercialization efforts with the potential for future milestone and royalty payments

The Company made matching contributions to the 401(k) Plan on behalf of participants of $ 1.2 million and $ 1.0 million for the year ended December 31, 2023 and 2022, respectively, and none for the year ended December 31, 2021.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

upon the achievement of pre-established developmental, regulatory and/or commercial milestones.

Commitments and Contingencies

Collaboration and License Agreements

The Company’s obligation to fund these efforts is contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause the discontinuance of the programs, including termination of such agreements.

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Related-Party Transactions

In September 2021, the Company entered into a sublease with Sonoma, with whom the Company has common stockholders with board seats, whereby the Company agreed to sublease approximately 18,000 square feet of space in South San Francisco, California currently leased by the Company.

Klausner, the Chair of the Company’s board of directors, also serves as a member of the board of directors of Sonoma.

As a part of the sublease, a $ 4.6 million tenant improvement contribution payment was made by Sonoma, which is recognized over the term of the sublease.

As of December 31, 2022 and 2021, there were accrued liabilities and other current liabilities of $ 0.5 million and $ 0.5 million, respectively, a nd other non-current lia bilities of $ 3.5 million and $ 4.0 million, respectively, in connection with the sublease with Sonoma.

Incom e of $ 2.6 million and $ 1.8 million w as recognized in other operating income, net for the years ended December 31, 2022 and 2021, respectively, of which $ 1.9 million and $ 0.6 million was attributed to sublease income f or the years ended December 31, 2022 and 2021, respectively .

In September 2021, the Company entered into a sublease with Sonoma (“Sonoma Sublease”), with whom the Company has common stockholders with board seats, whereby the Company agreed to sublease approximately 18,000 square feet of space in South San Francisco, California currently leased by the Company.

Klausner, the Chair of the Company’s board of directors, also serves as Board Chair of the board of directors of Sonoma.

As a part of the Sonoma Sublease, a $ 4.6 million tenant improvement contribution payment was made by Sonoma, which is recognized over the term of the Sonoma Sublease.

As of both December 31, 2023 and 2022, there were accrued liabilities and other current liabilities of $ 0.5 million, a nd as of December 31, 2023 and 2022, other non-current lia bilities of $ 3.0 million and $ 3.5 million, respectively, in connection with the Sonoma Sublease.

Total operating income from Sonoma and income solely attributable to the Sonoma Sublease are shown in the table below (in thousands).

Total operating income includes income attributable to the sublease, as well as additional operating fees recognized in “other operating income, net” such as common area maintenance charges.

See Note 9, Leases , for more detail on the Sonoma Sublease.

Year Ended December 31,

2023 2022 2021

Sonoma other operating income, net $ 2,592 $ 2,635 $ 1,791

Sonoma sublease income $ 1,861 $ 1,861 $ 620

The Company was party to the GSK Agreement, who is a holder of more than 10 % of the Company’s outstanding common stock.

See Note 3, License, Collaboration, and Success Payment Agreements .

Deferred revenue of zero and $ 5.0 million as of December 31, 2022 and 2021, respectively, and deferred revenue, non-current of zero and $ 79.7 million as of December 31, 2022 and 2021, respectively, were in connection with the GSK Agreement.

Revenue recognized in connection with the GSK agreement was $ 84.7 million, $ 10.5 million and $ 7.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Revenue recognized in connection with the GSK agreement was zero , $ 84.7 million and $ 10.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

GSK terminated the GSK Agreement effective December 24, 2022.

See Note 3, License, Collaboration, and Success Payment Agreements, for additional details regarding the termination of the GSK Agreement.

In March 2020, the Company repurchased 546,806 shares of its Series A convertible preferred stock and 2,032,166 shares of its common stock from a related party.

See Note 10, Convertible Preferred Stock and Note 11, Stockholders’ Equity .

Asset Acquisition

In May 2020, the Company completed the acquisition of 100 % of the outstanding equity of Immulus, Inc.

(“Immulus”), a company focused on developing technology platforms that enable the development and production of cell therapeutics.

As consideration for the acquisition, the Company paid $ 3.5 million in cash and issued an aggregate of 688,463 shares of its common stock, with an estimated fair value of $ 4.0 million.

The Company also incurred $ 0.5 million of direct expenses, for total consideration of $ 8.0 million.

The Company concluded the acquisition did not meet the accounting definition of a business as inputs were acquired, but no processes or outputs were acquired.

Consequently, the Company accounted for the transaction as an asset acquisition with the value concentrated in IPR&D.

The following table summarizes the fair value of assets acquired (in thousands):

In-process research and development (IPR&D)

Total assets acquired

The amount allocated to the IPR&D asset was charged to research and development expenses for the year ended December 31, 2020 as this asset had no alternative future use at the time of the acquisition transaction.

In addition, the Company is also required to make milestone payments of up to $ 37.0 million to the former stockholders of Immulus upon successful completion of specified development milestones.

Triggering of these milestones payments was not considered probable as of the date of the acquisition, and no expense has been recorded for these milestones for the years ended December 31, 2022, 2021 and 2020.

Workforce Reduction

In November 2023, the Company announced a reduction in its workforce to reduce operating costs and improve operating efficiency, pursuant to which the Company’s workforce was reduced by approximately 25 %.

The execution of the reduction in workforce was substantially completed by the end of 2023.

The Company incurred approximately $ 5.5 million in expenses related to one-time severance payments and other employee‑related costs as follows for the year ended December 31, 2023 (in thousands):

Year Ended December 31, 2023

Research and development

General and administrative

Total expense

The workforce reduction expenses were incurred in 2023 and cash payments were significantly completed by the end of 2023.

The Company has accrued liabilities of approximately $ 1.9 million related to the workforce reduction, which were included in the Company’s Consolidated Balance Sheet within Accrued Liabilities and Other Current Liabilities as of December 31, 2023.

Lyell Immunopharma, Inc.

Notes to Consolidated Financial Statements—(Continued)

Subsequent Events

On February 28, 2024, the Company entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC as the Company’s sales agent (“Agent”) with respect to an at-the-market offering program.

In accordance with the terms of the Sales Agreement, the Company may offer and sell from time to time through the Agent shares of the Company’s common stock having an aggregate offering amount of up to $ 150.0 million (“the Placement Shares”).

Sales of the Placement Shares, if any, will be made at prevailing market prices on Nasdaq at the time of sale, or as otherwise agreed with the Agent, by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415 of the Securities Act of 1933, as amended.

The Company will pay commissions to the Agent of up to 3 % of the gross proceeds of the sale of the Placement Shares sold under the Sales Agreement and reimburse the Agent for certain expenses.

Neither the Company nor the Agent are obligated to sell any shares and, to date, the Company has not made any sales under the Sales Agreement.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data