Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis and other parts of this Annual Report on Form 10-K contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of several factors, including those set forth in the section titled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. See also the section titled “Special Note Regarding Forward-Looking Statements.”
This section under Management’s Discussion and Analysis of Financi al Condition and Results of Operations generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report on Form 10-K can be found in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Overview
We are a clinical-stage cell therapy company expecting to enter pivotal trials in 2025 and advancing a pipeline of proprietary next-generation autologous CAR T-cell product candidates for patients with hematologic malignancies and solid tumors. We are pioneering novel approaches designed to generate T cells that drive long-lasting clinical responses. The patient’s own living cells are the starting point for our investigational CAR T-cell therapies, and we enhance them with our innovative CAR constructs, technology and manufacturing protocols.
In hematologic malignancies, we are focused on advancing to pivotal trials a product candidate designed to deliver improved outcomes over first-generation CD19 CAR T-cell therapies for patients with aggressive large B-cell lymphoma. Our lead program, IMPT-314, is a dual-targeting CD19/CD20 CAR T-cell product candidate designed to increase complete response rates and prolong the duration of response as compared to the approved CD19‑targeted CAR T-cell therapies. IMPT-314 is designed with a true ‘OR’ logic gate to target B cells that express either CD19 or CD20 with full potency and is manufactured with a process that enriches for CD62L+ cells to generate cell products with more naïve and central memory CAR T cells with enhanced stemlike features and antitumor activity.
To realize the potential of cell therapy for solid tumors, Lyell is also developing next-generation CAR T-cell product candidates enhanced with our anti-exhaustion and additional arming technologies and manufactured with our proprietary protocols. These approaches are designed to endow CAR T cells with attributes needed to drive durable tumor cytotoxicity and achieve consistent and long-lasting clinical responses, including the ability to resist exhaustion, maintain qualities of durable stemness and function in the hostile tumor microenvironment.
For additional information regarding our business, see “Business” in Part I, Item 1 of this Annual Report on Form 10-K.
Pipeline Programs and Operational Updates
Pipeline Programs
We are advancing a pipeline of next-generation CAR T-cell product candidates. Our lead program, IMPT-314, is in Phase 1/2 clinical development for relapsed or refractory aggressive large B-cell lymphoma and our preclinical programs target solid tumor indications. Each of our programs target cancers with large unmet need with substantial patient populations (see Table 1).
IMPT-314: A next-generation dual-targeting CD19/CD20 CAR T-cell product candidate designed to increase complete response rates and prolong the duration of response as compared to the approved CD19‑targeted CAR T-cell therapies for the treatment of large B-cell lymphoma.
• A Phase 1/2 clinical trial is ongoing and currently enrolling patients in the 3 rd line+ and 2 nd line settings who have not previously received CAR T-cell therapy. IMPT-314 has received Fast Track Designation from the U.S. Food and Drug Administration for the treatment of relapsed/refractory aggressive large B-cell lymphoma in the 3 rd line+ setting.
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• Initial data from the Phase 1/2 trial was presented at the ASH 2024 Annual Meeting on December 9, 2024. Data from 23 patients with R/R, CAR T-naive large B-cell lymphoma who received IMPT-314 were reported. The efficacy evaluable population consisted of 17 patients. The overall response rate was 94% (16/17 patients), with 71% (12/17 patients) achieving a complete response by three months. The median follow up was 6.3 months (range 1.2 – 12.5 months) and 71% of patients were experiencing a response at last follow-up. In the safety evaluable population of 23 patients, no Grade 3+ CRS was reported. Grade 3 ICANS was reported in 13% (3/23) of patients with a median time to complete ICANS resolution of 5 days, and rapid improvement to Grade 2 or lower with standard therapy.
• More mature data from the ongoing Phase 1/2 trial in the 3 rd line+ setting and initial data from patients in the 2 nd line setting are expected to be presented in mid-2025.
• We expect to initiate a pivotal trial in mid-2025 in patients with relapsed/refractory large B-cell lymphoma in the 3 rd line+ setting who have not yet received CAR T-cell therapy.
• We expect to initiate a pivotal trial by early 2026 in patients with relapsed/refractory large B-cell lymphoma in the 2 nd line setting who have not yet received CAR T-cell therapy.
Preclinical Pipeline, Technologies and Manufacturing Protocols
• The first IND for a fully-armed CAR T-cell product candidate with an undisclosed target for solid tumors is expected in 2026. Lyell is advancing next-generation fully-armed CAR T-cell product candidates, meaning they are armed with multiple technologies, each designed to address different barriers to effective cell therapies, including T-cell exhaustion, lack of durable stemness, as well as immune suppression within the hostile tumor microenvironment.
• During the past year, we presented nonclinical and clinical data from our suite of anti-exhaustion and manufacturing technologies demonstrating their potential to improve T-cell function in solid tumors.
• We presented data at the Society for Immunotherapy of Cancer (SITC) 2024 from a validated nonclinical xenograft model of non-small cell lung cancer, demonstrating that combining c-Jun overexpression and NR4A3 knockout achieves tumor control and prolonged survival even at very low doses (100,000 CAR T cells/dose) compared to c‑Jun overexpression alone (1,000,000 CAR T cells/dose). The study presented potential molecular mechanisms underlying the functional reduction of T-cell exhaustion and enhancement of memory‑related characteristics of CAR T cells enhanced with c-Jun overexpression and NR4A3 knockout after antigen encounter in vitro and in vivo.
• We presented translational clinical data at SITC 2024 from an in-human Phase 1 trial of CAR T-cells enhanced with c‑Jun overexpression and manufactured with Epi-R, showing reduced T-cell exhaustion and enhanced stemness of CAR T cells, resulting in CAR T-cell tumor infiltration with histological evidence of T-cell mediated tumor lysis in patients with ROR1 positive triple-negative breast cancer and non-small cell lung cancer. ROR1 CAR T cells enhanced with c-Jun overexpression demonstrated lower exhaustion and maintenance of stem- and memory-like phenotypes in the peripheral blood post-infusion, suggesting c-Jun overexpression can delay CAR T-cell exhaustion in patients.
• We delivered an oral presentation at SITC 2024 demonstrating successful incorporation of an anti-TGF-β scFv domain into a novel bispecific CAR designed to mediate TGF-β blockade and overcome the suppressive solid tumor microenvironment. In nonclinical models, these bispecific CAR T-cells demonstrated long term maintenance of effector function with resistance towards both exhaustion and the conversion of regulatory T cells in repeated antigen stimulation challenges, as well as effective tumor infiltration and anti-tumor function in vivo.
• We presented data at SITC 2024 suggesting Stim-R is a viable replacement for feeder cells in TIL manufacturing and has the potential to overcome limitations that may arise in feeder cell‑mediated TIL expansion. Stim-R™ is our customizable and degradable biomimetic emulating physiologic, cell‑like presentation of signal molecules.
Corporate Updates
• To accelerate the pivotal trials of IMPT-314 and focus resources on next-generation solid tumor CAR T-cell programs in preclinical development, we have streamlined expenses and focused our development on IMPT-314 and preclinical solid tumor CAR T-cell programs. Our net cash use in 2025 is expected to be between $175 million and $185 million.
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Additional Pipeline and Business Updates
Acquisition of ImmPACT
Pursuant to the Agreement and Plan of Merger (the Merger Agreement) by and among us, ImmPACT, Inspire Merger Sub Inc., a Delaware corporation and our indirect, wholly-owned subsidiary, and WT Representative LLC, a Delaware limited liability company, solely in its capacity as the representative, agent and attorney-in-fact of ImmPACT securityholders, dated October 24, 2024, we acquired all of the outstanding equity interests of ImmPACT in exchange for an upfront payment of $30.0 million in cash (in addition to approximately $11.9 million for ImmPACT’s existing cash balance) and the issuance of 37.5 million shares of our common stock at closing. Contingent consideration following the closing includes (a) additional equity consideration of 12.5 million shares of our common stock upon the achievement of the earlier to occur of (i) the demonstration of certain clinical milestones or (ii) the receipt of certain regulatory approvals and (b) a low single‑digit royalty on future net sales of IMPT-314 in the United States. Contingent consideration payable in our Consolidated Balance Sheet as of December 31, 2024 consists of the additional equity consideration of 12.5 million shares of our common stock.
As a result of the acquisition of ImmPACT, we assumed its rights and obligations under its license agreement with the Regents of the University of California, acting through The Technology Development Group of UCLA, dated February 18, 2021 (the UCLA License Agreement). Pursuant to the UCLA License Agreement, we are obligated to pay a nominal, tiered annual license maintenance fee each year of the term of the UCLA License Agreement until we make the first commercial sale of a licensed product and, upon the achievement of specified development, regulatory and commercial milestones, we are obligated to pay UCLA one-time milestone payments of up to an aggregate amount in the mid-single digit millions for each commercialized licensed product. In addition, we are obligated to pay UCLA a tiered royalty on worldwide annual net sales of any commercialized licensed products in the low- to mid-single digits percentage, subject to specified and capped reductions and a tiered minimum annual royalty payment of between a low-five figure and a low-six figure amount.
Macroeconomic Environment
Our business and operations may be affected by worldwide economic conditions, which may continue to be impacted by global macroeconomic challenges such as the effects of the ongoing geopolitical conflicts in Ukraine, armed conflicts and turmoil in the Middle East, tensions in U.S.-China relations, inflationary pressures, fluctuations in the interest rate environment, disruption between the U.S. and its trading partners due to tariffs or other policies, instability in the banking industry, supply constraints and overall market volatility. Economic uncertainty may persist into the remainder of 2025, and the market dynamics discussed above and similar adverse conditions may negatively impact our business.
For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
License and Collaboration Agreements
For a detailed description of our license and collaboration agreements, see the section titled “ Business—License and Collaboration Agreements ” in Part I, Item 1 of this Annual Report on Form 10 ‑K and Notes 2 and 4 to o ur audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Components of Results of Operations
Revenue
We have no products approved for sale and have never generated any revenue from product sales.
We have generated revenue primarily from the recognition of the upfront payment under 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). GSK terminated the GSK Agreement effective December 2022 and we do not expect further revenue from the collaboration. See Note 4, License, Collaboration and Success Payment Agreements , in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details regarding termination of the GSK Agreement.
In the future, we may generate additional revenue from other collaborations, strategic alliances, licensing agreements, product sales, or a combination of these.
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Operating Expenses
Research and Development
To date, research and development expenses consist of costs incurred by us for the discovery and development of our technology platforms and product candidates, and include costs incurred in connection with strategic collaborations, costs to license technology, personnel-related costs, including stock-based compensation expense, facility and technology related costs, research and laboratory expenses, as well as other expenses, which include consulting fees and other costs. 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. Research and development costs also include expenses related to the November 2023 reduction in workforce, which was substantially completed in 2023.
Research and development expenses also include non-cash expenses related to the change in the estimated fair value of the success payment obligations over their respective requisite service terms granted to Fred Hutchinson Cancer Center (Fred Hutch) and The Board of Trustees of the Leland Stanford Junior University (Stanford). See the subsection titled “Critical Accounting Policies and Estimates— Success Payments ” below. As of December 31, 2022, 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 was recognized in other income, net, as the requisite service obligation had been met. As of September 30, 2024, Stanford had provided the requisite service obligation to earn the potential success payment consideration under the continued collaboration. For the last three months of the year ended December 31, 2024 and future periods, the change in the Stanford success payment liability fair value was recognized in other income, net, as the requisite service obligation had been met. See Note 4, License, Collaboration and Success Payment Agreements , in the accompanying notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10‑K for additional information. Research and development expenses related to our success payment liabilities are unpredictable and may vary significantly from year‑to‑year due to changes in our assumptions used in the calculation.
We deploy our employee and infrastructure resources across multiple research and development programs for identifying and developing product candidates and establishing manufacturing capabilities. Due to the stage of development and number of ongoing programs and our ability to use resources across several programs, most of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory and other indirect facility and operating costs.
Research and development activities account for a significant portion of our operating expenses. We anticipate that our research and development expenses will increase over the foreseeable future as we expand our research and development efforts including completing nonclinical studies, commencing planned clinical trials, conducting and completing current and planned clinical trials, seeking regulatory approvals of our product candidates, identifying new product candidates and incurring costs to acquire and license technology platforms. A change in the outcome of any of these variables could mean a significant change in the costs and timing associated with the development of our product candidates. Because we are early in our research and clinical development efforts of our product candidates, and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the nonclinical development, clinical development and commercialization of product candidates or whether, or when, we may achieve profitability.
Our research and development expenses may vary significantly based on factors such as:
• the number and scope of nonclinical and IND-enabling studies;
• per patient trial costs;
• the number of trials required for approval;
• the number of sites included in the trials;
• the countries in which the trials are conducted;
• the length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
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• the cost and timing of manufacturing our product candidates;
• the phase of development of our product candidates;
• the efficacy and safety profile of our product candidates;
• the extent to which we establish additional collaboration or license agreements; and
• whether we choose to partner any of our product candidates and the terms of such partnership.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. We may obtain unexpected results from our nonclinical studies and clinical trials.
General and Administrative
General and administrative costs include personnel-related expenses, including stock-based compensation expense for personnel in executive, legal, finance and other administrative functions, legal costs, transaction costs related to collaboration and licensing agreements, as well as fees paid for accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include those related to corporate, dispute and patent matters.
We anticipate that our general and administrative expenses will increase over the foreseeable future to support our continued research and development activities, operations generally, future business development opportunities, consulting fees, as well as the costs of operating as a public company such as costs related to accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission (SEC) requirements, director and officer insurance costs and investor and public relations costs.
Other Operating Income, Net
Other operating income, net consists primarily of service and occupancy fees received associated with subleases as well as losses on t he retirement of property and equipment.
Acquired In-Process Research and Development
Acquired in-process research and development (IPR&D) consists primarily of the expense of the acquired IPR&D asset recognized as part of the acquisition of ImmPACT in October 2024, which was determined to have no alternative future use. See Note 3, Acquisition , in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K for additional information.
Impairment of Long-Lived Assets
Impairment of long-lived assets consists primarily of the expense associated with our 2024 annual impairment assessment, with the impairment loss measured as the amount by which the carrying value of our asset group exceeded its fair value. The impairment loss was allocated on a pro rata basis to our lease right-of-use assets and associated leasehold improvements. See Note 5, Impairment of Long-Lived Assets , in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K for additional information.
Interest Income, Net
Interest income, net consists primarily of interest earned on our cash, cash equivalents and marketable securities balances.
Other Income, Net
Other income, net for the year ended December 31, 2024 consists primarily of the change in fair value associated with our contingent consideration payable related to the ImmPACT acquisition and changes in the fair value of our success payment liabilities. Other income, net for the year ended December 31, 2023 consists primarily of changes in the fair value of our success payment liabilities to Fred Hutch. Other income, net for the year ended December 31, 2022 consists primarily of a gain to record the PACT Series D convertible preferred shares and changes in the fair value of an equity warrant investment for the year ended December 31, 2022.
Impairment of Other Investments
Impairment of other investments consists of reductions in the value of certain other investments.
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Results of Operations
Years Ended December 31, 2024, 2023 and 2022
The following table summarizes our results of operations for the periods presented (in thousands):
Year Ended December 31,
Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
Revenue
$ 61 $ 130 $ 84,683 $ (69) $ (84,553)
Operating expenses:
Research and development
171,603 182,945 159,188 (11,342) 23,757
General and administrative
52,041 66,983 117,307 (14,942) (50,324)
Other operating income, net
(3,309) (2,790) (4,754) (519) 1,964
Acquired in-process research and development
87,184 — — 87,184 —
Impairment of long-lived assets
51,297 — — 51,297 —
Total operating expenses
358,816 247,138 271,741 111,678 (24,603)
Loss from operations
(358,755) (247,008) (187,058) (111,747) (59,950)
Interest income, net
24,068 23,453 7,053 615 16,400
Other income, net
4,694 1,846 1,887 2,848 (41)
Impairment of other investments (13,001) (12,923) (5,000) (78) (7,923)
Total other income, net
15,761 12,376 3,940 3,385 8,436
Net loss
$ (342,994) $ (234,632) $ (183,118) $ (108,362) $ (51,514)
Research and Development Expenses
The following table summarizes the components of our research and development expenses for the periods presented (in thousands):
Year Ended December 31,
Change
2024 2023 2022 2024 vs 2023
2023 vs 2022
Personnel
$ 67,693 $ 81,717 $ 70,483 $ (14,024) $ 11,234
Research activities, collaborations and outside services
53,654 50,470 41,682 3,184 8,788
Facilities, technology and depreciation
50,564 51,688 52,153 (1,124) (465)
Success payments
(308) (930) (5,130) 622 4,200
Total research and development expenses
$ 171,603 $ 182,945 $ 159,188 $ (11,342) $ 23,757
Research and developm ent expenses were $171.6 million and $182.9 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $11.3 million was primarily due to a decrease of $14.0 million i n personnel‑related expenses and a decrease of $1.1 million in facilities, technology and depreciation expenses mainly due to the decrease in headcount associated with the Company’s November 2023 reduction in workforce and lower software implementation costs. These decreases were offset by an increase o f $3.2 million in research activities, collaborations and outside services primarily driven by clinical trial activity and a change of $0.6 million in success payment expense primarily driven by the change in our stock price.
General and Administrative Expenses
General and administrative expenses were $52.0 million and $67.0 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $14.9 million was primarily due to a $13.0 million reduction in personnel costs, including a $10.3 million decrease in stock-based compensation expense, primarily related to significant awards being fully expensed in previous periods and a decrease of $2.7 million in personnel-related expenses mainly due to a decrease in headcount associated with the Company’s November 2023 reduction in workforce.
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Other Operating Income, Net
Other operating income, net was $3.3 million and $2.8 million for the years ended December 31, 2024 and 2023, respectively. The increase of $0.5 million was due to an increase in sublease income due to the addition of a new sublessee at the Company’s headquarters in South San Francisco, California in September 2024.
Acquired In-Process Research and Development
Acquired IPR&D was $87.2 million and zero for the years ended December 31, 2024 and 2023, respectively. Acquired IPR&D consists primarily of the expense of the acquired IPR&D asset recognized as part of the acquisition of ImmPACT Bio USA Inc. in October 2024 as the asset was determined to have no alternative future use. See Note 3, Acquisition , in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K for additional information.
Impairment of Long-Lived Assets
Impairment of long-lived assets was $51.3 million and zero for the years ended December 31, 2024 and 2023, respectively. Impairment of long-lived assets expense of $51.3 million consists of $12.6 million of impairment expense of our lease right-of-use assets and $38.7 million of impairment expense for the associated leasehold improvements. See Note 5, Impairment of Long-Lived Assets , in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K for additional information.
Interest Income, Net
Interest income, net was $24.1 million and $23.5 million for the years ended December 31, 2024 and 2023, respectively. The increase of $0.6 million was primarily driven by higher interest rates in 2024.
Other Income, Net
Other income, net was $4.7 million and $1.8 million for the years ended December 31, 2024 and 2023, respectively. Other income, net of $4.7 million for the year ended December 31, 2024 was primarily driven by a $3.8 million gain resulting from the change in the fair value of our contingent consideration payable related to the ImmPACT acquisition and changes in the fair value of our success payment liabilities.
Impairment of Other Investments
For the year ended December 31, 2024, the $13.0 million impairment consisted of the full impairment of one of our other investments. For the year ended December 31, 2023, the $12.9 million impairment consisted of the full impairment of two of our other investments. See Note 7, Other Investments , in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K for additional information.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our operations primarily through the sale and issuance of convertible preferred stock, the sale of common stock in connection with our IPO and business development activities. As of December 31, 2024, we ha d $383.5 million in cas h, cash equivalents and marketable securities. Since our inception, we have incurred significant operating losses. We have not yet commercialized any product candidates and we may never generate revenue from sales of any product candidates. We had an accumulated deficit of $1.3 billion as of December 31, 2024. From June 29, 2018 (inception) through December 31, 2024, we raised an aggregate of $1.4 billion in gross proceeds from the sales of our convertible preferred stock and the IPO.
On February 28, 2024, we 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, we may offer and sell from time to time through the Agent shares of our 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. We 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 us nor the Agent is obligated to sell any shares and, to date, we have not made any sales under the Sales Agreement.
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Future Funding Requirements
We expect to incur additional losses in the foreseeable future as we conduct and expand our research and development efforts, including conducting nonclinical studies and clinical trials, integration of ImmPACT into our business, developing new product candidates, establishing internal manufacturing capabilities and funding our operations generally. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. However, we anticipate that we will need to raise additional capital in the future to fund our operations, including further development of our product candidates and the commercialization of any approved product candidates. In addition, we regularly consider fund-raising opportunities and may decide, from time to time, to raise additional capital, including pursuant to the Sales Agreement, based on various factors, including market conditions and our plans of operation. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.
Our future capital requirements will depend on many factors, including:
• the scope, timing, progress, costs and results of discovery, nonclinical development and clinical trials for our current and future product candidates and any additional nonclinical studies;
• the number of clinical trials required for regulatory approval of our current and future product candidates;
• the costs, timing and outcome of regulatory review of any of our current and future product candidates;
• the cost of manufacturing clinical and commercial supplies of our current and future product candidates;
• the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;
• further investment to build additional manufacturing facilities or expand the capacity of our existing ones;
• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
• our ability to maintain existing, and establish new, collaborations, licenses, product acquisitions or other strategic transactions and the fulfillment of our financial obligations under any such agreements, including the timing and amount of any success payment, future contingent payments, milestone, royalty or other payments due under any such agreement;
• the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
• expenses to attract, hire and retain skilled personnel;
• the costs and estimated financial impact of our reduction in workforce in the fourth quarter of 2023;
• the costs of operating as a public company, including legal, accounting and other related expenses as well as costs relating to maintaining or expanding our operational, financial and management systems;
• addressing or responding to any potential disputes or litigation;
• the extent to which we acquire or invest in businesses, products and technology platforms; and
• integration of businesses, products and technology platforms, such as ImmPACT, into our business.
Until such time as we complete nonclinical and clinical development and receive regulatory approval of our product candidates and can generate significant revenue from product sales, if ever, we expect to finance our operations from the sale of additional equity or debt financings, or other capital which come in the form of strategic collaborations, licensing, or other arrangements. In the event that additional capital is required, we may not be able to raise it on terms acceptable to us, or at all. If we raise additional funds through the issuance of equity or convertible debt securities, including pursuant to the Sales Agreement, it may result in dilution to our existing stockholders. Debt financing or preferred equity financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that may restrict our operations. If we raise funds through strategic collaboration, licensing, or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from actual or
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perceived changes in interest rates and economic inflation, and otherwise. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected.
Material Cash Requirements
We continually evaluate our liquidity and capital resources to ensure that we can adequately and efficiently finance our operations. As of December 31, 2024 , our material cash requirements consisted primarily of paying salaries and benefits, administering clinical trials, conducting research, improving our manufacturing capabilities, providing the technology and facilities necessary to support our operations, funding operating lease obligations and other payments related to our collaboration and license agreements and the Merger Agreement. See Note 4, License, Collaboration and Success Payment Agreements , Note 11, Leases , and Note 3, Acquisition , in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K for additional information.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
Year Ended December 31,
2024 2023 2022
Net cash (used in) provided by:
Operating activities
$ (162,394) $ (163,694) $ (169,555)
Investing activities
122,424 184,048 (11,540)
Financing activities
1,326 1,743 10,635
Net (decrease) increase in cash, cash equivalents and restricted cash
$ (38,644) $ 22,097 $ (170,460)
Operating Activities
During the year ended December 31, 2024, net cash used in operating activities was $162.4 million, primarily reflecting our net loss of $343.0 million, partially offset by non-cash items primarily related to acquired IPR&D expense of $87.2 million, impairment of long-lived assets expense of $51.3 million , stock-based compensation expense o f $33.1 million , depreciation and amortization expense of $19.6 million and impairment of other investments of $13.0 million. Non-cash net amortization and accretion on marketable securitie s of $14.7 million also contributed to net cash used in operating activities.
During the ye ar ended December 31, 2023, net cash used in operating activities was $163.7 million , primarily reflecting our net loss of $234.6 million , partially offset by non-cash items mainly related to stock-based compensation expense of $47.1 million , depreciation and amortization expense of $20.3 million and impairment of other investments of $12.9 million. Non-cash net amortization and accretion on marketable securities of $9.6 million also contributed to net cash used in operating activities.
Investing Activ ities
During the year ended December 31, 2024, cas h provided by investing activities was $122.4 million, consisting of net maturities and purchases of marketable securities of $154.2 million, partially offset by the $31.3 million acquisition of ImmPACT net of cash acquired. During the year ended December 31, 2023, cash used in investing activities was $184.0 million , consisting of net maturities and purchases of marketable securities of $186.7 million, partially offset by purchases of property and equipment of $2.7 million .
Financing Activities
During the year ended December 31, 2024, cash provided by financing activities was $1.3 million, consisting of $1.2 million in proceeds from our employee stock purchase plan and $0.2 million in proceeds from the exercise of stock options, partially offset by $0.1 million in taxes paid related to the net share settlement of equity awards. During the year ended December 31, 2023, cash provided by financing activities was $1.7 million, consisting of $1.9 million in proceeds from our employee stock purchase plan and $0.3 million in proceeds from the exercise of stock options, partially offset by $0.5 million in taxes paid related to the net share settlement of equity awards.
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Critical Accounting Policies and Significant Judgments and Estimates
Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of our audited consolidated financial statements, as well as the reported revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Acquisitions
We evaluate 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 we have 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. Any excess of the purchase price over the assigned fair values of the net assets acquired is recorded as goodwill. If we determine 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.
For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition, with cost allocated to acquired assets on a relative fair value basis. Direct transaction costs are recognized as part of the cost of an asset acquisition. The cost of an asset acquisition, including transaction costs, is allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. In an asset acquisition, upfront payments allocated to IPR&D are recorded in research and development expense if we determine 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.
Contingent Consideration
Contingent consideration relates to the potential payments to the pre-acquisition stockholders of ImmPACT for meeting certain clinical and/or regulatory milestones. For transactions accounted for as asset acquisitions, we record contingent consideration at fair value at the date of the acquisition when deemed probable. Liabilities for contingent consideration are remeasured each reporting period and subsequent changes in fair value are recognized within other income, net in our Consolidated Statements of Operations and Comprehensive Loss. The assumptions utilized in the calculation of the fair values include the probability of success and our stock price. Contingent consideration involves certain assumptions requiring significant judgment and actual results may differ from estimated amounts.
Revenue Recognition
We recognize revenue from research services generally as services are provided while revenue from non‑refundable upfront fees are recognized over time by measuring progress towards satisfaction of the relevant performance obligation using the input method ( i.e. , cumulative actual costs incurred relative to total estimated costs).
The estimation of measure of progress is complex, involves significant judgment and is affected by our estimates of the total costs required to complete the performance obligations including the total internal personnel costs and external costs to be incurred. Changes in these estimates can have a material effect on our revenue recognition.
For a further description of our revenue recognition, see Note 2, Basis of Presentation and Significant Accounting Policies, in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K.
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Stock-based Compensation
Under ASC 718, the Company measures and recognizes expense for restricted stock awards (RSAs), restricted stock units (RSUs), performance-based restricted stock units (PSUs), employee stock purchases related to the Employee Stock Purchase Plan and stock options granted to employees, directors and consultants based on the fair value of the awards 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. The Company accounts for forfeitures as they occur. For RSAs, RSUs and certain PSUs, the fair value of the Company’s common stock is used to determine the resulting stock-based compensation expense. The fair value of stock options is estimated on the date of grant using a Black-Scholes option pricing model which requires management to apply judgment and make estimates, using inputs including:
• Fair Value of Common Stock—The fair value of common stock is based on the closing price as reported on The Nasdaq Global Select Market on the date of grant.
• Expected Term—The expected term represents the period that a stock-based award is expected to be outstanding. The Company generally uses the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the option. 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.
• Expected Volatility—The expected volatility of stock options is based on the historical volatility of the stock of similar entities within the Company’s industry over a period commensurate with the Company’s expected term assumption.
• Risk-Free Interest Rate—The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the Company’s expected term assumption.
• Expected Dividend—The Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend. Therefore, the Company used an expected dividend yield of zero.
For awards with performance conditions that vest upon a performance condition being met, compensation expense is recognized for the number of shares expected to be earned after assessing the probability that a certain performance condition will be met and the targeted payout level associated with the performance condition expected to be achieved. At each reporting date, the Company is required to evaluate whether achievement of a performance condition is probable. Cumulative adjustments are recorded each quarter to reflect the estimated outcome of the performance-related conditions until the date results are determined and settled. If performance conditions are not met or not expected to be met, any compensation expense previously recognized associated with the awards will be reversed.
The fair values of the Company’s PSUs that have market-based metrics are estimated using Monte Carlo simulations. The Company applies an accelerated attribution method to recognize stock-based compensation expense over the applicable service period for these awards. The number of shares expected to be earned is considered in the grant date valuation; therefore, the expense is not subsequently adjusted to reflect the actual shares ultimately earned.
Valuation of Other Investments
We have non-marketable equity investments that are accounted for using the measurement alternative. Under the measurement alternative, the carrying value is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Determining whether an observed transaction is similar to a security within our portfolio requires judgment based on the rights and obligations of the investments. Recording upward and downward adjustments to the carrying value of our equity investments as a result of observable price changes requires quantitative assessments of the fair value of our investments using various valuation methodologies and involves the use of estimates.
Non-marketable equity investments are also subject to periodic impairment reviews. Our quarterly impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the investment’s fair value. Qualitative factors considered include the companies’ financial and liquidity position, access to capital resources and the time since the last adjustment to fair value, among others. When indicators of impairment exist, we prepare quantitative assessments of the fair value of our equity investments using both the market and income approaches that require judgment and the use of estimates, including discount rates, investee revenues and costs, and comparable market data of private and public companies reasonably available, among others. When our assessment indicates that an impairment exists, we write down the investment to its fair value.
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We perform quarterly qualitative assessments of potential indicators of impairment and determined that indicators existed for certain of our other investments during the years ended December 31, 2024, 2023 and 2022 . While there was no single event or factor in each instance, we considered the underlying companies’ operating cash flow requirements over the next year, liquid asset balances to fund those requirements and the uncertainty regarding the underlying companies’ ability to raise funds as indicators of impairment. Due to these indicators, we 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, we recorded impairment expense of $13.0 million for one investment the year ended December 31, 2024 , $12.9 million for two investments for the year ended December 31, 2023 and $5.0 million for one investment for the year ended December 31, 2022. The impairment expenses were recorded within impairment of other investments on our Consolidated Statements of Operations and Comprehensive Loss and as a reduction of the other investments on our Consolidated Balance Sheets.
Valuation of Long-Lived Assets
Long-lived assets, including property and equipment and lease right-of-use assets, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts of the future undiscounted cash flows the assets are expected to generate from their use and eventual disposition over the remaining useful life of the primary asset of the asset group. The primary asset is the principal long-lived tangible asset being depreciated or intangible asset being amortized that is the most significant component asset from which the asset group derives its cash-flow-generating capacity. If such review indicates the carrying amount of the long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have recorded impairment of long-lived assets of $51.3 million during the year ended December 31, 2024. See Note 5, Impairment of Long-Lived Assets , in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K for additional information.
Recently Adopted and Recent Accounting Pronouncements
See Note 2, Basis of Presentation and Significant Accounting Policies, in the accompanying notes to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for information about recent accounting pronouncements, the timing of their adoption and our assessment, to the extent we have made one yet, of their potential impact on our financial condition or results of operations.