Lyell Immunopharma, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. LYELL IMMUNOPHARMA, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2024, 2023 and 2022 CONTENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 92 Audited Consolidated Financial Statements: Consolidated Balance Sheets 95 Consolidated Statements of Operations and Comprehensive Loss 96 Consolidated Statements of Stockholders’ Equity 97 Consolidated Statements of Cash Flows 98 Notes to Consolidated Financial Statements 99 91 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Lyell Immunopharma, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Lyell Immunopharma, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of mate rial misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 92 Table of Contents Accrued clinical expenses Description of the Matter During 2024, the Company incurred $171.6 million of research and development expenses and accrued $9.4 million for research and development expenses as of December 31, 2024, which includes clinical expenses. As described in Notes 2 and 10 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 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. 93 Table of Contents Impairment of long-lived assets Description of the Matter As discussed in Notes 2 and 5 to the consolidated financial statements, the Company’s long-lived assets are assessed for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability is measured by comparison of the carrying amount of an asset group to the future net undiscounted cash flows that the assets are expected to generate. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. The Company concluded that the carrying value of the asset group was not recoverable as it exceeded the future undiscounted cash flows the assets are expected to generate from their use and eventual disposition over the remaining useful life of the Company’s primary asset. The Company applied a discounted cash flow method to estimate the fair values of their asset group. As a result, the Company recorded an impairment charge of $51.3 million relating to their right‑of‑use assets and related leasehold improvements as of December 31, 2024. Auditing the Company’s impairment model was challenging due to the subjective assumptions of market rental rates used as an input in determining the fair value of the right-of-use assets and related leasehold improvements. How We Addressed the Matter in Our Audit To test the Company’s accounting for the impairment of the asset group, our audit procedures included, among others, utilizing our valuation specialists to assist in evaluating the reasonableness of the Company’s valuation methodology and the market rental rate assumptions, performing an evaluation of market rental rates by benchmarking to other properties of similar type and within the geographic areas, and testing the completeness and accuracy of the inputs within the model. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. San Mateo, California March 11, 2025 94 Table of Contents Lyell Immunopharma, Inc. Consolidated Balance Sheets (in thousands, except per share amounts) As of December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 105,597 $ 145,647 Marketable securities 264,930 400,576 Prepaid expenses and other current assets 9,067 8,463 Total current assets 379,594 554,686 Restricted cash 1,690 284 Marketable securities, non-current 13,014 16,506 Other investments 19,000 32,001 Property and equipment, net 48,200 102,654 Operating lease right-of-use assets 24,739 39,663 Other non-current assets 4,622 4,235 Total assets $ 490,859 $ 750,029 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 5,366 $ 4,817 Accrued liabilities and other current liabilities 40,411 28,126 Success payment liabilities 411 1,576 Contingent consideration payable 7,600 — Total current liabilities 53,788 34,519 Operating lease liabilities, non-current 50,994 56,894 Other non-current liabilities 3,253 3,664 Total liabilities 108,035 95,077 Commitments and contingencies (Note 18) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 10,000 shares authorized at December 31, 2024 and 2023, respectively; no shares issued and outstanding at December 31, 2024 and 2023 — — Common stock, $ 0.0001 par value; 500,000 shares authorized at December 31, 2024 and 2023, respectively; 294,876 and 253,958 shares issued and outstanding at December 31, 2024 and 2023, respectively 29 25 Additional paid-in capital 1,727,610 1,657,133 Accumulated other comprehensive income (loss) 291 ( 94 ) Accumulated deficit ( 1,345,106 ) ( 1,002,112 ) Total stockholders’ equity 382,824 654,952 Total liabilities and stockholders’ equity $ 490,859 $ 750,029 The accompanying notes are an integral part of these consolidated financial statements. 95 Table of Contents Lyell Immunopharma, Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) Year Ended December 31, 2024 2023 2022 Revenue (1) $ 61 $ 130 $ 84,683 Operating expenses: Research and development 171,603 182,945 159,188 General and administrative 52,041 66,983 117,307 Other operating income, net ( 3,309 ) ( 2,790 ) ( 4,754 ) Acquired in-process research and development 87,184 — — Impairment of long-lived assets 51,297 — — Total operating expenses 358,816 247,138 271,741 Loss from operations ( 358,755 ) ( 247,008 ) ( 187,058 ) Interest income, net 24,068 23,453 7,053 Other income, net 4,694 1,846 1,887 Impairment of other investments ( 13,001 ) ( 12,923 ) ( 5,000 ) Total other income, net 15,761 12,376 3,940 Net loss ( 342,994 ) ( 234,632 ) ( 183,118 ) Other comprehensive loss: Net unrealized gain (loss) on marketable securities 385 7,505 ( 5,976 ) Comprehensive loss $ ( 342,609 ) $ ( 227,127 ) $ ( 189,094 ) Net loss per common share, basic and diluted $ ( 1.31 ) $ ( 0.93 ) $ ( 0.74 ) Weighted-average shares used to compute net loss per common share, basic and diluted 261,480 250,983 247,080 (1) Includes related-party revenue of zero for both the years ended December 31, 2024 and 2023 and $ 84,653 for the year ended December 31, 2022. The accompanying notes are an integral part of these consolidated financial statements. 96 Table of Contents Lyell Immunopharma, Inc. Consolidated Statements of Stockholders’ Equity (in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2021 242,738 $ 24 $ 1,515,748 $ ( 1,623 ) $ ( 584,362 ) $ 929,787 Stock-based compensation 2,600 — 81,924 — — 81,924 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 ) Other comprehensive loss — — — ( 5,976 ) — ( 5,976 ) Net loss — — — — ( 183,118 ) ( 183,118 ) Balance as of December 31, 2022 249,567 $ 25 $ 1,608,306 $ ( 7,599 ) $ ( 767,480 ) $ 833,252 Stock-based compensation — — 47,084 — — 47,084 Issuance of common stock upon exercise of stock options 2,996 — 306 — — 306 Issuance of common stock under employee stock purchase plan 987 — 1,894 — — 1,894 Issuance of common stock in connection with restricted stock units, net of tax 408 — ( 457 ) — — ( 457 ) Other comprehensive income — — — 7,505 — 7,505 Net loss — — — — ( 234,632 ) ( 234,632 ) Balance as of December 31, 2023 253,958 $ 25 $ 1,657,133 $ ( 94 ) $ ( 1,002,112 ) $ 654,952 Stock-based compensation — — 33,144 — — 33,144 Issuance of common stock upon exercise of stock options 1,246 — 154 — — 154 Issuance of common stock under employee stock purchase plan 955 — 1,248 — — 1,248 Issuance of common stock in connection with restricted stock units, net of tax 1,217 — ( 76 ) — — ( 76 ) Issuance of common stock as payment for acquisition of IPR&D asset 37,500 4 36,007 — — 36,011 Other comprehensive income — — — 385 — 385 Net loss — — — — ( 342,994 ) ( 342,994 ) Balance as of December 31, 2024 294,876 $ 29 $ 1,727,610 $ 291 $ ( 1,345,106 ) $ 382,824 The accompanying notes are an integral part of these consolidated financial statements. 97 Table of Contents Lyell Immunopharma, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 342,994 ) $ ( 234,632 ) $ ( 183,118 ) Adjustments to reconcile net loss to net cash used in operating activities: Acquired IPR&D expense 87,184 — — Impairment of long-lived assets 51,297 — — Stock-based compensation expense 33,144 47,084 81,924 Depreciation and amortization expense 19,631 20,250 18,020 Net amortization and accretion on marketable securities ( 14,681 ) ( 9,596 ) ( 930 ) Impairment of other investments 13,001 12,923 5,000 Change in fair value of contingent consideration payable ( 3,804 ) — — Non-cash lease income ( 2,198 ) ( 1,873 ) ( 1,553 ) Loss on property and equipment disposals, net 1,341 1,509 103 Change in fair value of success payment liabilities ( 1,165 ) ( 2,780 ) ( 5,130 ) Gain on marketable equity security ( 30 ) — — Change in fair value of equity warrant — — 1,067 Gain on other investments — — ( 2,923 ) Changes in operating assets and liabilities: Prepaid expenses, other current assets and other assets 1,775 3,125 ( 1,968 ) Accounts payable ( 3,234 ) 1,464 667 Accrued liabilities and other current liabilities ( 1,250 ) ( 719 ) ( 463 ) Deferred revenue — — ( 84,653 ) Operating lease liabilities, non-current — — 4,855 Other non-current liabilities ( 411 ) ( 449 ) ( 453 ) Net cash used in operating activities ( 162,394 ) ( 163,694 ) ( 169,555 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment ( 464 ) ( 2,686 ) ( 24,276 ) Purchases of marketable securities ( 394,707 ) ( 476,880 ) ( 406,316 ) Maturities of marketable securities 548,941 663,614 419,052 Acquisition of assets, net of cash acquired ( 31,346 ) — — Net cash provided by (used in) investing activities 122,424 184,048 ( 11,540 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options 154 306 9,577 Proceeds from employee stock purchase plan 1,248 1,894 1,519 Taxes paid related to net share settlement of equity awards ( 76 ) ( 457 ) ( 461 ) Net cash provided by financing activities 1,326 1,743 10,635 Net (decrease) increase in cash, cash equivalents and restricted cash ( 38,644 ) 22,097 ( 170,460 ) Cash, cash equivalents and restricted cash at beginning of period 145,931 123,834 294,294 Cash, cash equivalents and restricted cash at end of period $ 107,287 $ 145,931 $ 123,834 Represented by: Cash and cash equivalents $ 105,597 $ 145,647 $ 123,554 Restricted cash 1,690 284 280 Total $ 107,287 $ 145,931 $ 123,834 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for amounts included in the measurement of lease liabilities $ 11,467 $ 10,845 $ 10,870 Cash received for amounts related to tenant improvement allowances $ — $ — $ 4,761 Non-cash investing and financing activities: Issuance of common stock related to the purchase of the IPR&D asset on Closing Date (Note 3) $ 36,011 $ — $ — Contingent consideration payable related to the purchase of the IPR&D asset on Closing Date (Note 3 & 8) $ 11,404 $ — $ — Purchases of property and equipment included in accounts payable and accrued liabilities $ 144 $ 29 $ 1,325 Acquisition of PACT Series D convertible preferred shares $ — $ — $ 2,923 Remeasurement of operating lease right-of-use asset for lease modification $ — $ — $ 31 The accompanying notes are an integral part of these consolidated financial statements. 98 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements 1. Organization Lyell Immunopharma, Inc. (the “Company”) was incorporated in Delaware in June 2018. The Company is a clinical-stage cell therapy company advancing a pipeline of proprietary next-generation chimeric antigen receptor (“CAR”) T-cell product candidates for patients with hematologic malignancies and solid tumors. The Company’s primary activities since incorporation have been to develop T‑cell therapies, conduct research and development, acquire technology and product candidates, 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. 2. Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Liquidity and Management’s Plan 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. The Company plans to finance operations with available cash resources or from the issuance of equity or debt securities. The Company believes that its available cash, cash equivalents and marketable securities as of December 31, 2024 will be adequate to fund its operations at least through the next 12 months from the date these consolidated financial statements are issued. Summary of Significant Accounting Policies Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect reported amounts and related disclosures. Specific accounts that require management estimates include, but are not limited to, stock-based compensation, valuation of long‑lived and acquired assets, other investments and accrued expenses. Management bases its estimates on historical experience and on various other assumptions that are believed to be 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 could differ materially from those estimates. 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”). 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 . Comprehensive Loss Comprehensive loss includes net loss and certain changes in stockholders’ equity that are excluded from net loss. For the years ended December 31, 2024 , 2023 and 2022, this was comprised of net unrealized gains and losses on the Company’s marketable securities. 99 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in investment grade fixed income securities and money market accounts. Restricted cash is cash held in a bank account and is used as collateral associated with the Company’s corporate credit card program as well as collateral for a letter of credit in favor of one of the Company’s landlords. Marketable Securities The Company generally invests its excess cash in investment grade short- to intermediate-term fixed income securities. Such investments are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses repo rted as a component of comprehensive loss. Realized gains and losses on available-for-sale securities are included in other income, net. The cost of investments sold is based on the specific-identification method. The Company classifies those investments that are not required for use in current operations and that mature in more than 12 months as non-current marketable securities in the accompanying consolidated balance sheets. 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, if any, are recorded as an allowance through other income, net. Valuation of Other Investments 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. Under ASC 321, the Company can elect to subsequently measure the investments at initial 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 (“measurement alternative”). This election must be made for each investment separately. The Company has made this election for all investments in this category and will continue to measure these investments using this method until they no longer qualify to be measured in accordance with this method. Changes in the carrying value of other investments are recognized through net loss. Each reporting period, the Company performs a qualitative assessment to evaluate whether the investment is impaired. The Company’s assessment includes a review of recent operating results and trends, recent sales/acquisitions of the investee securities and other factors that raise concerns about the investee’s ability to continue as a going concern. If the investment is impaired, an impairment charge is recognized in the amount by which the carrying amount of the investment exceeds the estimated fair value of the investment, with the impairment charge recognized through net loss. See Note 7, Other Investments , for details related to investment impairments recognized during the years ended December 31, 2024, 2023 and 2022. Property and Equipment, Net Property and equipment primarily consist of laboratory equipment, computer equipment and software, furniture and fixtures and leasehold improvements. Property and equipment are stated at cost less accumulated depreciation and amortization and, if applicable, impairment charges. 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. The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Valuation of Long-lived Assets Long-lived assets are reviewed each reporting period for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, which may warrant adjustments to carrying values or estimated useful lives. Recoverability is measured by comparison of the carrying amount of an asset group to the future net undiscounted cash flows that the assets are expected to generate. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying 100 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) amount of the asset group exceeds the fair value of the asset group. 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 group. Any impairment loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the carrying amount of an individual asset shall not be reduced below its fair value. The Company recognized impairment of long-lived assets expense of $ 51.3 million for the year ended December 31, 2024 and zero for both the years ended December 31, 2023 and 2022. Factors that may indicate potential impairment and trigger an impairment test include, but are not limited to, general macroeconomic conditions, conditions specific to the industry and market, business climate or operational performance of the business and sustained decline in the stock price and market capitalization compared to net book value. Calculating the fair value of a reporting unit, an asset group and an individual asset involves significant estimates and assumptions. These estimates and assumptions include, among others, projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and the determination of appropriate market comparisons. Changes in these factors and assumptions used can materially affect the amount of impairment loss recognized in the period the asset or asset group was considered impaired. Leases The Company leases certain office, laboratory and manufacturing spaces. In addition to minimum rent, the leases require payment of real estate taxes, insurance, common area maintenance charges and other executory costs. At inception of a contract, the Company determines whether an arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. For all leases, the Company determines the classification of the lease as either operating or financing. As of December 31, 2024 and 2023, all of the Company’s leases were classified as operating leases. The Company recognizes right-of-use (“ROU”) assets and lease liabilities at the lease commencement date based on the present value of future lease payments over the lease term. 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 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. The ROU asset includes any lease payments made prior to the lease commencement date and is reduced by any lease incentives received or deemed payable to the Company. The lease term may include options to extend or terminate the lease when it is reasonably certain that a lease option will be exercised. Lease expense is recognized on a straight-line basis over the lease term within operating expenses on the Consolidated Statements of Operations and Comprehensive Loss. The Company has elected the practical expedient to not separate lease and non-lease components for real estate leases. Additionally, the Company has elected the short-term lease recognition exemption for all short-term leases and as a result, lease liabilities and ROU assets are not included on the consolidated balance sheets for leases with an initial term of 12 months or less. The Company evaluates lease arrangements for impairment whenever events or changes in circumstances indicate that the carrying amounts of the right-of-use asset may not be fully recoverable. To the extent an impairment of the right-of-use asset is identified, the Company recognizes a lease impairment and subsequently amortizes the remaining lease asset on a straight-line basis (unless another systematic basis is more representative of the pattern in which the Company expects to consume the future economic benefits from the asset) from the date of impairment to the earlier of the right‑of‑use asset’s useful life or the end of the lease term. Fair Value Measurements The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. 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 hierarchy defines three levels of valuation inputs: Level 1 – Quoted prices in active markets for identical assets or liabilities. 101 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. The Company’s financial instruments, in addition to those presented in Note 8, Fair Value Measurements , include cash, restricted cash, other investments, accounts payable and accrued liabilities and other current liabilities. The carrying amount of cash, restricted cash, accounts payable and accrued liabilities and other current liabilities approximate fair value because of the short-term nature of these instruments. As described in Note 7, 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. Revenue Recognition The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, Revenue from Contracts with Customers , ( “ ASC 606 ” ) the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied. In applying the ASC 606 framework, the Company must apply judgment to determine the nature of the promises within a revenue contract and whether those promises represent distinct performance obligations. In determining the transaction price, the Company does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of cumulative revenue when the uncertainty is resolved. 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 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. The Company then allocates the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation, for which it recognizes revenue as or when the performance obligations are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the variable consideration and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis. Under the Company’s license agreements, the Company grants the license to a customer as it exists at the point of transfer and the nature of the license is a right to use the Company’s intellectual property as transferred. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. Research and Development Expense The Company records expense for research and development costs as incurred. Research and development expenses consist of costs incurred by the Company for the discovery and development of its technology platforms and product candidates and includes 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. 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 102 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) 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 General and administrative costs are expensed as incurred and 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. 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. Restricted cash is cash held in a bank account and is used as collateral associated with the Company’s corporate credit card program as well as collateral for a letter of credit in favor of one of the Company’s landlords . 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. Treasury securities, U.S. government agency securities and corporate debt securities, which can be subject to certain credit risk. However, the Company mitigates the risks by investing in high‑grade instruments, limiting exposure to any one issuer or type of investment and monitoring the ongoing creditworthiness of the financial institutions and issuers. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to significant risk on these funds. The Company has no off‑balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements. Claims and Contingencies From time to time, the Company may become involved in litigation and proceedings relating to claims arising from the ordinary course of business. The Company accrues a liability if the likelihood of an adverse outcome is probable and the amount is estimable. 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. 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. 103 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) • 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. Income Taxes The Company determines its deferred tax assets and liabilities based on the differences between the financial reporting and tax basis of assets and liabilities. 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 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. The Company recognizes any material interest and penalties related to unrecognized tax benefits in income tax expense. Segments Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment and one reportable segment. Acquisitions 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. 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. 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 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. Contingent Consideration Contingent consideration relates to the potential payments for achieving certain clinical and/or regulatory milestones. For transactions accounted for as asset acquisitions, the Company records 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 the Consolidated Statements of 104 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) Operations and Comprehensive Loss. The assumptions utilized in the calculation of the fair values include the probability of success and the Company’s stock price. Contingent consideration involves certain assumptions requiring significant judgment and actual results may differ from estimated amounts. Recently Adopted 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 Company adopted the annual requirements under ASU 2023-07 on January 1, 2024 on a retrospective basis and adopted interim requirements under ASU 2023-07 on January 1, 2025. There was no impact on the Company’s reportable segments identified and additional required disclosures have been included in Note 20, Segment . Recently Issued Accounting Pronouncements Income Taxes 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 currently evaluating the impact of ASU 2023-09 on its consolidated financial statements. Income Statement Expense Disaggregation In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures , to require more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the face of the income statement. This ASU is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements. 3. Acquisition On October 31, 2024 (the “Closing Date”), the Company completed its previously announced acquisition of ImmPACT Bio USA Inc., a Delaware corporation (“ImmPACT”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 24, 2024, by and among the Company, ImmPACT, Inspire Merger Sub Inc., a Delaware corporation and an indirect, wholly owned subsidiary of the Company (“Merger Sub”), and an attorney-in-fact of ImmPACT securityholders (the “Representative”). Pursuant to the terms of the Merger Agreement, on the Closing Date, the Company 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, net of certain of ImmPACT’s unpaid transaction expenses) and 37.5 million shares of Company common stock. The acquisition was effected via a merger whereby Merger Sub merged with and into ImmPACT (the “Merger”), with ImmPACT surviving the merger as an indirect, wholly-owned subsidiary of the Company. Contingent consideration following the Closing Date includes (a) additional equity consideration of 12.5 million shares of Company Common Stock (“contingent consideration payable”) that may be earned 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 the dual-targeting CD19/20 CAR T‑cell product in the United States. Contingent consideration payable in the Company’s Consolidated Balance Sheet as of December 31, 2024 consists of the additional equity consideration of 12.5 million shares of Company common stock. 105 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) The total consideration paid for the Merger consisted of the following (in thousands): Fair value of components of purchase price consideration at closing: As of Closing Date Cash (including $ 11.9 million for existing cash balances) $ 41,913 Common Stock 36,011 Representative holdback 200 Contingent consideration payable 11,404 Company’s capitalizable transaction expenses 4,215 Total consideration paid $ 93,743 The fair value of the common stock consideration transferred for the acquisition of ImmPACT was calculated based on the closing stock price of the Company’s common stock on October 31, 2024, which was $ 0.9603 per share. The fair value of the contingent consideration payable was derived based on certain valuation inputs, including the closing share price of Lyell common stock on October 31, 2024 and the probability of meeting the milestone, as further discussed in Note 8, Fair Value Measurements . Pursuant to the terms of the Merger Agreement, the Company has a right to offset and cause the sellers to forfeit shares underlying the contingent consideration payable against certain indemnification claims and indemnifiable losses. As a result of this provision, the number of shares underlying the contingent consideration payable is contingently subject to adjustments and the Company has concluded that the arrangement is not indexed to the Company’s equity pursuant to guidance in Accounting Standards Codification (“ASC”) 815-40. Accordingly, the contingent consideration payable is classified as a liability, subject to be remeasured at fair value at each reporting date with changes in fair value reported in earnings until the liability is settled in accordance with the terms of the Merger Agreement. The Company determined that the contingent consideration for the royalty payments is not subject to derivative accounting under ASC 815, Derivatives and Hedging , as its settlement is contingent upon future net sales of the Company's dual-targeting CD19/20 CAR T-cell product in the United States. Therefore, the Company did not record an associated contingent consideration liability on the acquisition date for the royalty payments. The Company will recognize any future contingent consideration payments in the period in which the royalty payments become due and payable. The Company has not made or accrued for contingent payments relating to the royalty payments as these have not become due and payable. The estimated fair value of the net acquired at Closing Date are as follows (in thousands): Assets acquired: As of Closing Date Cash and cash equivalents $ 14,982 Prepaid expenses and other current assets 1,211 Property and equipment, net 4,446 Long-term deposits 459 Operating lease right-of-use assets 1,816 Assembled workforce intangible asset 1,315 IPR&D asset 87,184 Total assets $ 111,413 Liabilities Assumed: Accounts payable and other current liabilities $ 16,090 Operating lease liability, long-term 1,580 Total liabilities assumed 17,670 Total net assets acquired $ 93,743 The Company concluded that the arrangement met the definition of an asset acquisition rather than a business combination, as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, 106 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) IPR&D of product candidate IMPT-314. The $ 87.2 million fair value of the IPR&D acquired was charged to acquired IPR&D expense during the year ended December 31, 2024 as it had no alternative future use at the time of the Closing Date. 4. License, Collaboration and Success Payment Agreements Fred Hutch License Agreement - In 2018, the Company entered into a license agreement with Fred Hutchinson Cancer Center (“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 utilizing chimeric antigen receptors (“CARs”) and/or T-cell receptors (“TCRs”), subject to certain exceptions. Collaboration and Success Payments - In 2018, the Company entered into a research and collaboration agreement with Fred Hutch (“Fred Hutch Collaboration Agreement”), pursuant to which it granted Fred Hutch rights to certain success payments. The potential payments for the Fred Hutch success payments are based on multiples of increased value ranging from 10 times to 50 times 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 initial public offering (“IPO”). 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 relative to the original $ 1.83 per share issuance price of the Company’s Series A convertible preferred stock. 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. The term of the success payment agreement ends on the earlier to occur of (i) the nine-year anniversary of the date of the agreement and (ii) a change in control transaction. The following table summarizes the aggregate potential success payments, which are payable to Fred Hutch in cash or cash equivalents, or at the Company’s discretion, publicly-tradeable shares of the Company’s common stock: Multiple of initial equity value at issuance 10 x 20 x 30 x 40 x 50 x Per share common stock price required for payment $ 18.29 $ 36.58 $ 54.86 $ 73.15 $ 91.44 Aggregate success payment(s) (in millions) $ 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 above outlined multiples. 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 closing of a change of control transaction. As of December 31, 2024, 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 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, net . The success payment liability was $ 0.1 million and $ 0.7 million as of December 31, 2024 and 2023, respectively. With respect to the Fred Hutch Collaboration Agreement success payment obligations, the Company recognized success payment expense reversals of $ 0.5 million, $ 1.9 million and $ 3.9 million fo r the years ended December 31, 2024, 2023 and 2022, respectively . Stanford License Agreement - In 2019, the Company entered into a license agreement with The Board of Trustees of the Leland Stanford Junior University (“Stanford”) to license specified patent rights. 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. 107 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) Collaboration Agreement - In October 2020, the Company entered into a research and collaboration agreement with Stanford (“Stanford Collaboration Agreement”), focused on research and development of cellular immunotherapy products. The Stanford Collaboration Agreement has a four-year term. The Company funded aggregate research performed by Stanford of $ 12.0 million under the Stanford Collaboration Agreement, with the research conducted in accordance with a research plan and budget approved by the parties. The Company incurred $ 2.3 million in expense in connection with the Stanford Collaboration Agreement for the year ended December 31, 2024 and $ 3.0 million in expense for both the years ended December 31, 2023 and 2022. 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 times to 50 times 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 relative to the original $ 1.83 per share issuance price of the Company’s Series A convertible preferred stock. 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. The term of each success payment agreement ends on the earlier to occur of (i) the nine year anniversary of the date of the agreement and (ii) a change in control transaction. The following table summarizes the aggregate potential success payments, which are payable to Stanford in cash or cash equivalents, or at the Company’s discretion, publicly-tradeable shares of the Company’s common stock: Multiple of initial equity value at issuance 10 x 20 x 30 x 40 x 50 x Per share common stock price required for payment $ 18.29 $ 36.58 $ 54.86 $ 73.15 $ 91.44 Aggregate success payment(s) (in millions) $ 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 above outlined multiples. 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 closing of a change of control transaction. As of December 31, 2024, 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 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 as research and development expense through September 2024. As of October 2024, the Company’s associated success payment liability was fully accreted to fair value as Stanford had provided the requisite service obligation to earn the potential success payment consideration under the continued collaboration. For the year ended December 31, 2024 and future periods, the change in the Stanford success payment liability fair value is recognized in other income, net . The success payment liability was $ 0.3 million and $ 0.9 million as of December 31, 2024 and 2023, respectively. With respect to the Stanford Collaboration Agreement success payment obligations, the Company recog nized success expense payment reversals of $ 0.6 million, $ 0.9 million and $ 1.2 million for the years ended December 31, 2024 and 2023 and 2022, respectively. GSK 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. 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. 108 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) 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, 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, 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. 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 . The Company recognized revenue related to the research and development services related to the two initial targets of zero , zero and $ 84.7 million for the years ended December 31, 2024, 2023 and 2022 respectively. As of December 31, 2024, there were no contract assets or contract liabilities related to the license contract. PACT 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 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 7, Other Investments , for additional details regarding the PACT investment impairment. 5. Impairment of Long-Lived Assets As a result of the sustained decline in the Company’s stock price and related market capitalization, deferral and reprioritization of certain research and development programs and associated reduction in force, the Company performed an impairment assessment of long-lived assets for the year ended December 31, 2024. The Company operates as a single reporting unit based on its business and reporting structure. The Company determined all of its long-lived assets represent one asset group for the purposes of the long-lived asset impairment assessment. The Company concluded that the carrying value of the asset group was not recoverable as it exceeded the future undiscounted cash flows the assets are expected to generate from their use and eventual disposition over the remaining useful life of the Company’s primary asset; approximately six years remain on the initial term of the Company’s operating lease in South San Francisco, California, which expires in March 2031 . To allocate and recognize the impairment loss, the Company determined individual fair values of its long-lived assets. The Company applied a discounted cash flow method to estimate the fair values of its leasehold improvements and right-of-use assets. These represented level 3 nonrecurring fair value measurements. The remaining property and equipment, net was determined to not be impaired. Based on this analysis, the Company recognized long‑lived asset impairment charges of $ 12.6 million on the lease right-of-use assets and $ 38.7 million on the related leasehold improvements during the year ended December 31, 2024. No impairment was recognized on the remaining long-lived assets as their carrying values were not in excess of their fair values. 109 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) 6. Cash Equivalents and Marketable Securities The fair value and amortized cost of cash equivalents and fixed income marketable securities by major security type are as follows (in thousands): December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Money market funds $ 73,975 $ — $ — $ 73,975 U.S. Treasury securities 226,049 262 ( 40 ) 226,271 U.S. government agency securities 36,765 51 ( 1 ) 36,815 Corporate debt securities 21,473 20 ( 1 ) 21,492 Total cash equivalents and marketable securities $ 358,262 $ 333 $ ( 42 ) $ 358,553 Classified as: Fair Value Cash equivalents $ 80,639 Marketable securities 264,900 Marketable securities, non-current 13,014 Total cash equivalents and marketable securities $ 358,553 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Money market funds $ 62,075 $ — $ — $ 62,075 U.S. Treasury securities 374,214 237 ( 95 ) 374,356 U.S. government agency securities 48,924 3 ( 177 ) 48,750 Corporate debt securities 59,668 — ( 62 ) 59,606 Total cash equivalents and marketable securities $ 544,881 $ 240 $ ( 334 ) $ 544,787 Classified as: Fair Value Cash equivalents $ 127,705 Marketable securities 400,576 Marketable securities, non-current 16,506 Total cash equivalents and marketable securities $ 544,787 The fair values of money market and fixed income marketable securities held by the Company in an unrealized loss position for less than 12 months were $ 31.7 million and $ 117.8 million, as of December 31, 2024 and 2023, respectively. The fair values of money market and fixed income marketable securities held by the Company in an unrealized loss position for greater than 12 months were zero and $ 43.6 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, all of the Company’s money market and fixed income 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 as of both December 31, 2024 and 2023. 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, 2024 and 2023 and as a result, amounts reclassified out of accumulated other compr ehensive loss for the years ended December 31, 2024 and 2023 were also de minimis . See Note 8, Fair Value Measurements , for additional information regarding cash equivalents and fixed income marketable securities. 110 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) 7. Other Investments In prior years, the Company made minority ownership strategic investments. As of December 31, 2024 and 2023, the aggregate carrying amount of the Company’s strategic investments in non-publicly traded companies was $ 19.0 million and $ 32.0 million , respectively. 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. Cumulative impairments of strategic investments in equity investments without readily determinable fair values still held as of December 31, 2024 and 2023 were $ 23.0 million and $ 15.0 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. As of both December 31, 2024 and 2023, t he Company held an interest in one entity that was concluded to be a variable interest for which the Company was not the primary beneficiary as the Company did not have the power to direct the activities that most significantly impact the economic performance of the variable interest entity. As of December 31, 2024 and 2023 , the carrying value and maximum exposure to loss of the Company’s variable interests were zero and $ 13.0 million, respectively, which are recorded in other investments in the Company’s Consolidated Balance Sheets. During the years ended December 31, 2024, 2023 and 2022, the Company performed qualitative assessments of potential indicators of impairment and determined that indicators existed for certain of its other investments with carrying amounts of $ 13.0 million, $ 12.9 million and $ 5.0 million , respectively. During the year ended December 31, 2024, the anticipated funding for one of its other investments was not secured within the expected timeframe. While no single event or factor was solely responsible for the impairments in each year, 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 $ 13.0 million for one investment for 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 the Consolidated Statements of Operations and Comprehensive Loss and as reductions to the investment balances within other investments on the Consolidated Balance Sheets. 8. Fair Value Measurements The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands): December 31, 2024 Level 1 Level 2 Level 3 Total Financial assets: Money market funds $ 73,975 $ — $ — $ 73,975 U.S. Treasury securities — 226,271 — 226,271 U.S. government agency securities — 36,815 — 36,815 Corporate debt securities — 21,492 — 21,492 Marketable equity security 30 — — 30 Total financial assets $ 74,005 $ 284,578 $ — $ 358,583 Financial liabilities: Contingent consideration payable $ — $ — $ 7,600 $ 7,600 Success payment liabilities $ — $ — $ 411 $ 411 Total financial liabilities $ — $ — $ 8,011 $ 8,011 111 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) December 31, 2023 Level 1 Level 2 Level 3 Total Financial assets: Money market funds $ 62,075 $ — $ — $ 62,075 U.S. Treasury securities — 374,356 — 374,356 U.S. government agency securities — 48,750 — 48,750 Corporate debt securities — 59,606 — 59,606 Total financial assets $ 62,075 $ 482,712 $ — $ 544,787 Financial liabilities: Success payment liabilities $ — $ — $ 1,576 $ 1,576 Total financial liabilities $ — $ — $ 1,576 $ 1,576 The Company measures the fair value of money market funds based on quoted prices in active markets for identical assets or liabilities. The Company measures the fair value of marketable equity securities traded in active markets based on quoted prices of identical assets. The Level 2 marketable securities include U.S. Treasury securities, U.S. government agency securities and corporate debt securities, which 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 Company’s contingent consideration payable is classified as a Level 3 financial instrument. The contingent consideration payable valuation was estimated using the Company’s common stock price and management’s assessment of the likelihood of achieving either (i) specified clinical milestones or (ii) certain regulatory approvals, which was determined to be approximately 95 %. The Company’s success payment liabilities are Level 3 financial instruments, which were estimated using Monte Carlo simulations through December 31, 2023. 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 Monte Carlo simulation to determine the estimated fair value of the success payment liabilities: fair value of the Company ’ s common stock, expected volatility, the risk-free interest rate and the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered. 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. As of December 31, 2024 , success payment liabilities were estimated by management using its historical experience of the correlation of success payment fair values relative to the Company’s stock price. The following assumptions were incorporated into the calculation of the estimated fair value of the Fred Hutch and Stanford success payment liabilities as of December 31, 2023: Fred Hutch Stanford Fair value of common stock $ 1.94 $ 1.94 Risk-free interest rate 3.51 % - 5.19 % 3.51 % - 5.19 % Expected volatility 80.0 % 80.0 % Expected term (in years) 0.46 - 3.97 0.46 - 5.75 The Company utilizes estimates and assumptions in determining the estimated contingent consideration payable and 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 contingent consideration payable and success payment liabilities and associated changes in fair value. Additionally, a small change in Management’s assessment of the likelihood of achieving either (i) specified clinical milestones or (ii) certain regulatory approvals related to the estimated valuation of the contingent consideration payable may have a relatively large change in its estimated fair value. 112 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands): Contingent Consideration Payable Success Payment Liabilities Balance at December 31, 2022 $ — $ 4,356 Change in fair value (1) — ( 2,780 ) Balance at December 31, 2023 — 1,576 Issuance 11,404 — Change in fair value (1) ( 3,804 ) ( 1,165 ) Balance at December 31, 2024 $ 7,600 $ 411 __________ (1) The change in fair value of the contingent consideration payable subsequent to Closing Date is recorded in other income, net for the year ended December 31, 2024. Changes in the fair value of Fred Hutch and Stanford success payment liabilities are recorded as either other income, net or research and development expenses, depending on the period. (See Note 4, License, Collaboration, and Success Payment Agreements.) 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 4, 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. The fair value of PACT was estimated by using significant unobservable inputs, including an estimate of insignificant fair value associated with PACT intangible assets. 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 7, Other Investments , for additional details regarding the PACT investment impairment. 9. Property and Equipment, Net Property and equipment, net, consisted of the following (in thousands): December 31, 2024 2023 Leasehold improvements $ 79,613 $ 118,319 Laboratory equipment 36,106 33,368 Computer equipment and software 1,805 1,672 Furniture and fixtures 1,114 814 Construction in progress 241 128 Property and equipment, at cost 118,879 154,301 Less: Accumulated depreciation and amortization ( 70,679 ) ( 51,647 ) Total property and equipment, net $ 48,200 $ 102,654 Depreciation and amortization expense was $ 19.4 million , $ 20.2 million and $ 18.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. During the year ended December 31, 2024, the Company recorded impairment losses of $ 38.7 million for leasehold improvements. The Company did not record any impairment losses in 2023 and 2022. See Note 5, Impairment of Long‑Lived Assets , for further information. 113 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) 10. Accrued Liabilities and Other Current Liabilities Accrued liabilities and other current liabilities consisted of the following (in thousands): December 31, 2024 2023 Accrued compensation and related benefits $ 19,235 $ 14,634 Current lease liabilities 7,974 6,273 Accrued research and development expenses 9,439 5,331 Other 3,071 1,493 Accrued legal 692 395 Total accrued liabilities and other current liabilities $ 40,411 $ 28,126 11. Leases The Company’s lease portfolio is comprised of operating leases for laboratory, office and manufacturing facilities located in South San Francisco and Los Angeles, California, and Seattle and Bothell, Washington with contractual periods expiring between January 2028 and March 2031. In addition to minimum rent, the leases require payment of real estate taxes, insurance, common area maintenance charges and other executory costs. These additional charges are considered variable lease costs and are recognized in the period in which the costs are incurred. In 2018, the Company entered into an operating lease for approximately 34,000 square feet of office and laboratory space in Seattle, Washington, with an initial lease term expiring in December 2028. The Company has two five‑year options to extend the lease, which are not reasonably assured. 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. The Company has two 90 -month options to extend the leases, which are not reasonably assured. In 2019, the Company entered into an operating lease agreement for approximately 108,000 square feet of office and laboratory space located in South San Francisco, California. The initial lease term expires in January 2031 with the option to extend the term for another 10 years, which is not reasonably assured. In January 2021, the Company amended the lease term to extend the lease expiration to March 2031. On the acquisition Closing Date, the Company acquired an operating lease agreement for approximately 26,000 square feet of office and laboratory space located in Los Angeles, California, with an initial lease term expiring in January 2028. See Note 3, Acquisition , for further information regarding the acquisition. The Company has one five-year option to extend the lease, which is not reasonably assured. 114 Table of Contents 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, 2024 (in thousands): Year Ending December 31: 2025 $ 12,587 2026 12,959 2027 13,341 2028 13,005 2029 10,398 Thereafter 12,188 Total undiscounted lease payments 74,478 Less: imputed interest ( 15,510 ) Total operating lease liabilities $ 58,968 Reported as of December 31, 2024: Short-term portion of lease liabilities (included in accrued liabilities and other current liabilities) $ 7,974 Operating lease liabilities, non-current 50,994 Total $ 58,968 The operating lease costs for all operating leases were $ 9.2 million, $ 9.0 million and $ 9.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. The operating lease costs and total commitments for short-term leases were de minimis for the years ended December 31, 2024, 2023 and 2022. Variable lease costs for operating leases were $ 7.1 million, $ 5.4 million and $ 5.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. The weighted-average remaining lease terms for operating leases were 5.7 years and 6.8 years as of December 31, 2024 and 2023, respectively. The weighted-average discount rates for operating leases were 8.5 % as of both December 31, 2024 and 2023. The Company entered into subleases in May 2021 and September 2024, whereby the Company agreed to sublease approximately 11,000 and 12,150 square feet, respectively, of its currently leased space in South San Francisco, California currently leased by the Company. These subleases are classified as operating leases and will expire in March 2031 and July 2026, respectively. The Company recognized sublease income for these subleases of $ 1.1 million for the year ended December 31, 2024 and $ 0.8 million for both the years ended December 31, 2023 and 2022. In September 2021, the Company entered into a sublease with Sonoma Biotherapeutics, Inc. (“Sonoma”), a related party, whereby the Company agreed to sublease approximately 18,000 square feet of space in South San Francisco, California currently leased by the Company. See Note 19, Related-Party Transactions . As a part of the sublease, in September 2021, the Company received a $ 4.6 million tenant improvement contribution payment, which will be recognized over the term of the sublease. The sublease is classified as an operating lease and will expire in March 2031 if the approximate five-year renewal term is exercised. The Company recognized Sonoma sublease income of $ 1.9 million for each of the years ended December 31, 2024, 2023 and 2022. The Company’s sublease income is recognized within other operating income, net in the Consolidated Statements of Operations and Comprehensive Loss. During the year ended December 31, 2024, the Company recorded impairment losses of $ 12.6 million for lease right‑of‑use assets. The Company did not record any impairment losses for lease right-of-use assets in 2023 and 2022. See Note 5, Impairment of Long‑Lived Assets , for further information. 12. Convertible Preferred Stock As of December 31, 2024, no shares of convertible preferred stock were outstanding. 115 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) 13. Stockholders’ Equity Preferred Stock The Company is authorized to issue 10.0 million shares of preferred stock with a par value $ 0.0001 per share. As of December 31, 2024 and 2023, no shares of preferred stock were outstanding. Common Stock 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, 2024 and 2023, there wer e 294,875,546 shares and 253,957,709 shares of the Company’s common stock outstanding, respectively. On February 28, 2024, the Company entered into a sales agreement with Cowen and Company, LLC (“Cowen”) acting as the Company’s sales agent (the “Sales Agreement”), pursuant to which the Company may offer and sell shares of common stock having an aggregate offering price of up to $ 150.0 million from time to time in a series of one or more at‑the‑market equity offerings. The Company will pay Cowen commissions of up to 3 % of the gross proceeds of the sale, and reimbursement of certain expenses, under this agreement. Neither the Company nor Cowen is obligated to sell any shares and, to date, the Company has not made any sales under the Sales Agreement. 14. Stock-based Compensation 2021 Equity Incentive Plan In June 2021, the Company adopted the 2021 Equity Incentive Plan (“2021 Plan”), which on the date of the underwriting agreement related to the Company’s IPO became effective with an initial reserve of 26,662,087 shares, plus any shares subject to outstanding awards granted under the 2018 Equity Incentive Plan (“2018 Plan”) that, on or after the effectiveness of the 2021 Plan, terminate or expire before exercise or settlement, are not issued because the award is settled in cash, are forfeited because of the failure to vest or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price. 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, 2024, the Company reserved an additional 12,697,885 shares of common stock for issuance under the 2021 Plan representing 5 % of the total common shares outstanding as of December 31, 2023. 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. Terms of stock awards, including vesting requirements, are determined by the Company’s board of directors or by a committee authorized by the Company’s board of directors, subject to provisions of the 2021 Plan. The term of any stock option granted under the 2021 Plan cannot exceed ten years . Generally, awards granted by the Company vest over four years , but may be granted with different vesting terms. In conjunction with adopting the 2021 Plan, the Company discontinued the 2018 Plan with respect to new equity awards. As of December 31, 2024 , 41,180,525 shares were available for future issuance pursuant to the 2021 Plan. 2021 Employee Stock Purchase Plan In June 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which became effective immediately prior to the execution of the underwriting agreement related to the Company’s IPO with an initial reserve of 2,470,000 shares. The 2021 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15 % of their earnings, subject to plan limitations. Unless otherwise determined by the Company’s board of directors, employees are able to purchase shares at 85 % of the lower of the fair market value of the Company’s common stock on the first date of an offering or on the purchase date. The number of shares of the Company’s common stock reserved for issuance under the 2021 ESPP 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, by the lesser of (1) 1 % of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, and (2) 4,940,000 shares; provided, however, that the Company’s board of directors may act to provide a lesser increase in number of shares. On January 1, 2024, the Company reserved an additional 2,539,577 shares of common stock for issuance under the 2021 ESPP representing 1 % of the total common shares outstanding as of December 31, 2023. 116 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) The Company may specify offerings with durations not more than 27 months and may specify shorter purchase periods within each offering. Under the 2021 ESPP, 954,761 , 986,391 and 475,363 shares have been issued for the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024 , 5,046,445 shares were available for future issuance pursuant to the 2021 ESPP. 2018 Equity Incentive Plan In 2018, the Company established the 2018 Plan that provided for the grant of incentive stock options, non‑statutory stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards. Terms of stock awards, including vesting requirements, were determined by the board of directors or by a committee authorized by the Company’s board of directors, subject to provisions of the 2018 Plan. The term of any stock option granted under the 2018 Plan cannot exceed ten years . Generally, awards granted by the Company vest over four years , but could have been granted with different vesting terms. Pursuant to the terms of the 2021 Plan, any shares subject to outstanding options originally granted under the 2018 Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof become available for issuance pursuant to awards granted under the 2021 Plan. While no shares are available for future issuance under the 2018 Plan, it continues to govern outstanding equity awards granted thereunder. Stock-based Compensation Expense Stock-based compensation expense by classification included within the Consolidated Statements of Operations and Comprehensive Loss was as follows (in thousands): Year Ended December 31, 2024 2023 2022 Research and development $ 14,577 $ 18,207 $ 16,721 General and administrative 18,567 28,877 65,203 Total stock-based compensation expense $ 33,144 $ 47,084 $ 81,924 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 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 were required to 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 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. At December 31, 2024, total stock-based compensation cost related to unvested awards not yet recognized was $ 44.7 million, which is expected to be recognized over a remaining weighted-average period of 2.3 years. 117 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) Performance-Based Restricted Stock Units During the year ended December 31, 2024, the Company granted PSU awards to certain key employees. PSUs awarded to employees have a three-year performance period and vest based upon the Company’s performance against a two and three-year relative total shareholder return (“rTSR”) metric, as well as upon the achievement of certain clinical development milestones. Certain of the clinical development milestones were determined to be probable of achievement as of December 31, 2024, representing 1.5 million shares. For the portion of PSUs subject to certain clinical development milestones (other than the bonus clinical development milestone), 50 % vest upon the achievement of the applicable milestone, and the remaining 50 % vest upon the earlier of (a) one year of service from the date of such achievement and (b) the end of the three-year performance period. The vesting of all PSU awards granted is also subject to the respective employee’s continued employment. The Company valued the portion of PSUs subject to the rTSR metric using a Monte Carlo simulation. The number of PSUs granted subject to the rTSR metrics represents the target number of units that are eligible to be earned based on the achievement of the metrics established at the beginning of the performance period, which ends on December 31 st of the three-year performance period. For the portion of PSUs subject to the rTSR metrics, employees may ultimately earn between zero and 200 % of the target number of PSUs granted based on the degree of achievement of the applicable rTSR metric. Accordingly, additional PSUs may be issued or currently outstanding PSUs may be cancelled upon final determination of the number of units earned. Stock-based compensation expense recognized for the PSU awards was approximately $ 1.9 million for the year ended December 31, 2024 and zero for both the years ended December 31, 2023 and 2022. A summary of the Company’s PSU activity was as follows: Performance-Based Restricted Stock Units Outstanding Weighted-Average Value at Grant Date Per Share Unvested PSUs as of December 31, 2023 — $ — PSUs granted (1) 2,703,400 $ 1.88 PSUs vested — $ — PSUs forfeited or canceled — $ — Unvested PSUs as of December 31, 2024 2,703,400 $ 1.88 (1) PSU grants reflect the target number of shares eligible to be earned at the time of grant. As of December 31, 2024 , none of the PSU metrics have been met, resulting in no shares vesting. Restricted Stock Awards The Company had no unvested RSAs as of both December 31, 2024 and 2023. The fair value of RSAs vested during the years ended December 31, 2024, 2023 and 2022 was zero , zero and $ 15.2 million, respectively. Restricted Stock Units A summary of the Company’s RSU activity was as follows: Number of Shares Weighted-Average Value at Grant Date Per Share Unvested RSUs as of December 31, 2023 2,072,855 $ 2.96 RSUs granted 5,762,499 $ 1.54 RSUs vested ( 1,259,344 ) $ 2.55 RSUs forfeited or canceled ( 952,191 ) $ 2.19 Unvested RSUs as of December 31, 2024 5,623,819 $ 1.72 The fair value of RSUs vested during the years ended December 31, 2024, 2023 and 2022 w as $ 2.0 million, $ 1.4 million and $ 1.5 million, respectively . 118 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) Stock Options A summary of the Company’s stock option activity was as follows: Number of Stock Options Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Options outstanding as of December 31, 2023 55,596,831 $ 4.75 6.89 $ 7,368 Granted 3,665,500 $ 1.90 Exercised ( 1,245,836 ) $ 0.12 Canceled or forfeited ( 13,229,412 ) $ 6.18 Options outstanding as of December 31, 2024 44,787,083 $ 2.49 6.62 $ 1,479 Options exercisable as of December 31, 2024 30,273,806 $ 2.74 5.88 $ 1,479 The fair value of stock options granted to employees, directors and consultants was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions: Year Ended December 31, 2024 2023 2022 Risk-free interest rate 4.17 % 4.13 % 2.93 % Expected volatility 75.9 % 88.0 % 87.3 % Expected term (in years) 5.89 6.06 6.03 Expected dividend yield 0 % 0 % 0 % The weighted-average grant date fair value of options granted for the years ended December 31, 2024, 2023 and 2022 was $ 1.30 per share, $ 1.69 per share and $ 3.60 per share, respectively. The intrinsic value of options exercised during the years ended December 31, 2024, 2023 and 2022 was $ 2.9 million, $ 6.5 million and $ 13.9 million, respectively. 15. Income Taxes The Company has reported pre-tax operating losses for all periods presented. The Company generated losses in the U.S. and had a minimal amount of income in Israel. The Company has not reflected any benefit for corresponding tax net operating loss carryforwards in the accompanying consolidated financial statements. The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. As of December 31, 2024 and 2023, the Company had U.S. federal net operating loss (“NOL”) carryforwards of approximately $ 599.2 million and $ 455.2 million, respectively, which were available to reduce future taxable income and do not expire. The Company also had U.S. state NOL carryforwards of $ 702.9 million that begin to expire in 2038 and foreign carryforwards of $ 5.8 million that do not expire. The Company had gross U.S. federal and state tax credits of $ 43.6 million and $ 24.2 million as of December 31, 2024 and 2023, respectively, which may be used to offset future tax liabilities. The federal NOL carryforward period is indefinite, while the tax credits will begin to expire in 2039. The attributed carryforwards may become subject to annual limitations in the event of certain cumulative changes in the ownership interest of significant stockholders. 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, 2024, the Company had a capital loss carryforward of $ 52.5 million, which will expire in 2028. 119 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows: Year Ended December 31, 2024 2023 2022 Federal statutory tax 21.00 % 21.00 % 21.00 % State tax, net of federal benefit 4.61 7.45 5.10 Valuation allowance ( 20.39 ) ( 29.10 ) ( 28.89 ) Stock-based compensation ( 2.17 ) ( 2.25 ) ( 6.11 ) Tax credits 2.23 2.96 2.33 IPR&D ( 5.34 ) — — Other 0.06 ( 0.06 ) ( 0.15 ) Collaboration revenue — — 6.72 Effective income tax rate 0.00 % 0.00 % 0.00 % The principal components of the Company’s net deferred tax assets were as follows (in thousands): Year Ended December 31, 2024 2023 Deferred tax assets: Net operating loss carryforward $ 176,298 $ 133,141 Tax credit carryforward 37,611 22,409 Capital loss carryforward 14,705 14,368 Accrued liabilities and allowances 3,818 3,143 Deferred revenue 936 793 Property and equipment 10,551 — Amortization 5,582 5,243 Capitalized research and development 82,389 51,159 Investment basis difference 7,820 4,104 Lease liability 16,486 17,284 Stock-based compensation 10,036 11,244 Other 125 470 Gross deferred tax assets 366,357 263,358 Valuation allowance ( 359,440 ) ( 248,420 ) Deferred tax assets, net of valuation allowance 6,917 14,938 Deferred tax liabilities: Operating lease right-of-use assets ( 6,917 ) ( 10,853 ) Property and equipment — ( 4,085 ) Deferred tax liabilities ( 6,917 ) ( 14,938 ) Net deferred tax assets $ — $ — The Tax Cuts and Jobs Act contained a provision that requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures that represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized over five years for domestic research and development and fifteen years for foreign research and development. The Company has included the impact of this provision, which results in a deferred tax asset of approximately $ 82.4 million as of December 31, 2024. 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 120 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss in recent years and its forecasted losses in the near-term as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, Accounting for Income Taxes (“ASC 740”), the Company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its U.S. net deferred tax assets will be maintained. The valuation allowance relates primarily to net U.S. deferred tax assets from net operating loss carryforwards, research and development tax credit carryforwards, research and development expenses capitalized and amortized for tax but deducted for GAAP and stock-based compensation. In connection with the October 2024 acquisition of ImmPACT stock, the Company recorded U.S. deferred tax assets of $ 39.6 million, which are mainly related to capitalized research costs and tax attribute carryforwards. The deferred tax assets are considered not more likely than not to be realized and therefore are fully offset by a valuation allowance of $ 39.6 million. ImmPACT has an Israeli subsidiary with deferred tax assets of $ 1.4 million, which are mainly related to tax attribute carryforwards. These deferred tax assets are also fully offset by a valuation allowance of $ 1.4 million. The Company will continue to assess the realizability of its deferred tax assets and adjust the valuation allowance as required by ASC 740. The increase in the valuation allowance was $ 111.0 million and $ 68.3 million for the years ended December 31, 2024 and 2023, respectively. The Company evaluates its uncertain tax positions based on a determination of whether it is more likely than not such position will be sustained based upon its technical merits and upon examination by the relevant income tax authorities with all facts known. The Company applies judgment in its measurement of an uncertain tax position recorded in its consolidated financial statements and tax return. As of December 31, 2024 and 2023, there are no penalties or accrued interest recorded in the consolidated financial statements. The Company is generally subject to examination by the U.S. 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. The following tab le summarized changes to the Company’s unrecognized tax benefits (in thousands): Year Ended December 31, 2024 2023 Beginning balance $ 400 $ 400 Additions based on tax position related to the current year 1,625 — Adjustments based on prior year tax positions 1,634 — Ending balance $ 3,659 $ 400 The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. 16. Net Loss Per Share 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, unvested PSUs 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, unvested RSUs and unvested PSUs were all excluded from consideration in the calculation of diluted net loss per share in all periods presented due to their anti-dilutive effects. 17. Employee Benefit Plan In January 2019, the Company adopted a 401(k) retirement and savings plan (the “401(k) Plan”) covering all of its employees. The 401(k) Plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the IRS. 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 121 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) made matching contributions to the 401(k) Plan on behalf of participants of $ 1.0 million, $ 1.2 million and $ 1.0 million for the years ended December 31, 2024, 2023 and 2022 , respectively. 18. Commitments and Contingencies Collaboration and License Agreements The Company has entered into certain collaboration and license agreements, including those identified in Note 4, 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 upon the achievement of pre-established developmental, regulatory and/or commercial milestones. 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. Due to the nature of these agreements, the future potential payments are inherently uncertain, and accordingly no amounts had been recorded for the potential future achievement of these targets as of December 31, 2024 and 2023. 19. Related-Party Transactions 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. Dr. 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, 2024 and 2023, there were accrued liabilities and other current liabilities of $ 0.5 million, a nd as of December 31, 2024 and 2023, other non-current lia bilities of $ 2.5 million and $ 3.0 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 11, Leases , for more detail on the Sonoma Sublease. Year Ended December 31, 2024 2023 2022 Sonoma other operating income, net $ 2,838 $ 2,592 $ 2,635 Sonoma sublease income $ 1,861 $ 1,861 $ 1,861 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 4, License, Collaboration, and Success Payment Agreements . Revenue recognized in connection with the GSK agreement was zero for both the years ended December 31, 2024 and 2023, and $ 84.7 million for the year ended December 31, 2022. GSK terminated the GSK Agreement effective December 24, 2022. See Note 4, License, Collaboration, and Success Payment Agreements, for additional details regarding the termination of the GSK Agreement. 20. Segment The Company reports segment information in accordance with the management approach, which reflects the internal reporting utilized by the Chief Operating Decision Maker (“CODM”), the Company’s President and Chief Executive Officer. Based on the information used by the CODM to allocate resources and assess the Company’s performance, the Company has determined it operates in one segment. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The CODM evaluates the performance of the Company’s sole reportable segment based on net income or loss that also is reported on the Consolidated Statements of Operations and Comprehensive Loss as net income or loss. The measure of segment assets is reported on the Consolidated Balance Sheets as total assets. The Company’s sole reportable segment generates revenue by providing research and development services. 122 Table of Contents Lyell Immunopharma, Inc. Notes to Consolidated Financial Statements—(Continued) Year Ended December 31, 2024 2023 2022 Revenue $ 61 $ 130 $ 84,683 Operating expenses: Research and development Technical operations 63,419 64,393 55,412 Clinical operations 39,783 31,802 19,191 Research activities 37,772 53,567 57,328 Facilities and technology 26,342 25,636 25,081 Operations management 4,287 7,547 2,176 Total research and development expenses 171,603 182,945 159,188 General and administrative Business support 33,973 47,428 84,500 Corporate expenses and outside services 14,450 15,575 27,717 Facilities and technology 3,618 3,980 5,090 Total general and administrative expenses 52,041 66,983 117,307 Other operating income, net ( 3,309 ) ( 2,790 ) ( 4,754 ) Acquired in-process research and development 87,184 — — Impairment of long-lived assets 51,297 — — Total operating expenses 358,816 247,138 271,741 Loss from operations ( 358,755 ) ( 247,008 ) ( 187,058 ) Interest income, net 24,068 23,453 7,053 Other income, net 4,694 1,846 1,887 Impairment of other investments ( 13,001 ) ( 12,923 ) ( 5,000 ) Total other income, net 15,761 12,376 3,940 Net loss $ ( 342,994 ) $ ( 234,632 ) $ ( 183,118 ) Total expenditures for additions to the Company’s property and equipment, net were $ 0.6 million, $ 1.4 million and $ 21.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. For the year ended December 31, 2024, approximately 73 % of revenue is attributable to a single customer headquartered in the United States and approximately 27 % of revenue is attributable to a single customer headquartered in China. The Company’s revenues for the year ended December 31, 2023 are attributed to a single customer headquartered in the United States. For the year ended December 31, 2022, approximately 100 % of the Company’s revenues were attributable to a single customer headquartered in the United Kingdom. The Company’s long-lived assets as of December 31, 2024 and 2023 are located in the United States. 123 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.