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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021

OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission file number 001-40215

Instil Bio, Inc.
(Exact name of registrant as specified in its charter)
Delaware
83-2072195
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
3963 Maple Avenue, Suite 350
Dallas, Texas
75219
(Zip Code)
(Address of Principal Executive Offices)
(972) 499-3350
Registrant's telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.000001 par value per shareTILThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files).     Yes     No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:



Class of Common StockOutstanding at
128,761,873 shares of Common Stock, $0.000001 par value per share
August 10, 2021



TABLE OF CONTENTS
 
 
Page
2
 
1


Part I. Financial Information
Item 1. Financial Statements (Unaudited)
INSTIL BIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
 June 30, 2021December 31, 2020
ASSETS 
Current assets: 
Cash and cash equivalents$566,725 $241,714 
Prepaid expenses and other current assets7,736 4,424 
Total current assets574,461 246,138 
Property, plant and equipment, net78,576 55,341 
Intangibles10,104 10,104 
Goodwill5,722 5,722 
Other long-term assets3,807 1,707 
Total assets$672,670 $319,012 
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$5,225 $3,495 
Accrued expenses and other current liabilities16,515 8,402 
Contingent consideration, current portion2,104 1,384 
Total current liabilities23,844 13,281 
Contingent consideration, net of current portion10,136 10,893 
Deferred tax liabilities2,110 2,471 
Other long-term liabilities1,108  
Total liabilities37,198 26,645 
Commitments and contingencies (Note 6)
Convertible preferred stock, $0.000001 par value; 10,000,000 and 74,350,598 shares authorized as of June 30, 2021, and December 31, 2020, respectively; 0 and 70,176,046 shares issued and outstanding as of June 30, 2021, and December 31, 2020, respectively; $0 and $328,200 aggregate liquidation preference as of June 30, 2021, and December 31, 2020, respectively
 331,966 
Stockholders’ equity (deficit):
Common stock, $0.000001 par value; 300,000,000 and 111,000,000 shares authorized as of June 30, 2021, and December 31, 2020, respectively, 128,743,123 and 20,591,554 shares issued and outstanding as of June 30, 2021, and December 31, 2020, respectively
  
Additional paid-in capital739,044 5,607 
Accumulated other comprehensive loss(210)(283)
Accumulated deficit(103,362)(44,923)
Total stockholders’ equity (deficit)635,472 (39,599)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)$672,670 $319,012 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2


INSTIL BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
(Unaudited)
 
 Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Revenue$ $42 $ $87 
Operating expenses:
Research and development21,186 2,237 35,610 4,245 
General and administrative14,195 2,398 23,174 4,298 
Total operating expenses35,381 4,635 58,784 8,543 
Loss from operations(35,381)(4,593)(58,784)(8,456)
Interest and other expense, net(89)(4,609)(18)(4,835)
Loss before income tax benefit$(35,470)$(9,202)$(58,802)$(13,291)
Income tax benefit159  363  
Net loss$(35,311)$(9,202)$(58,439)$(13,291)
Other comprehensive income (loss):
Foreign currency translation43 3 73 (31)
Net comprehensive loss$(35,268)$(9,199)$(58,366)$(13,322)
Net loss per share, basic and diluted$(0.27)$(0.55)$(0.71)$(0.89)
Weighted-average shares used in computing net loss per share, basic and diluted128,743,123 16,846,552 82,478,284 14,942,479 

The accompanying notes are an integral part of these condensed consolidated financial statements.
3


INSTIL BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share and per share amounts)
(Unaudited)

 
Convertible Preferred Stock
 
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive
Accumulated Deficit
Total Stockholders’ Equity (Deficit)
 
Shares
Amount
 
Shares
Amount
Loss
Balance—December 31, 2020
70,176,046 $331,966 20,591,554 $ $5,607 $(283)$(44,923)$(39,599)
Issuance of Series C convertible preferred shares at $12.58 per share
4,174,551 52,460 — — — — — — 
Issuance of common shares upon initial public offering net of underwriting discounts, commissions and offering costs— — 18,400,000 — 339,174 — — 339,174 
Conversion of redeemable convertible preferred stock(74,350,597)(384,426)89,220,699 — 384,426 — — 384,426 
Issuance of common stock from exercises of stock options— — 530,870 — 1,438 — — 1,438 
Stock-based compensation— — — — 2,812 — — 2,812 
Net loss— — — — — — (23,128)(23,128)
Foreign currency translation— — — — — 30 — 30 
Balance—March 31, 2021
  128,743,123  733,457 (253)(68,051)665,153 
Deferred financing costs in connection with initial public offering— — — — (158)— — (158)
Stock-based compensation— — — — 5,745 — — 5,745 
Net loss— — — — — — (35,311)(35,311)
Foreign currency translation— — — — — 43 — 43 
Balance—June 30, 2021
 $ 128,743,123 $ $739,044 $(210)$(103,362)$635,472 

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

4


INSTIL BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share and per share amounts)
(Unaudited)


 
Convertible Preferred Stock
 
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive
Accumulated Deficit
Total Stockholders’ Equity (Deficit)
Shares
Amount
Shares
Amount
Loss
Balance—December 31, 2019
15,000,000 $14,948 11,199,980 $ $293 $ $(7,185)$(6,892)
Stock issued to acquire business— — 5,640,000 — 3,244 — — 3,244 
Stock-based compensation— — — — 62 — — 62 
Net loss— — — — — — (4,089)(4,089)
Foreign currency translation— — — — — (34)— (34)
Balance—March 31, 2020
15,000,000 14,948 16,839,980  3,599 (34)(11,274)(7,709)
Issuance of Series A convertible preferred shares at $1.00 per share, net of issuance costs of $34
10,000,000 14,366 — — — — — — 
Issuance of Series B convertible preferred shares at $4.92 per share
34,600,523 169,829 — — — — — — 
Issuance of common stock from exercises of stock options— — 9,374 — 6 — — 6 
Stock-based compensation— — — — 899 — — 899 
Net loss— — — — — — (9,202)(9,202)
Foreign currency translation— — — — — 3 — 3 
Balance—June 30, 2020
59,600,523 $199,143 16,849,354 $ $4,504 $(31)$(20,476)$(16,003)

The accompanying notes are an integral part of these condensed consolidated financial statements.
5


INSTIL BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Six Months Ended June 30,
 20212020
Cash flows from operating activities:
Net loss$(58,439)$(13,291)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on issuance of Series A convertible preferred stock 4,400 
Stock-based compensation8,557 961 
Foreign exchange remeasurement loss45 57 
(Gain) loss on change in fair value of contingent consideration(37)197 
Depreciation and amortization1,095 41 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets(2,778)1,828 
Other long-term assets(1,531)(8)
Accounts payable1,995 (886)
Accrued expenses and other liabilities1,140 1,143 
Net cash used in operating activities(49,953)(5,558)
Cash flows from investing activities:
Purchases of property, plant and equipment(17,622)(1,243)
Business acquisition, net of cash acquired (306)
Net cash used in investing activities(17,622)(1,549)
Cash flows from financing activities:
Proceeds from initial public offering, net of issuance costs339,016  
Proceeds from issuance of convertible preferred stock, net of issuance costs52,460 179,795 
Proceeds from exercise of stock options1,438 6 
Other financing activities(69)62 
Net cash provided by financing activities392,845 179,863 
Net increase in cash and cash equivalents325,270 172,756 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(259)194 
Cash, cash equivalents and restricted cash—beginning of period241,764 8,895 
Cash, cash equivalents and restricted cash—end of period$566,775 $181,845 
Supplemental disclosure of noncash information:
Conversion of preferred stock to common stock upon IPO$384,426 $ 
Purchases of property, plant and equipment in accounts payable and accrued liabilities$9,634 $168 
Business acquisition through issuance of common stock and contingent consideration payable$ $14,592 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


 
INSTIL BIO, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
Instil Bio Inc. (the “Company” or “Instil Bio”) is headquartered in Dallas, Texas and was incorporated in the state of Delaware in August 2018. The Company is a clinical-stage biopharmaceutical company focused on developing an innovative cell therapy pipeline of autologous tumor infiltrating lymphocyte (“TIL”) therapies for the treatment of patients with cancer. Principal operations commenced during the first quarter of 2019 when the Company in-licensed its foundational TIL technology.
2. Summary of Significant Accounting Policies
Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries Instil Bio (UK) Ltd. (formerly Immetacyte Ltd. (“Immetacyte”)) and Complex Therapeutics, LLC. Immetacyte was acquired on March 2, 2020 and Complex Therapeutics, LLC was incorporated on October 14, 2020. All intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statements of convertible preferred stock and stockholders' equity for the three and six months ended June 30, 2021 and 2020, and the results of its cash flows for the six months ended June 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020 are also unaudited. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other periods, or any future year period. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2020, which are included in the Company’s prospectus related to the initial public offering ("IPO"), filed with the Securities and Exchange Commission (“SEC”) on March 22, 2021 (the “Prospectus”), pursuant to Rule 424(b)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

The preparation of condensed consolidated financial statements in conformity with GAAP and with the rules and regulations of the SEC requires management to make informed estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. These amounts may materially differ from the amounts ultimately realized and reported due to the inherent uncertainty of any estimate or assumption.

Stock Split and Initial Public Offering

On March 12, 2021, the Company effected a 1.2-for-1 stock split of the Company’s common stock. The par value was not adjusted as a result of the stock split. The authorized shares as of March 12, 2021 were adjusted as a result of the stock split. All share and per share information included in the accompanying condensed consolidated
7


financial statements has been adjusted to reflect this stock split. The accompanying condensed consolidated financial statements and notes thereto give retroactive effect to the stock split for all periods presented.

On March 23, 2021, the Company completed its IPO through an underwritten sale of an aggregate of 18,400,000 shares of its common stock at a price of $20.00 per share. The aggregate net proceeds from the offering, inclusive of an additional 2,400,000 common shares sold upon the full exercise of the underwriter's purchase option, after deducting underwriting discounts and commissions and other offering expenses, was $339.0 million.

Concurrent with the IPO, all then-outstanding shares of the Company's convertible preferred stock outstanding (see Note 7) were automatically converted into an aggregate of 89,220,699 shares of common stock and were reclassified into permanent equity. Further, immediately following the closing of the IPO, the Company amended and restated its certificate of incorporation such that the total number of shares of common stock authorized to be issued was 300,000,000 and the total number of shares of preferred stock authorized to be issued was 10,000,000. Following the IPO, there are no shares of convertible preferred stock outstanding.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world. These actions include travel bans, quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. As a result of COVID-19, the Company has taken precautionary measures in order to minimize the risk of the virus to its employees and the communities in which it operates, including the suspension of all non-essential business travel of employees. Although the majority of the Company’s workforce now works remotely, there has been minimal disruption in the Company’s ability to ensure the effective operation of its business. While the broader implications of the COVID-19 pandemic on the Company’s results of operations and overall financial performance remain uncertain, including any implications from the spread of the new Delta variant of COVID-19, the COVID-19 pandemic has, to date, not had a material adverse impact on its results of operations or our ability to raise funds to sustain operations. The economic effects of the pandemic and resulting societal changes are currently not predictable, and the future financial impacts could vary from those foreseen.

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.

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 include amounts invested in money market accounts.

Restricted cash consists of a money market account which serves as collateral for the Company’s employee corporate credit cards and is classified within other long-term assets on the consolidated balance sheets. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the amounts shown in the consolidated statements of cash flows (in thousands):

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 June 30, 2021December 31, 2020
Cash and cash equivalents$566,725 $241,714 
Restricted cash50 50 
Cash, cash equivalents and restricted cash$566,775 $241,764 

Deferred Offering Costs

Costs that were directly related to the Company’s IPO were deferred for expense recognition and instead capitalized and recorded within other long-term assets on the accompanying condensed consolidated balance sheet. These costs consist of legal fees, accounting fees, and other applicable professional services. These deferred offering costs were reclassified to additional paid in capital upon the closing of the IPO. As of December 31, 2020, $0.5 million of deferred offering costs were capitalized.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to avail itself of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improves consistent application by clarifying and amending existing guidance. The standard is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company currently is assessing the impact of this guidance and on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. The new standard requires the lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee, and such classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which revised the effective date for ASU No. 2016-02, Leases (Topic 842) for fiscal years beginning after December 15, 2020. In June 2020, the FASB issued ASU No. 2020-05, Revenue From Contracts With Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, further delaying the effective date for ASU No. 2016-02, Leases (Topic 842) to fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company immediately adopted ASU No. 2019-10 and ASU No. 2020-05 upon issuance by the FASB. The Company currently is assessing the impact of this guidance and on its financial statements.

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3. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
 
 June 30, 2021December 31, 2020
Prepaid research and development expenses$2,647 $761 
Prepaid general and administration expenses1,929 420 
Grant receivable887 571 
U.K. research and development tax and expenditure credits1,876 799 
Other receivables397 1,803 
Other assets 70 
Total prepaid expenses and other current assets$7,736 $4,424 

Property, Plant and Equipment, Net
Property, plant and equipment, net consist of the following (in thousands):

June 30, 2021December 31, 2020
Land$31,243 $31,243 
Building6,309 6,309 
Laboratory equipment13,050 6,590 
Manufacturing equipment1,748 2,355 
Office and computer equipment2,153 1,510 
Leasehold improvements1,436 1,312 
Construction work-in-progress23,985 6,328 
Total property, plant and equipment, gross79,924 55,647 
Less: accumulated depreciation(1,348)(306)
Total property, plant and equipment, net$78,576 $55,341 
    
Depreciation expense was $0.7 million and an immaterial amount for the three months ended June 30, 2021 and 2020, respectively, and was $1.1 million and an immaterial amount for the six months ended June 30, 2021 and 2020, respectively, in the condensed consolidated statements of operations and comprehensive loss.

In October 2020, the Company acquired land inclusive of four buildings in Tarzana, California, for $37.6 million. The Company is in the process of developing this land for its United States ("U.S.") operations and has capitalized $22.6 million in work in progress costs associated with this development project. The Company’s contractual commitments for this development project are limited to unreimbursed spend by the general contractor and as such, as of June 30, 2021, and December 31, 2020, $43.0 million and $6.3 million, respectively, is contractually committed to the development of this project. This acquisition is classified as an asset acquisition for which the Company records identifiable assets acquired at cost on a relative fair value basis. The most significant components of the allocation of fair value are four buildings as-if-vacant and land.
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Other Long-term Assets
Other long-term assets consist of the following (in thousands):

June 30, 2021December 31, 2020
Deferred rent$2,183 $509 
Prepaid research and development expenses1,475 603 
Security deposit99 29 
Restricted cash50 50 
Deferred offering costs 516 
Total other long-term assets$3,807 $1,707 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
 
 June 30, 2021December 31, 2020
Accrued compensation and benefits$6,428 $3,983 
Accrued construction costs4,753 302 
Accrued research and development expenses4,052 1,616 
Accrued operational expenses863 1,589 
Current tax liabilities226 631 
Other current liabilities193 281 
Total accrued expenses and other current liabilities$16,515 $8,402 
4. Transactions with Immetacyte

License Agreement with Immetacyte
In February 2019, the Company entered into an Exclusive License & Research Services Agreement (the “License Agreement”) with Immetacyte, whose key founders are also shareholders of the Company, pursuant to which the Company obtained a worldwide license to Immetacyte’s proprietary technology, know-how and intellectual property for the research, development and manufacture of TIL therapies obtained from tumors using Immetacyte’s technology.
The payments made for the license of the TIL technology were accounted for as in-process research and development (“IPR&D”) as part of an asset acquisition and were expensed as it was determined that there was no alternative future use for the license. The Company accounts for contingent consideration payable upon achievement of certain development or commercial milestones when the underlying contingency is resolved. For the three months ended June 30, 2020, the Company recognized $0.6 million of IPR&D, which consisted of $0.3 million paid up front for the license and $0.3 million paid for achievement of a development milestone, which was recognized as a component of research and development expense in the Company’s statement of operations and comprehensive loss.
Additionally, the Company was obligated to make payments for the research and development, manufacturing, monitoring and general services which included: (i) research and development services payments of $1.9 million annually for each of the first three years, (ii) manufacturing services payments of $1.2 million for the first annual period and $1.6 million for two years thereafter, and (iii) $0.3 million for monitoring and general services.
For the six months ended June 30, 2020, the Company recorded $2.9 million of research and development expense in the statement of operations and comprehensive loss as part of these services.

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Upon the acquisition of Immetacyte, the License Agreement was terminated.

Acquisition of Immetacyte

In March 2020, the Company acquired 100% of the share capital of Immetacyte for $0.8 million in cash consideration, 5.6 million shares of common stock at an estimated fair value of $0.58 per share and up to an aggregate of $14.8 million of cash contingent consideration. The contingent consideration was additional cash consideration payable to the seller up until January 31, 2040 upon achievement of distinct product development milestones. The Company believes the acquisition, which includes the dedicated workforce of Immetacyte, will better position itself in developing an innovative cell therapy pipeline of autologous TIL therapies for the treatment of patients with cancer.

The fair value of consideration paid was as follows (in thousands):

Cash consideration$779
Common stock of 5,640,000 shares at an estimated fair value of $0.58 per share
3,243
Contingent consideration11,349
Total consideration$15,371

The allocation of the purchase consideration was based on management’s estimate of the acquisition date fair values of the assets acquired and liabilities assumed, as follows (in thousands):

Assets acquired:
Net working capital$870
Property and equipment 690
Intangibles10,104
Total assets acquired11,664
Goodwill5,722
Deferred tax liabilities (2,015)
Total purchase price$15,371

The acquisition was accounted for as a business combination and, accordingly, the total fair value of purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values on the acquisition date. Due to the Company’s pre-commercialization stage, many of the processes and methods used in the production of TILs were still in experimental development and pre-clinical stages and as such, resulted in a $10.1 million IPR&D asset. To value the IPR&D, the Company utilized the multi-period excess earnings method under the income approach. The method reflects the present value of the operating cash flows generated by this asset after taking into account the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the invested capital. These assumptions were applied to a relief-from-royalty model.

Within net working capital, was $0.8 million of acquired gross trade receivables, all of which has been collected. Goodwill is attributable to the assembled workforce and expected synergies from combining operations. The goodwill recognized for this acquisition is not deductible for income tax purposes. From the acquisition date through June 30, 2021, there has been no change in the carrying amount of goodwill. Because the acquired IPR&D has an indefinite life, it is not amortized but rather evaluated for impairment. As of June 30, 2021 and, December 31, 2020 IPR&D was not impaired.

The Company recognized acquisition costs of an immaterial amount and $0.9 million for the three and six months ended June 30, 2020, which were expensed as incurred within general and administrative on the condensed consolidated statements of operations and comprehensive loss.
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5. Fair Value Measurement

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:
As of June 30, 2021
Level 1Level 2Level 3Total
(In thousands)
Financial Assets
Money market funds$559,841 $ $ $559,841 
Financial Liabilities
Contingent consideration$ $ $12,240 $12,240 
As of December 31, 2020
Level 1Level 2Level 3Total
(In thousands)
Financial Assets
Money market funds$106,138 $ $ $106,138 
Financial Liabilities
Contingent consideration$ $ $12,277 $12,277 

There were no transfers in and out of Level 1, 2 and 3 measurements for the six months ended June 30, 2021 and the year ended December 31, 2020. The following table sets forth a summary of the changes in the fair value of the Company's Level 3 financial liabilities (in thousands):
Six Months Ended June 30, 2021
Fair value, beginning balance$12,277 
Change due to expected date of first milestone payment(37)
Fair value, ending balance$12,240 

Year Ended December 31, 2020
Fair value, beginning balance$ 
Contingent consideration recorded as a result of Immetacyte acquisition11,349 
Change in present value of contingent consideration928 
Fair value, ending balance$12,277 

The Company’s acquisition of Immetacyte involved the potential for the payment of future contingent consideration upon the achievement of (i) certain product development milestones including, approval of studies and commencement and completion of certain product trials, or (ii) various other performance conditions including, receipt of final approval for the first marketing authorization and first commercial sale in certain geographical markets. Contingent consideration is recorded at the estimated fair value of the contingent payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within research and development expense in the consolidated statements of operations and comprehensive loss.

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During the six months ended June 30, 2021, the change of fair value related to the contingent consideration is attributable solely to the change in the expected date of the milestone achievement. During the six months ended June 30, 2021, no contingent consideration payments were made by the Company.

During the year ended December 31, 2020, the Company determined the fair value of the contingent consideration by probability weighting scenarios of milestone achievements to determine the expected future contingent consideration payment, discounted to present value using an 8.5% discount rate based on the Company’s pre-tax cost of debt on the acquisition date. The probability of payments ranged from 20% to 100% and the timing of future payments ranged from 2020 to 2026. In determining the likelihood of milestone achievements which trigger payouts related to the contingent consideration, the probabilities for various scenarios, as well as the discount rate used in the Company’s calculations were based on internal unobservable projections. During the year ended December 31, 2020, no contingent consideration payments were made by the Company. As a result, as of December 31, 2020, the estimated future payments included the payment previously expected to be made in late 2020. As of December 31, 2020, the probability and timing of payments ranged from 20% to 100% and 2021 to 2026, respectively. As of December 31, 2020, the discount rate used in discounting the expected contingent consideration payments changed to 8% based on the Company’s pre-tax cost of debt, which increased the fair value of the contingent consideration by $0.9 million from the acquisition date.
6. Commitments and Contingencies
Operating Leases
The Company leases various operating spaces in the U.S. and United Kingdom ("U.K.") under non-cancelable operating lease arrangements that expire on various dates through the end of 2026. These arrangements require the Company to pay certain operating expenses, such as service charges, taxes, repairs, and insurance and contain landlord or tenant incentives or allowances, renewal escalation causes. The Company recognizes rent expense under these arrangements on a straight-line basis over the term of the lease and records the difference between the rent paid and recognition of rent expense as a deferred rent liability. Total rent expense was $0.8 million and $0.1 million for the three months ended June 30, 2021 and 2020, respectively, and $1.2 million and $0.1 million for the six months ended June 30, 2021 and 2020, respectively.

Future minimum lease payments under noncancellable operating leases as of June 30, 2021 were as follows (in thousands):

2021$1,015 
20222,120 
20231,988 
20241,810 
2025 and thereafter2,368 
Total$9,301 
Legal Proceedings
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company does not expect that the resolution of these matters will have a material adverse effect on its financial position, results of operations or cash flows.
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7. Equity

Common Stock
Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and if declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors from inception.

In March 2020, the Company issued 5.6 million shares of its common stock at an estimated fair value of $0.58 per share to purchase Immetacyte (see Note 4).

In November 2020, the Company executed a limited recourse promissory note with its Chief Executive Officer (“CEO”), Bronson Crouch, in the amount of $1.1 million which was secured by a pledge of a total of 3.2 million shares of its common stock issued upon exercise of vested stock options. The note beared an interest rate of 2.5% per annum with a maturity date of the earlier of (i) five years from the date of the note or (ii) one business day prior to the filing or submission of the Company’s first registration statement covering the Company’s common stock with the SEC. The principal and interest under the note may be repaid at any time without penalty. Because the Company only has partial recourse under the promissory note, the Company deemed the note receivable to be non-substantive. As such, the note receivable was not reflected in the condensed consolidated financial statements and the related stock transaction will be recorded at the time the note receivable is settled in cash. As of December 31, 2020, the outstanding balance of the promissory note was $1.1 million. The promissory note was fully repaid in January 2021.

On March 23, 2021, the Company completed its IPO through an underwritten sale of an aggregate of an aggregate of 18,400,000 shares of its common stock at a price of $20.00 per share (see Note 2).

As of June 30, 2021, the Company had outstanding 128,743,123 shares of common stock. Of the 18,400,000 shares sold during the IPO, 18,193,671 shares are currently freely tradable, and 206,329 shares will be available for sale in the public market on September 15, 2021, which is 180 days after the date of the prospectus for our IPO following the expiration of lock-up agreements between certain stockholders who purchased shares in the IPO and the underwriters. An additional 110,549,452 shares will be available for sale in the public market on September 15, 2021 following the expiration of lock-up agreements between some of our stockholders and the underwriters. Morgan Stanley & Co. LLC, Jefferies LLC and Cowen and Company, LLC may release these stockholders from their lock-up agreements with the underwriters at any time and without notice, which would allow for earlier sales of shares in the public market.
Convertible Preferred Stock

As of December 31, 2020, there were 70,176,046 shares of preferred stock outstanding and the Company issued 4,174,551 shares of the Company Series C convertible preferred stock subsequent to December 31, 2020. Concurrent with the IPO, all then-outstanding shares of the Company's convertible preferred stock outstanding were automatically converted into an aggregate of 89,220,699 shares of common stock and were reclassified into permanent equity. Following the IPO, there are no shares of preferred stock outstanding.

Convertible preferred stock consisted of the following (in thousands, except shares):


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As of December 31, 2020
Shares AuthorizedShares Issued and OutstandingAggregate Liquidation Preference
Series A25,000,000 25,000,000 $25,000 
Series B34,600,523 34,600,523 170,200 
Series C14,750,075 10,575,523 133,000
74,350,598 70,176,046 $328,200 

All outstanding shares of convertible preferred stock were converted on a 1.2-for-1 conversion ratio of shares of common stock on March 23, 2021, the date of closing of the Company's IPO (see Note 2).

The Company classified the convertible preferred stock outside of total stockholders’ deficit because, in the event of certain deemed liquidation events that are not solely within the control of the Company, the shares would become redeemable at the option of the holders. The Company did not adjust the carrying values of the convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable of occurring at December 31, 2020. Subsequent adjustments to increase or decrease the carrying values to the ultimate liquidation values will be made only if, and when, it becomes probable that such a liquidation event will occur.

As of December 31, 2020, the holders of the Company’s convertible preferred stock had various rights, preferences and privileges as follows:
Voting Rights

The holders of convertible preferred stock were entitled to cast the number of votes equal to the number of shares of common stock into which the shares of convertible preferred stock held by such holder were convertible as of the record date at any shareholder meeting of the Company. Except as provided by law or by the other provisions of the Company’s amended and restated certificate of incorporation, holders of convertible preferred stock and common stock were entitled to vote together as a single class. Holders of Series A convertible preferred stock, exclusively and as a separate class, were entitled to elect one member of the Company’s board of directors and holders of Series B convertible preferred stock, exclusively and as a separate class, were entitled to elect three members to the Company’s board of directors.

Dividends

Holders of convertible preferred stock were entitled to receive noncumulative cash dividends in an amount equal to 8% of their respective original (pre-split) issue price of $1.00, $4.92 and $12.58 for Series A, Series B and Series C convertible preferred stock, respectively, per annum per share (subject to appropriate adjustment in the event of any stock dividends, stock splits, stock combinations, recapitalizations or similar events), when and if declared by the Company’s board of directors, prior and in preference to the holders of common stock. As of June 30, 2021, no dividends had been declared.

Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event, the holders of shares of Series C convertible preferred stock were entitled to receive, prior and in preference to any distribution to the holders of Series B convertible preferred stock, an amount equal to the greater of (i) $12.58 per share, plus any dividends declared but unpaid or (ii) such amount per share as would have been payable in respect of each share of Series C convertible preferred stock had all shares of Series C convertible preferred stock been converted into common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event. After the required payment to Series C convertible stockholders, holders of shares of
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Series B convertible preferred stock were entitled to receive, prior and in preference to any distribution to the holders of Series A convertible preferred stock, an amount equal to the greater of (i) $4.92 per share, plus any dividends declared but unpaid or (ii) such amount per share as would have been payable in respect of each share of Series B convertible preferred stock had all shares of Series B convertible preferred stock been converted into common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event. After the required payment to Series B convertible stock holders, holders of shares of Series A convertible preferred stock were entitled to receive, prior and in preference to any distribution to the holders of common stock, an amount equal to the greater of (i) $1.00 per share, plus any dividends declared but unpaid or (ii) such amount per share as would have been payable in respect of each share of Series A convertible preferred stock had all shares of Series A convertible preferred stock been converted into common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event. After the required payment is made to the preferred stockholders, the remaining assets of the Company, if any, were to be distributed to the holders of common stock pro rata based on the number of shares held by each such holder.

Optional Conversion Rights

Each share of convertible preferred stock was convertible, at the option of the holder, into such number of shares of common stock as was determined by dividing the original issue price for that series by the conversion price for such series in effect at the time of conversion. The conversion price was $0.83, $4.10 and $10.48 per share with respect to the shares of Series A, Series B and Series C convertible preferred stock, respectively, and was subject to certain anti-dilution adjustments.

Mandatory Conversion

Each share of convertible preferred stock was to be automatically converted into shares of common stock at the then effective conversion ratio for such share upon the earlier of (i) the closing of the sale of shares of common stock to the public at a price of at least $12.58 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization) with the gross cash proceeds to the Company of at least $100 million, or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least a majority of outstanding shares of (a) Series B convertible preferred stock, (b) Series C convertible preferred stock not also holding Series B convertible preferred stock, and (c) all convertible preferred stock.

2021 Preferred Stock Activity

All currently outstanding shares of convertible preferred stock were converted into an aggregate of 89,220,699 shares of common stock on March 23, 2021, the closing date of the Company's IPO (see Note 2). After the completion of the IPO, the Company's current amended and restated certificate of incorporation authorizes the Company to issue up to 10,000,000 shares of preferred stock at $0.000001 par value per share. The board of directors are authorized to provide for the issue of the shares of the preferred stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in subsequent resolution or resolutions adopted by the board providing for the issuance of such shares. As of June 30, 2021, there have been no shares of preferred stock issued and outstanding by the Company.
8. Stock-Based Compensation

2021 Equity Incentive Plan

In March 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”), which became effective in connection with the IPO. The 2021 Plan was approved by the Company’s board of directors and stockholders in March 2021. The 2021 Plan is an equity incentive plan pursuant to which the Company may grant
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the following awards: (i) incentive stock options; (ii) nonstatutory stock options; (iii) stock appreciation rights; (iv) restricted stock awards; (v) restricted stock unit awards; (vi) performance awards; and (vii) other forms of stock awards to employees, directors, and consultants, including employees and consultants of the Company’s affiliates. The 2021 Plan is a successor to the Company's 2018 Stock Incentive Plan (the “2018 Plan”). Following the effectiveness of the 2021 Plan, no further grants may be made under the 2018 Plan; however, any outstanding equity awards granted under the 2018 Plan will continue to be governed by the terms of the 2018 Plan.

The number of shares available for future issuance under the 2021 Plan is the sum of (1) 8,660,000 new shares of common stock, (2) 4,194,437 remaining shares of common stock reserved under the 2018 Plan that became available for issuance upon the effectiveness of the 2021 Plan and (3) the number of shares of common stock subject to outstanding awards under the 2018 Plan when the 2021 Plan became effective that thereafter expire or are forfeited, canceled, withheld to satisfy tax withholding or to purchase or exercise an award, repurchased by the Company or are otherwise terminated. The number of shares of common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each year, for a period of ten years, from January 1, 2022 continuing through January 1, 2031, by 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. Stock options granted by the Company to employees generally vest over four years with a one year cliff.

As of June 30, 2021, 10,654,850 shares of common stock remained available for issuance under the 2021 Plan. As of June 30, 2021, the total number of shares authorized for issuance under the 2021 Plan was 12,854,437 shares.

The following summarizes option activity under the 2021 Plan:
 
Shares
Available
for Grant
Shares
Issuable
Under
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contract
Term
(in years)
Aggregate
Intrinsic 
Value
(in thousands)
Balance, December 31, 2020
10,217,237 15,331,923 $0.80 9.22$78,857 
Additional Shares Authorized8,660,000 
Options granted(1)
(8,270,387)8,270,387 $9.25 
Options forfeited 48,000 (48,000)$4.74 
Options exercised— (3,690,620)$0.39 
Balance, June 30, 2021
10,654,850 19,863,690 $4.38 9.21$298,310 
Exercisable, June 30, 2021
2,286,626 $1.18 8.48$41,493 
Vested and expected to vest, June 30, 2021
2,286,626 $1.18 8.48$41,493 
______________________________________________________________
(1)    Includes 2,127,637 stock options subject to performance conditions.
The aggregate intrinsic value disclosed in the above table is based on the difference between the exercise price of the stock option and the estimated fair value of the Company’s common stock as of the respective period-end dates. There were 3,690,620 stock options exercised during the six months ended June 30, 2021. For the six months ended June 30, 2021, the estimated weighted-average grant-date fair value of employee options granted was $11.57 per share.

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The following table sets forth stock-based compensation included in the Company’s statement of operations and comprehensive loss (in thousands):
Three months ended June 30,Six months ended June 30,
 2021202020212020
Research and development expense$2,043 $124 $3,448 $128 
General and administrative expense3,702 775 5,109 833 
Total stock-based compensation expense$5,745 $899 $8,557 $961 
As of June 30, 2021, there was $70.8 million of total unrecognized compensation cost related to unvested stock options granted under the 2018 Plan (excluding performance awards), which is expected to be recognized over a weighted average period of 3.3 years.

The fair value of the Company’s stock option awards was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:
 
Six Months Ended June 30,
 20212020
Expected term (in years)5.776.235.276.08
Expected volatility75.97 %89.11%69.69 %82.64%
Risk-free interest rate0.51 %1.09%0.42 %1.76%
Fair Value of Common Stock$6.68$26.44$0.41$0.71
Expected dividend yield%%
Prior to the Company's IPO in March 2021, the fair value of the shares of common stock underlying stock options has historically been determined by the Company’s board of directors. Because there has been no public market for the Company’s common stock, the board of directors has determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including important developments in the Company’s operations, contemporaneous valuations performed by an independent third party firm, sales of the Company’s convertible preferred stock, the Company’s operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price volatility of similar public companies and the lack of marketability of the Company’s common stock, among other factors. After the Company’s IPO in March 2021, the fair value of common stock is determined using the closing price of the Company’s common stock on the Nasdaq Global Select Market.
The Black-Scholes option pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. These assumptions include:
Expected term—The expected term represents the period that stock-based awards are expected to be outstanding and is determined as the average of the time-to-vesting and the contractual life of the awards.
Expected volatility—Since the Company is privately held and does not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.
Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of awards.
Expected dividend yield—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.


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Performance Awards
During the six months ended June 30, 2021, the Company granted 2,127,637 stock options to both employees and non-employees that are subject to a performance condition and will begin vesting upon the consummation of a strategic transaction by the Company prior to December 31, 2022, which is expected to be recognized over a weighted average period of 3.72 years. A strategic transaction has been defined as (a) a change in control, (b) the Company’s next capital raise or (c) an initial public offering of the Company’s shares, in which the Company receives at least $50.0 million in gross proceeds. As of June 30, 2021, this performance condition was determined to be achieved, and the Company has recognized $1.6 million stock-based compensation expense relating to these performance awards. As of June 30, 2021, the Company had $22.7 million of unrecognized compensation cost relating to these performance awards, calculated using the accelerated attribution method and the grant date fair value of the awards.

Employee Stock Purchase Plan

In March 2021, the Company adopted the Employee Stock Purchase Plan (the “ESPP”), which became effective in connection with the IPO. The ESPP was adopted by the Company’s board of directors and stockholders in March 2021. The ESPP initially provides participating employees with the opportunity to purchase up to an aggregate of 1,237,000 shares of common stock. The number of shares of common stock reserved for issuance will automatically increase on January 1st of each calendar year for a period of up to ten years, commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to the lesser of (i) one percent (1%) of the total number of shares of capital stock outstanding on the last day of the calendar month before the date of the automatic increase, and (ii) 2,474,000 shares of common stock. Notwithstanding the foregoing, the board may act prior to the first day of any calendar year to provide that there will be no January 1st increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence.
9. Net Loss Per Share

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:
 
June 30,
 20212020
Convertible preferred stock— 59,600,523 
Stock options to purchase common stock19,863,6909,541,349
Total19,863,69069,141,872

All outstanding shares of convertible preferred stock were converted on a 1.2-for-1 conversion ratio of shares of common stock on March 23, 2021, the date of the Company's IPO (see Note 2).
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 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our final prospectus filed with the Securities and Exchange Commission, or SEC, on March 22, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, for our initial public offering, or IPO. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Instil Bio, Inc.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.


Overview
We are a clinical-stage biopharmaceutical company focused on developing an innovative cell therapy pipeline of autologous tumor infiltrating lymphocyte, or TIL, therapies for the treatment of patients with cancer. We have assembled an accomplished team with a successful track record in the development, manufacture, regulatory approval and commercialization of multiple cell therapies. Using our optimized and scalable manufacturing process, we are advancing our lead TIL product candidate, ITIL-168, for the treatment of advanced melanoma. Based on the clinical results from a compassionate use program with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process, we plan to initiate a Phase 2 trial in the second half of 2021, which we believe could support a biologics license application, or BLA, submission in 2023. We plan to initiate Phase 1 trials of ITIL-168 in additional indications with unmet medical need, including cutaneous squamous cell carcinoma, non-small cell lung cancer, head and neck squamous cell carcinoma and cervical cancer, in the first half of 2022. ITIL-168 will be manufactured in our company-operated in-house manufacturing facilities for both our clinical trials and commercial sale, if approved.
We are also developing a novel class of genetically engineered TIL therapies using our Co-Stimulatory Antigen Receptor, or CoStAR, platform. These modified TILs still rely on their native, patient-specific T cell receptors, or TCRs, to bind to tumor neoantigens, but have been enhanced to express novel CoStAR molecules, which bind to shared tumor-associated antigens and provide potent costimulation to T cells within the microenvironment. We believe that the ability of CoStAR to augment the activation of TILs upon native TCR-mediated recognition of tumor neoantigens has the potential to bring TIL therapy to patients with cancer types that have been historically resistant to immunotherapy. We anticipate filing an IND for our lead CoStAR-TIL product candidate, ITIL-306, in the first half of 2022.
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We were founded in August 2018. In February 2019, we entered into a license agreement with Immetacyte Ltd., or Immetacyte, pursuant to which we obtained a worldwide license to Immetacyte’s proprietary technology, know-how and intellectual property for the research, development, manufacture and commercialization of TIL therapies. Immetacyte had been manufacturing a TIL product under a compassionate use program since 2011. Under this license agreement, we were obligated to make an up-front payment, along with payments related to the achievement of development and commercial milestones, as well as royalty payments on net sales, if any. This transaction was accounted for as an asset acquisition and, because the assets were determined to have no alternative future use, we recognized an amount of in-process research and development, or IPR&D, expense during the year ended December 31, 2019. We were also obligated to make payments for certain research and development, manufacturing, monitoring and other services.
In March 2020, we acquired 100% of the share capital of Immetacyte for $0.8 million in cash consideration and 5.6 million shares of common stock valued at $0.58 per share. Pursuant to the purchase agreement, we are obligated to pay up to an aggregate of $14.8 million upon the achievement of certain clinical, regulatory and commercial sales milestones. In connection with the acquisition, we terminated the Immetacyte license agreement and associated payment obligations. The transaction was accounted for as a business combination and we recognized a $10.1 million intangible asset for the acquired IPR&D. We acquired Immetacyte primarily for this IPR&D, which is critical to achieve our objective of developing an innovative cell therapy pipeline of autologous TIL therapies for the treatment of patients with cancer, as well as the dedicated workforce of Immetacyte. Utilizing this IPR&D, we have optimized and scaled the manufacturing process and are advancing our lead TIL product candidate, ITIL-168, for the treatment of advanced melanoma. Based on the clinical results from a compassionate use program performed by Immetacyte at the Christie Hospital in Manchester, United Kingdom, with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process, we plan to initiate a Phase 2 trial in the second half of 2021.
Since inception, we have had significant operating losses. Our net loss was $35.3 million and $58.4 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2021, we had an accumulated deficit of $103.4 million. As of June 30, 2021, we had $566.7 million in cash and cash equivalents. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase.
Impact of the COVID-19 Pandemic on Our Operations
On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including the United Kingdom and California, where most of our operations are conducted. These actions include travel bans, quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. We have been carefully monitoring the COVID-19 pandemic as it continues to progress and its potential impact on our business. As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees, including the suspension of all non-essential business travel. In addition, the majority of our workforce now works remotely. To date, we have been able to continue our key business activities and advance our clinical programs. However, in the future, it is possible that it will become more difficult to enroll participants in our clinical trials, which could delay our clinical development timelines. While the broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, including any implications from the spread of the new Delta variant of COVID-19,the COVID-19 pandemic has, to date, not had a material adverse impact on our results of operations or our ability to raise funds to sustain operations. The economic effects of the pandemic and resulting societal changes are currently not predictable, and the future financial impacts could vary from those foreseen.
See “Risk Factors” for a further discussion of the potential adverse impact of COVID-19 on our business.
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Components of Operating Results
Operating Expenses
Research and Development
Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of research and development, manufacturing, monitoring and other services payments and in-license payments to Immetacyte and, to a lesser extent, salaries, benefits, and other personnel-related costs, including stock-based compensation, professional service fees and facility and other related costs. In-licensing payments to Immetacyte were treated as in-process research and development and expensed when incurred because the product candidates using the licensed TIL technology were determined to have no alternative future use. For the three and six months ended June 30, 2021 and June 30, 2020, we did not allocate our research and development expenses by program.
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to ramp up our clinical development activities and incur expenses associated with hiring additional personnel to support our research and development efforts. Our expenditures on future nonclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of clinical trials and development of product candidates will depend on a variety of factors, including:
•    the scope, rate of progress and expenses of clinical trials and other research and development activities;
•    potential safety monitoring and other studies requested by regulatory agencies;
•    significant and changing government regulation; and
•    the timing and receipt of regulatory approvals, if any.
The process of conducting the necessary clinical research to obtain FDA and other regulatory approval is costly and time consuming and the successful development of product candidates is highly uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this Quarterly Report titled “Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.
 General and Administrative
General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive, finance and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, insurance costs, recruiting costs, travel expenses, amortization and depreciation, and other general and administrative costs.
We expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to increase our headcount to support our research and development activities and operations generally, the growth of our business and, if any of our product candidates receive marketing approval, commercialization activities. We also expect to continue to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, additional director and officer insurance expenses, investor relations activities and other administrative and professional services.
Interest and Other Income (Expense), Net
Interest and other income (expense), net consists primarily foreign exchange remeasurement gains and other taxes.
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Income Tax Provision
We are subject to income taxes in the United States and the foreign jurisdiction where we operate, the United Kingdom. The United Kingdom has statutory tax rates that differ from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of United Kingdom to United States income, the availability of research and development tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the business in which we operate, projections of future profitability are difficult and past profitability is not necessarily indicative of future profitability. At June 30, 2021, we maintained a full valuation allowance against net deferred tax assets for domestic purposes. The valuation allowance has been provided based on the positive and negative evidence relative to our company, including the existence of cumulative net operating losses, or NOLs since the Company’s inception, and the inability to carryback these NOLs to prior periods. Furthermore, the Company determined that it is more likely than not that the benefit of these assets would not be realized in the foreseeable future. The timing and the reversal of the Company's valuation allowance will continue to be monitored. For United Kingdom purposes, the losses are being reported as a deferred tax asset to offset the net deferred tax liability by $0.2 million.
Results of Operations
Comparison of the Three Months Ended June 30, 2021 and 2020
The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020 (in thousands):
Three Months Ended June 30,Change
20212020$
Revenue$— $42 $(42)
Operating expenses:
Research and development21,186 2,237 18,949 
General and administrative14,195 2,398 11,797 
Total operating expenses35,381 4,635 30,746 
Loss from operations(35,381)(4,593)(30,788)
Interest and other expense, net(89)(4,609)4,520 
Loss before income tax expense$(35,470)$(9,202)$(26,268)
Income tax benefit159 — 159 
Net loss$(35,311)$(9,202)$(26,109)

Research and Development Expenses
Research and development expenses were $21.2 million and $2.2 million for the three months ended June 30, 2021 and 2020, respectively. The increase in research and development expenses during this period of $19.0 million was primarily due to:

$12.2 million in costs from an increase in headcount and related costs for our research and development personnel, including increased stock based compensation expense of $1.9 million, to support increased clinical trial activities, including clinical manufacturing;
$4.4 million in costs related to research and clinical development activities, including from our clinical trials and also increased costs related to expanded clinical manufacturing activities; and
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$2.4 million of expenses related to facilities and overhead, depreciation and amortization, and other expenses.
General and Administrative Expenses
General and administrative expenses were $14.2 million and $2.4 million for the three months ended June 30, 2021 and 2020, respectively. The net increase of $11.8 million was primarily due to:
    
$6.8 million in costs resulting from increased headcount and personnel related costs, including increased stock based compensation expense of $2.9 million, to support our growing business and for preparation of clinical trials;
$2.5 million in costs resulting from increased usage of consultants during our IPO, which increased primarily due to expenses related to accounting and marketing consultants of $0.7 million, executive, legal and administrative consultants of $1.1 million and information technology and other general and administrative consultants of $0.7 million; and
$2.5 million in costs resulting from increased facilities and offices costs of $1.5 million and insurance expenses of $1.0 million.
Interest and Other Income (Expense), Net

Interest and other income (expense), net was net income of $0.1 million and expense of $4.6 million for the three months ended June 30, 2021 and 2020, respectively. The decrease of $4.5 million was due to a $4.4 million loss on the issuance of Series A preferred stock during three months ended June 30, 2020 and $0.1 million related to taxes and other.

Income Tax Benefit

Income tax benefit increased from zero for the three months ended June 30, 2020 to $0.2 million for the three months ended June 30, 2021. During the three months ended June 30, 2021, income tax benefit consisted of current and deferred foreign income taxes from our operations in the United Kingdom.

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Results of Operations
Comparison of the Six Months Ended June 30, 2021 and 2020
The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020 (in thousands):
Six Months Ended June 30,Change
20212020$
Revenue$— $87 $(87)
Operating expenses:
Research and development35,610 4,245 31,365 
General and administrative23,174 4,298 18,876 
Total operating expenses58,784 8,543 50,241 
Loss from operations(58,784)(8,456)(50,328)
Interest and other expense, net(18)(4,835)4,817 
Loss before income tax expense$(58,802)$(13,291)$(45,511)
Income tax benefit363 — 363 
Net loss$(58,439)$(13,291)$(45,148)

Research and Development Expenses
Research and development expenses were $35.6 million and $4.2 million for the six months ended June 30, 2021 and 2020, respectively. The increase in research and development expenses during this period of $31.4 million was primarily due to:

$20.9 million in costs from an increase in headcount and related costs for our research and development personnel, including increased stock based compensation expense of $3.3 million, to support increased clinical trial activities, including clinical manufacturing;
$7.0 million in costs related to research and clinical development activities, including from our clinical trials and also increased costs related to expanded clinical manufacturing activities; and
$3.5 million of expenses related to facilities and overhead, depreciation and amortization, and other expenses.
General and Administrative Expenses
General and administrative expenses were $23.2 million and $4.3 million for the six months ended June 30, 2021 and 2020, respectively. The net increase of $18.9 million was primarily due to:
    
$11.2 million in costs resulting from increased headcount and personnel related costs, including increased stock based compensation expense of $4.3 million, to support our growing business and for preparation of clinical trials;
$3.9 million in costs resulting from increased usage of consultants during our IPO, which increased primarily due to expenses related to accounting consultants of $1.3 million, executive and legal consultants of $1.3 million and information technology and other general and administrative consultants of $1.3 million; and
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$3.8 million in costs resulting from increased facilities and offices costs of $2.5 million and insurance expenses of $1.4 million.
Interest and Other Income (Expense), Net

Interest and other income (expense), net was net loss of zero and expense of $4.8 million for the six months ended June 30, 2021 and 2020, respectively. The decrease of $4.8 million was due to a $4.4 million loss on the issuance of Series A preferred stock during the six months ended June 30, 2020 and $0.4 million related to taxes and other income.

Income Tax Benefit

Income tax benefit increased from zero for the six months ended June 30, 2020 to $0.4 million for the six months ended June 30, 2021. During the six months ended June 30, 2021, income tax benefit consisted of current and deferred foreign income taxes from our operations in the United Kingdom.
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Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue from product sales and we have incurred significant operating losses. We do not have any products that have achieved regulatory marketing approval and we do not expect to generate revenue from sales of any product candidates for several years, if ever.
As of June 30, 2021, we had cash and cash equivalents of $566.7 million and an accumulated deficit of $103.4 million. In March 2021, we raised net proceeds of $339.0 million in our IPO, pursuant to which we sold an aggregate of 18,400,000 shares of common stock.

Prior to our IPO, we funded our operations primarily through the issuance and sale of convertible preferred stock. From our inception through December 31, 2020, we raised net cash proceeds of $327.6 million from the issuance and sale of our convertible preferred stock. As of December 31, 2020, we had cash and cash equivalents of $241.7 million and an accumulated deficit of $44.9 million. Subsequent to December 31, 2020, we raised aggregate net cash proceeds of $52.5 million from the issuance and sale of our Series C convertible preferred stock.
Funding Requirements
Based on our current operating plan, we believe that the net proceeds from our IPO, together with our existing cash and cash equivalents, will be sufficient to fund our operating expenses and capital expenditure requirements into 2023. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect to continue to expend significant resources for the foreseeable future.
We use our cash to fund operations, primarily to fund our research and development expenditures and related personnel costs. We expect our expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities, particularly as we advance our product candidates into later stages of development and conduct larger clinical trials, seek regulatory approvals for and commercialize any product candidates that successfully complete clinical trials, hire additional personnel and invest in and grow our business, expand and protect our intellectual property portfolio, and operate as a public company. Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, we are unable to estimate the exact timing and amount of our funding requirements. Our future operating expenditures will depend on many factors, including:
•    the scope, rate of progress, costs and results of our clinical and preclinical development activities;
•    the number and characteristics of any additional product candidates we develop or acquire;
•    the timing of, and the costs involved in, obtaining regulatory approvals for ITIL-168, ITIL-306 or any future product candidates, and the number of trials required for regulatory approval;
•    the cost of manufacturing ITIL-168, ITIL-306 or any future product candidates as well as any products we successfully commercialize;
•    costs related to our manufacturing and other facilities;
•    the cost of commercialization activities of our product candidates, if approved for sale, including marketing, sales and distribution costs;
•    the timing, receipt and amount of sales of ITIL-168, ITIL-306 or any future product candidates, if approved;
•    the costs associated with constructing our new clinical and commercial manufacturing facility and building out lab space;
•    the extent to which we acquire or in-license other companies’ product candidates and technologies;
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•    our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such arrangements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
•    any product liability or other lawsuits;
•    the expenses needed to attract, hire and retain skilled personnel;
•    our investments in our operational, financial and management information systems;
•    the costs associated with operating as a public company;
•    the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and
•    any delays or issues resulting from the ongoing COVID-19 pandemic.
In March 2020, we acquired 100% of the share capital of Immetacyte for total cash and non-cash consideration, including contingent consideration, of $15.4 million. In connection with the acquisition, we terminated the Immetacyte license agreement and associated payment obligations. The maximum consideration that remained unpaid at June 30, 2021, which payment is contingent on future events, was $14.8 million.
Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through equity offerings, debt financings or other capital sources, which may include strategic collaborations or other arrangements with third parties. Additional funds may not be available to us on acceptable terms or at all. If we raise additional funds by issuing equity or convertible debt securities, our stockholders will suffer dilution and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities receive any distribution of our corporate assets. If we raise funds through collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to technologies, future revenue streams, product candidates or research programs or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common shares. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.

We lease various operating spaces in the United States and the United Kingdom under non-cancelable operating lease arrangements that expire on various dates through 2026. These arrangements require us to pay certain operating expenses, such as taxes, repairs, and insurance and contain landlord or tenant incentives or allowances, renewal and escalation clauses. As of June 30, 2021, our future minimum lease payments under non-cancelable lease agreements were $9.3 million.

In October 2020, we acquired land inclusive of four buildings in Tarzana, California, for $37.6 million. We are in the process of developing this land for our United States operations and our contractual commitments for this development project are limited to unreimbursed spend by the general contractor. As of June 30, 2021, and December 31, 2020, $43.0 million and $6.3 million, respectively, was contractually committed to the development of this project.
In the normal course of business, we enter into contracts with Clinical Research Organization ("CRO") and other third parties for preclinical studies and clinical trials, research and development supplies and other testing and manufacturing services. These contracts generally do not contain minimum purchase commitments and generally provide us the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. However, it is not possible to predict the maximum potential amount
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of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
 Six Months Ended June 30,
20212020
Net cash provided by (used in):
Cash used in operating activities$(49,953)$(5,558)
Cash used in investing activities(17,622)(1,549)
Cash provided by financing activities392,845 179,863 
Net increase in cash, cash equivalents, and restricted cash$325,270 $172,756 
Cash Flows from Operating Activities

Cash used in operating activities for the six months ended June 30, 2021 was $50.0 million, which consisted of the net loss of $58.4 million partially offset by $9.7 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and $1.2 million in a net change of our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $8.6 million, and depreciation and amortization expense of $1.1 million. The net change in our operating assets and liabilities was primarily due to an increase of $2.0 million in accounts payable, an increase of $1.1 million in accrued expenses and other liabilities, partially offset by an increase in $2.8 million in prepaid expenses and other current assets and an increase in $1.5 million in other long-term assets.

Cash used in operating activities for the six months ended June 30, 2020 was $5.6 million, which consisted of the net loss of $13.3 million, partially offset by $5.7 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and $2.1 million in a net change of our net operating assets and liabilities. The non-cash charges primarily consisted of a loss on issuance of Series A convertible preferred stock of $4.4 million, foreign exchange remeasurement loss of $0.2 million, and stock-based compensation of $1.0 million. The net change in our operating assets and liabilities was primarily due to a decrease of $0.9 million in accounts payable, an increase of $1.1 million in accrued expenses and other liabilities, partially offset by a decrease in $1.8 million in prepaid expenses and other current assets.
Cash Flows from Investing Activities

Cash used in investing activities for the six months ended June 30, 2021 was $17.6 million, which was related to purchases of property and equipment.

Cash used in investing activities for the six months ended June 30, 2020 was $1.5 million, which was related to purchases of property and equipment of $1.2 million and $0.3 million related to the acquisition of Immetacyte.
Cash Flows from Financing Activities

Cash provided by financing activities for the six months ended June 30, 2021 was $392.8 million, which was primarily related to net cash proceeds from our IPO of $339.0 million, net cash proceeds from the issuance of Series C convertible preferred stock of $52.5 million and cash proceeds from exercise of stock options of $1.4 million.

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Cash provided by financing activities for the six months ended June 30, 2020 was $179.9 million, which was primarily related to net cash proceeds from the issuance of Series A and Series B convertible preferred stock of $179.8 million.

Critical Accounting Policies and Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes to the condensed consolidated financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates are different assumptions and conditions. A summary of our critical accounting policies is presented in our audited financial statements and notes thereto as of and for the year ended December 31, 2020 included in our final prospectus filed with the SEC on March 22, 2021 pursuant to Rule 424(b)(4) under the Securities Act for our IPO. There were no material changes to our critical accounting policies during the six months ended June 30, 2021.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information.
Emerging Growth Company and Smaller Reporting Company Status
We are an “emerging growth company” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
In addition, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest of (i) December 31, 2026, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on
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exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk
We had cash and cash equivalents of $566.7 million as of June 30, 2021. We generally hold our cash in interest-bearing money market accounts. We believe that historical fluctuations in interest rates have not had a material effect on our results of operations during the period presented.
Due to the low risk profile of our investments, a hypothetical one percentage point change in interest rates during the period presented would not have had a material impact on our financial statements included elsewhere in this report.
Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the June 30, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact on our internal control over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally,
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controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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Part II. Other Information
Item 1. Legal Proceedings
Legal Proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors