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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 September 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
128,926,778 shares of Common Stock, $0.000001 par value per share
November 12, 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)
 September 30, 2021December 31, 2020
ASSETS 
Current assets: 
Cash and cash equivalents$20,400 $241,714 
Marketable securities494,958  
Prepaid expenses and other current assets7,729 4,424 
Total current assets523,087 246,138 
Property, plant and equipment, net103,690 55,341 
Intangibles10,104 10,104 
Goodwill5,722 5,722 
Other long-term assets4,794 1,707 
Total assets$647,397 $319,012 
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable$5,254 $3,495 
Accrued expenses and other current liabilities25,304 8,402 
Contingent consideration, current portion1,529 1,384 
Total current liabilities32,087 13,281 
Contingent consideration, net of current portion10,878 10,893 
Deferred tax liabilities1,475 2,471 
Other long-term liabilities1,537  
Total liabilities45,977 26,645 
Commitments and contingencies (Note 7)
Convertible preferred stock, $0.000001 par value; 10,000,000 and 74,350,598 shares authorized as of September 30, 2021, and December 31, 2020, respectively; 0 and 70,176,046 shares issued and outstanding as of September 30, 2021, and December 31, 2020, respectively; $0 and $328,200 aggregate liquidation preference as of September 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 September 30, 2021, and December 31, 2020, respectively, 128,857,283 and 20,591,554 shares issued and outstanding as of September 30, 2021, and December 31, 2020, respectively
  
Additional paid-in capital747,891 5,607 
Accumulated other comprehensive loss(104)(283)
Accumulated deficit(146,367)(44,923)
Total stockholders’ equity (deficit)601,420 (39,599)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)$647,397 $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
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenue$ $52 $ $138 
Operating expenses:
Research and development29,064 4,908 64,674 9,152 
General and administrative13,960 2,855 37,134 7,153 
Total operating expenses43,024 7,763 101,808 16,305 
Loss from operations(43,024)(7,711)(101,808)(16,167)
Interest and other (expense) income, net(639)449 (657)(4,386)
Loss before income tax benefit$(43,663)$(7,262)$(102,465)$(20,553)
Income tax benefit658  1,021  
Net loss$(43,005)$(7,262)$(101,444)$(20,553)
Other comprehensive income (loss):
Foreign currency translation124 17 197 (14)
Unrealized loss on available-for-sale securities, net(18) (18) 
Net comprehensive loss$(42,899)$(7,245)$(101,265)$(20,567)
Net loss per share, basic and diluted$(0.33)$(0.43)$(1.03)$(1.32)
Weighted-average shares used in computing net loss per share, basic and diluted128,794,14216,928,83198,256,027 15,616,389 

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 
Issuance of common stock from exercises of stock options— — 114,160 — 121 — — 121 
Stock-based compensation— — — — 8,726 — — 8,726 
Net loss— — — — — — (43,005)(43,005)
Other comprehensive income— — — — — 106 — 106 
Balance—September 30, 2021
 $ 128,857,283 $ $747,891 $(104)$(146,367)$601,420 

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)
Deferred financing costs for Series B— 15 — — — — — — 
Issuance of common stock from exercises of stock options— — 125,250 — 99 — — 99 
Stock-based compensation— — — — 331 — — 331 
Net loss— — — — — — (7,262)(7,262)
Foreign currency translation— — — — — 17 — 17 
Balance—September 30, 2020
59,600,523 $199,158 16,974,604 $ $4,934 $(14)$(27,738)$(22,818)

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)
 
Nine Months Ended September 30,
 20212020
Cash flows from operating activities:
Net loss$(101,444)$(20,553)
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 compensation17,293 1,291 
Foreign exchange remeasurement loss (gain)602 (180)
Loss on change in fair value of contingent consideration130 263 
Depreciation and amortization1,859 108 
Accretion on marketable securities 12  
Changes in operating assets and liabilities:
Prepaid expenses and other current assets(2,877)5 
Other long-term assets(3,160)(29)
Accounts payable3,750 (569)
Accrued expenses and current other liabilities4,487 2,471 
Net cash used in operating activities(79,348)(12,793)
Cash flows from investing activities:
Purchase of marketable securities(699,987) 
Maturities of marketable securities205,000  
Purchases of property, plant and equipment(39,367)(5,545)
Business acquisition, net of cash acquired (306)
Net cash used in investing activities(534,354)(5,851)
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 costs52,460 179,809 
Proceeds from exercise of stock options1,559 105 
Other financing activities(69)63 
Net cash provided by financing activities392,966 179,977 
Net (decrease) increase in cash and cash equivalents(220,736)161,333 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(128)451 
Cash, cash equivalents and restricted cash—beginning of period241,764 8,895 
Cash, cash equivalents and restricted cash—end of period$20,900 $170,679 
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$12,690 $1,882 
Business acquisition through issuance of common stock and contingent consideration payable$ $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 September 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of convertible preferred stock and stockholders' equity (deficit) for the three and nine months ended September 30, 2021 and 2020, and the results of its cash flows for the nine months ended September 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2021 and 2020 are also unaudited. The results for the three and nine months ended September 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
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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 8) 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. 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, Restricted Cash and Marketable securities

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.

Our short-term marketable securities have original maturities of less than a year at date of purchase. We classify and account for our marketable securities as available-for-sale securities, which are carried at their fair values based on the quoted market prices of the securities. Unrealized gains and losses are reported as accumulated other comprehensive loss. Realized gains and losses on available-for-sale securities are included in net loss in the period earned or incurred. As of September 30, 2021, marketable securities consisted of U.S. Treasury bills. The Company had no holdings of marketable securities as of December 31, 2020.
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Short-term marketable securities are recorded at their estimated fair value. We periodically review whether our securities may be other-than-temporarily impaired, including whether or not (i) we have the intent to sell the security or (ii) it is more likely than not that we will be required to sell the security before its anticipated recovery. If one of these factors is met, we will record an impairment loss associated with our impaired investment. The impairment loss will be recorded as a write-down of investments in the condensed consolidated balance sheets and a realized loss within other expense in the condensed consolidated statements of operations.


The following table provides a reconciliation of cash, 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):

 September 30, 2021December 31, 2020
Cash and cash equivalents$20,400 $241,714 
Restricted cash500 50 
Cash, cash equivalents and restricted cash$20,900 $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
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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.

3. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
 
 September 30, 2021December 31, 2020
Prepaid research and development expenses$1,226 $761 
Prepaid general and administration expenses2,859 420 
Grant receivable861 571 
U.K. research and development tax and expenditure credits2,299 799 
Other receivables484 1,803 
Other current assets 70 
Total prepaid expenses and other current assets$7,729 $4,424 

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

September 30, 2021December 31, 2020
Land$31,243 $31,243 
Building6,309 6,309 
Laboratory equipment14,281 6,590 
Manufacturing equipment1,700 2,355 
Office and computer equipment2,182 1,510 
Vehicles64  
Leasehold improvements1,423 1,312 
Construction work-in-progress48,575 6,328 
Total property, plant and equipment, gross105,777 55,647 
Less: accumulated depreciation(2,087)(306)
Total property, plant and equipment, net$103,690 $55,341 
    
Depreciation expense was $0.8 million and an immaterial amount for the three months ended September 30, 2021 and 2020, respectively, and was $1.9 million and an immaterial amount for the nine months ended September 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
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has capitalized $44.2 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 September 30, 2021, and December 31, 2020, $78.7 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.
Other Long-term Assets
Other long-term assets consist of the following (in thousands):

September 30, 2021December 31, 2020
Deferred rent$2,088 $509 
Prepaid research and development expenses2,024 603 
Prepaid general and administration expenses71  
Security deposit111 29 
Restricted cash500 50 
Deferred offering costs 516 
Total other long-term assets$4,794 $1,707 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
 
 September 30, 2021December 31, 2020
Accrued compensation and benefits$9,157 $3,983 
Accrued construction costs11,178 302 
Accrued research and development expenses3,034 1,616 
Accrued operational expenses1,265 1,589 
Current tax liabilities436 631 
Other current liabilities234 281 
Total accrued expenses and other current liabilities$25,304 $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 September 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.
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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 nine months ended September 30, 2020, the Company recorded $0.6 million of research and development expense in the statement of operations and comprehensive loss as part of these services.

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 equipment690
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.
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The goodwill recognized for this acquisition is not deductible for income tax purposes. From the acquisition date through September 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 September 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 nine months ended September 30, 2020, which were expensed as incurred within general and administrative on the condensed consolidated statements of operations and comprehensive loss.
5. Fair Value Measurement

The fair value of cash and cash equivalents approximates carrying value since cash and cash equivalents consist of short-term highly liquid investments with maturities of less than three months at the time of purchase. Cash and cash equivalents are quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. Money market funds are open-end mutual funds that invest in cash, government securities, and/or repurchase agreements that are collateralized fully. To the extent that these funds are valued based upon the reported net asset value, they are categorized in Level 1 of the fair value hierarchy.

Short-term marketable securities comprised of U.S. Treasury bills that are classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations, alternative pricing sources or U.S. Government Treasury yield of appropriate term.

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:
As of September 30, 2021
Level 1Level 2Level 3Total
(In thousands)
Financial Assets
Money market funds$15,296 $ $ $15,296 
U.S. Treasury bills 494,958  494,958 
Total$15,296 $494,958 $ $510,254 
Financial Liabilities
Contingent consideration$  12,407 $12,407 
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 nine months ended September 30, 2021 and the year ended December 31, 2020. As of September 30, 2021 and December 31, 2020, there were no securities within Level 3 of the fair value hierarchy. The following table sets forth a summary of the changes in the fair value of the Company's Level 3 financial liabilities (in thousands):
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Nine Months Ended September 30, 2021
Fair value, beginning balance$12,277 
Change in fair value130 
Fair value, ending balance$12,407 

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.

During the nine months ended September 30, 2021, the change of fair value related to the contingent consideration is attributable to the change to present value unwinding, as well as expected dates and probabilities of milestone achievement revisions. During the nine months ended September 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. Financial Instruments

Marketable securities classified as available-for-sale at September 30, 2021 consisted of the following (in thousands):
MaturityAmortized CostUnrealized GainsUnrealized LossesFair Value
U.S. Treasury billsLess than one year$494,976 $ $(18)$494,958 

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As of September 30, 2021, all marketable securities had contractual maturities less than one year. We do not intend to sell our marketable securities and it is not likely that we will be required to sell these securities before recovery of their amortized cost bases. There were no marketable securities classified as available for sale at December 31, 2020.

7. 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 $0.6 million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, and $1.8 million and $0.2 million for the nine months ended September 30, 2021 and 2020, respectively.

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

2021 (remaining three months)$597 
20222,469 
20232,352 
20242,200 
2025 and thereafter3,182 
Total$10,800 
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.
8. 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 bore an interest rate of
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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 September 30, 2021, the Company had outstanding 128,857,283 shares of common stock.
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):


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
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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 September 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 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
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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 September 30, 2021, there have been no shares of preferred stock issued and outstanding by the Company.
9. 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 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 September 30, 2021, 10,547,900 shares of common stock remained available for issuance under the 2021 Plan. As of September 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:
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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)
(8,604,737)8,604,737 $9.57 
Options forfeited275,400 (275,400)$2.92 
Options exercised— (3,820,528)$0.41 
Balance, September 30, 2021
10,547,900 19,840,732 $4.65 8.99$265,567 
Exercisable, September 30, 2021
4,249,857 $1.69 8.52$68,914 
Vested and expected to vest, September 30, 2021
4,369,857 $1.67 8.52$70,960 
______________________________________________________________
(1)    Includes 2,252,137 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 3,820,528 stock options exercised during the nine months ended September 30, 2021. For the nine months ended September 30, 2021, the estimated weighted-average grant-date fair value of employee options granted was $11.57 per share.

The following table sets forth stock-based compensation included in the Company’s statement of operations and comprehensive loss (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Research and development expense$4,677 $125 $8,127 $252 
General and administrative expense4,057 206 9,166 1,039 
Total stock-based compensation expense$8,734 $331 $17,293 $1,291 
As of September 30, 2021, there was $68.7 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 2.35 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:
 
Nine Months Ended September 30,
 20212020
Expected term (in years)5.776.245.276.08
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$1.38
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
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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.
Performance Awards
During the nine months ended September 30, 2021, the Company granted 2,252,137 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 3.29 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 September 30, 2021, this performance condition was determined to be achieved, and the Company has recognized $3.2 million stock-based compensation expense relating to these performance awards. As of September 30, 2021, the Company had $21.2 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.
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10. 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:
 
September 30,
 20212020
Convertible preferred stock 59,600,523 
Stock options to purchase common stock19,840,732 14,343,832
Total19,840,73273,944,355

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 have initiated a Phase 2 trial 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 investigational new drug, or IND, application for our lead CoStAR-TIL product candidate, ITIL-306, in the first half of 2022.
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