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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, 2022

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 class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, $0.000001 par value per share			TIL			The 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 Stock			Outstanding at
129,775,097 shares of Common Stock, $0.000001 par value per share			November 10, 2022

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TABLE OF CONTENTS

 

			Page
Part I. Financial Information			2
Item 1. Financial Statements (Unaudited)			2
Condensed Consolidated Balance Sheets			2
Condensed Consolidated Statements of Operations and Comprehensive Loss			3
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity			4
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			29
Part II. Other Information			31
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			94
Item 3. Defaults Upon Senior Securities			94
Item 4. Mine Safety Disclosures			94
Item 5. Other Information			94
Item 6. Exhibits			95
Signatures			97

 

1

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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, 2022						December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents			$	41,118					$	37,590
Marketable securities			262,169						416,509
Prepaid expenses and other current assets			10,369						9,921
Total current assets			313,656						464,020
Property, plant and equipment, net			185,057						121,999
Operating lease right-of-use assets			13,190						—
Intangibles			10,104						10,104
Goodwill			5,722						5,722
Other long-term assets			5,012						8,138
Total assets			$	532,741					$	609,983
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	5,328					$	5,568
Accrued expenses and other current liabilities			36,361						34,449
Contingent consideration, current portion			412						1,341
Total current liabilities			42,101						41,358
Contingent consideration, net of current portion			10,518						10,980
Operating lease liabilities, non-current			5,630						—
Deferred tax liabilities			555						2,426
Loan payable			62,974						—
Other long-term liabilities			375						20
Total liabilities			122,153						54,784
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, par value $0.000001 per share; 300,000,000 shares authorized; 129,753,672 and 129,028,278 shares issued and outstanding as of September 30, 2022, and December 31, 2021, respectively			—						—
Additional paid-in capital			781,973						757,003
Accumulated other comprehensive loss			(335)						(87)
Accumulated deficit			(371,050)						(201,717)
Total stockholders’ equity			410,588						555,199
Total liabilities and stockholders’ equity			$	532,741					$	609,983

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

2

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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,
			2022						2021						2022						2021
Operating expenses:
Research and development			$	39,660					$	29,064					$	120,334					$	64,674
General and administrative			16,989						13,960						49,325						37,134
Total operating expenses			56,649						43,024						169,659						101,808
Loss from operations			(56,649)						(43,024)						(169,659)						(101,808)
Interest income			1,276						22						1,859						45
Interest expense			(807)						—						(1,138)						—
Other expense, net			(415)						(661)						(1,863)						(702)
Loss before income tax benefit			(56,595)						(43,663)						(170,801)						(102,465)
Income tax benefit			371						658						1,468						1,021
Net loss			(56,224)						(43,005)						(169,333)						(101,444)
Other comprehensive (loss) income:
Foreign currency translation			391						124						580						197
Unrealized loss on available-for-sale securities, net			(169)						(18)						(828)						(18)
Net comprehensive loss			$	(56,002)					$	(42,899)					$	(169,581)					$	(101,265)
Net loss per share, basic and diluted			$	(0.43)					$	(0.33)					$	(1.31)					$	(1.03)
Weighted-average shares used in computing net loss per share, basic and diluted			129,680,217						128,794,142						129,391,225						98,256,027

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

3

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INSTIL BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share and per share amounts)

(Unaudited)

						Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive						Accumulated Deficit						Total Stockholders’ Equity (Deficit)
						Shares						Amount												(Loss) Income
Balance - December 31, 2021						129,028,278						$	—					$	757,003					$	(87)					$	(201,717)					$	555,199
Shares of common stock issued in connection with incentive stock plan						189,638						—						338						—						—						338
Stock-based compensation						—						—						7,493						—						—						7,493
Net loss						—						—						—						—						(54,117)						(54,117)
Other comprehensive loss						—						—						—						(354)						—						(354)
Balance - March 31, 2022						129,217,916						—						764,834						(441)						(255,834)						508,559
Shares of common stock issued in connection with incentive stock plan						332,381						—						565						—						—						565
Stock-based compensation						—						—						8,316						—						—						8,316
Net loss						—						—						—						—						(58,992)						(58,992)
Other comprehensive loss						—						—						—						(116)						—						(116)
Balance - June 30, 2022						129,550,297						—						773,715						(557)						(314,826)						458,332
Shares of common stock issued in connection with incentive stock plan						203,375						—						269						—						—						269
Stock-based compensation						—						—						7,989						—						—						7,989
Net loss						—						—						—						—						(56,224)						(56,224)
Other comprehensive income						—						—						—						222						—						222
Balance - September 30, 2022						129,753,672						$	—					$	781,973					$	(335)					$	(371,050)					$	410,588

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

4

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			Convertible Preferred Stock															Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive						Accumulated Deficit						Total Stockholders’ Equity (Deficit)
			Shares						Amount									Shares						Amount												(Loss) Income
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
Shares of common stock issued in connection with incentive stock plan			—						—									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
Shares of common stock issued in connection with incentive stock plan			—						—									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.

5

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INSTIL BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

			Nine Months Ended September 30,
			2022						2021
Cash flows from operating activities:
Net loss			$	(169,333)					$	(101,444)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation			23,798						17,293
Non-cash lease expense			1,292						—
Foreign exchange remeasurement loss			2,768						602
Change in fair value of contingent consideration			(691)						130
Depreciation and amortization			3,888						1,859
Non-cash interest expense			596						—
Change in fair value of derivative instrument			(810)						—
Other			(739)						12
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			(2,168)						(2,877)
Other long-term assets			(2,076)						(3,160)
Accounts payable			683						3,750
Operating lease liabilities			(225)						—
Accrued expenses and current other liabilities			(171)						4,487
Net cash used in operating activities			(143,188)						(79,348)
Cash flows from investing activities:
Purchase of marketable securities			(556,510)						(699,987)
Maturities of marketable securities			711,000						205,000
Purchases of property, plant and equipment			(71,577)						(39,367)
Purchase of derivative financial instrument			(1,174)						—
Net cash provided by (used in) investing activities			81,739						(534,354)
Cash flows from financing activities:
Proceeds from initial public offering, net of issuance costs			—						339,016
Proceeds from issuance of convertible preferred stock, net of issuance costs			—						52,460
Proceeds from exercise of stock options			1,172						1,559
Proceeds from note payable			64,512						—
Other financing activities			—						(69)
Net cash provided by financing activities			65,684						392,966
Net increase (decrease) in cash and cash equivalents			4,235						(220,736)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(707)						(128)
Cash, cash equivalents and restricted cash—beginning of period			38,090						241,764
Cash, cash equivalents and restricted cash—end of period			$	41,618					$	20,900
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized			$	554					$	—
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 expenses and other current liabilities			$	15,033					$	12,690

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

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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. 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, 2022, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statements of convertible preferred stock and stockholders' equity for the three and nine months ended September 30, 2022 and 2021, and the results of its cash flows for the nine months ended September 30, 2022 and 2021. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2022 and 2021 are also unaudited. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, 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 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) on March 7, 2022.

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 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 initial public offering ("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 underwriters' purchase option, after deducting underwriting discounts and commissions and other offering expenses, was $339.0 million.

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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.

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 Prepaid expenses and other current assets on the consolidated balance sheet as of September 30, 2022 and classified within other long-term assets on the consolidated balance sheet as of December 31, 2021.

The Company's short-term marketable securities have original maturities of less than a year at date of purchase. The Company classifies and accounts for 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, 2022 and December 31, 2021, marketable securities consisted of U.S. Treasury bills.

Short-term marketable securities are recorded at their estimated fair value. The Company periodically reviews whether its securities may be other-than-temporarily impaired, including whether or not (i) the Company has the intent to sell the security or (ii) it is more likely than not that the Company will be required to sell the security before its anticipated recovery. If one of these factors is met, the Company will record an impairment loss associated with its 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, 2022						December 31, 2021
Cash and cash equivalents			$	41,118					$	37,590
Restricted cash			500						500
Cash, cash equivalents and restricted cash			$	41,618					$	38,090

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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.

Leases

The Company determines if an arrangement is or contains a lease at contract inception by assessing whether the arrangement contains an identified asset and whether the lessee has the right to control such asset. Lessees are required to classify leases as either finance or operating leases and to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. The Company determines the initial classification and measurement of its ROU assets and lease liabilities at the lease commencement date and thereafter if modified. For leases with a term greater than 12 months, the Company records the lease liability at the present value of lease payments over the term. The term of the Company’s leases equals the non-cancellable period of the lease, including any rent-free periods provided by the lessor, and also includes options to extend or terminate the lease that the Company is reasonably certain to exercise. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement, any deferred rent upon adoption, and lease incentives provided by the lessor.

The Company has elected, for all classes of underlying assets, not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less. Lease cost for short-term leases is recognized on a straight-line basis over the lease term. The Company estimates its incremental borrowing rate based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.

Variable lease payments are expensed as incurred and do not factor into the measurement of the applicable ROU asset or lease liability. Lease payments may be fixed or variable; however, only fixed payments are included in the Company’s lease liability calculation. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses over the lease term. The Company’s lease agreements may contain non-lease components such as common area maintenance, operating expenses or other costs, which are expensed as incurred for all classes of assets. The Company’s leases do not contain any residual value guarantees.

See Note 6, Commitments and Contingencies, regarding the Company’s leases, below.

Recent Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 Company adopted the new standard effective January 1, 2022 using the modified retrospective transition approach. Upon adoption on January 1, 2022, the Company recognized ROU assets and lease liabilities totaling $15.4 million and $8.9 million, respectively, to reflect the present value of remaining lease payments under existing lease arrangements. The Company applied the modified retrospective transition approach and did not recast prior periods. As permitted by the standard, the Company elected the transition practical expedient package, which,

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among other things, allows the carryforward of historical lease classifications. The Company’s new accounting policies around leases are described in Leases, above, and in Note 6, Commitments and Contingencies.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Additionally, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, in April 2019 and ASU 2019-05, Financial Instruments — Credit Losses (Topic 326) — Targeted Transition Relief, in May 2019. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company adopted this standard on January 1, 2022. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.

In December 2019, the FASB issued 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 Company adopted this standard on January 1, 2022. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.

3. Balance Sheet Components

Property, Plant and Equipment, Net

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

			September 30, 2022						December 31, 2021
Land			$	31,243					$	31,243
Laboratory equipment			17,915						13,962
Buildings(1)			32,778						6,034
Office and computer equipment			6,135						2,239
Leasehold improvements			4,310						1,836
Manufacturing equipment			8,636						1,717
Vehicles			64						64
Construction work-in-progress			90,333						67,883
Total property, plant and equipment, gross			191,414						124,978
Less: accumulated depreciation			(6,357)						(2,979)
Total property, plant and equipment, net			$	185,057					$	121,999

(1) Relates to a building which was developed as part of the Company’s clinical manufacturing facility in Tarzana, California. The building was placed into service and ready for its intended use at the end of the quarter ended June 30, 2022.

Depreciation expense was $1.9 million and $0.8 million for the three months ended September 30, 2022 and 2021, respectively, and was $3.9 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively.

During the quarter ended September 30, 2022, the Company capitalized $0.4 million of interest related to qualifying expenditures for construction work-in-progress for its commercial manufacturing facility which is not ready for its intended use.

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Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 

			September 30, 2022						December 31, 2021
Accrued construction costs			$	14,337					$	12,085
Accrued compensation and benefits			13,612						11,928
Accrued research, development and clinical trial expenses			3,083						4,234
Operating lease liabilities, current			2,275						—
Accrued operational expenses			2,121						5,292
Other current liabilities			933						910
Total accrued expenses and other current liabilities			$	36,361					$	34,449

4. 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 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:

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			As of September 30, 2022
			Level 1						Level 2						Level 3						Total
			(In thousands)
Financial Assets
Money market funds			$	19,910					$	—					$	—					$	19,910
U.S. Treasury bills			—						262,169						—						262,169
Derivative financial instrument			—						1,984						—						1,984
Total			$	19,910					$	264,153					$	—					$	284,063
Financial Liabilities
Contingent consideration			$	—					$	—					$	10,930					$	10,930
			As of December 31, 2021
			Level 1						Level 2						Level 3						Total
			(In thousands)
Financial Assets
Money market funds			$	18,493					$	—					$	—					$	18,493
U.S. Treasury bills			—						416,509						—						416,509
Total			$	18,493					$	416,509					$	—					$	435,002
Financial Liabilities
Contingent consideration			$	—					$	—					$	12,321					$	12,321

There were no transfers in or out of Level 1, 2 and 3 measurements for the nine months ended September 30, 2022 and the year ended December 31, 2021. As of September 30, 2022 and December 31, 2021, there were no securities within Level 3 of the fair value hierarchy. The derivative financial instrument above relates to the interest rate swap discussed in Note 6, and is included in other long-term assets in the condensed consolidated balance sheet.

As of September 30, 2022, the fair value of the Company's Loan (as defined in Note 6) was $56.6 million. The fair value was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy (see Note 6).

5. Financial Instruments

Marketable securities classified as available-for-sale on September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

			September 30, 2022
			Maturity			Amortized Cost			Unrealized Gains			Unrealized Losses			Fair Value
U.S. Treasury bills			Less than one year			$	263,047		$	—		$	(878)		$	262,169

			December 31, 2021
			Maturity			Amortized Cost			Unrealized Gains			Unrealized Losses			Fair Value
U.S. Treasury bills			Less than one year			$	416,559		$	—		$	(50)		$	416,509

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As of September 30, 2022 and December 31, 2021, marketable securities had contractual maturities less than one year, or marketable securities with maturities greater than one year are classified as current because management considers all marketable securities to be available for current operations. The Company does not intend to sell its marketable securities and it is not likely that the Company will be required to sell these securities before recovery of their amortized cost bases.

6. Commitments and Contingencies

Operating Lease Obligations

The Company currently leases office spaces and laboratory spaces located in Greater Los Angeles, California, Dallas, Texas, the United Kingdom and other parts of the United States. The Company's leased facilities have original lease terms ranging from 2 to 5 years that predominately require the Company to provide a security deposit, while certain leases provide the right for the Company to renew the lease upon the expiration of the initial lease term, and various leases have scheduled rent increases on an annual basis. The exercise of lease renewal options for the Company’s existing leases is at the Company’s sole discretion, and not included in the measurement of ROU asset or lease liability as they are not reasonably certain to be exercised. Certain leases provide free rent, or tenant improvement allowances, of which certain of these improvements have been classified as leasehold improvements and are being amortized over the shorter of the estimated useful life of the improvements or the remaining life of the lease, while other tenant improvements incurred by the Company revert to the landlord at the expiration of the lease and are not assets on the Company's condensed consolidated balance sheets.

Information related to the Company's operating ROU assets and related lease liability was as follows (in thousands, except for years and percentages):

The Company's lease costs consist of the following (in thousands):

			Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Short-term lease cost			$	521		$	871
Operating lease cost			1,151			3,823
Variable lease cost			301			761
Total lease cost			$	1,973		$	5,455

The following table summarizes cash flow information related to the Company’s lease obligations (in thousands):

			Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
Cash paid for operating lease liabilities			$	788		$	2,607

The following table summarizes the Company’s lease assets and liabilities (in thousands):

			As of September 30, 2022
Operating lease right-of-use assets			$	13,190
Current operating lease liabilities			$	2,275
Non-current operating lease liabilities			$	5,630

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The following table summarizes other supplemental information related to the Company’s lease obligations:

			As of September 30, 2022
Weighted-average remaining lease term (in years)			3.5
Weighted-average discount rate			6.70		%

Future minimum lease payments under operating lease liabilities were (in thousands):

			As of September 30, 2022
2022 (remaining three months)			$	666
2023			2,775
2024			2,393
2025			1,909
2026			1,268
Total future lease payments			9,011
Less: imputed interest			1,106
Total lease liability balance			7,905
Less: current portion of operating lease liabilities			2,275
Total operating lease liabilities, non-current			$	5,630

Under ASC 840, rent expense recognized under the leases was $0.6 million and $1.8 million for the three and nine months ended September 30, 2021, respectively.

Future minimum lease payments under noncancellable operating leases were (in thousands):

			As of December 31, 2021
2022			$	2,411
2023			2,354
2024			2,215
2025			1,936
2026			1,272
Total			$	10,188

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.

Tarzana Land and Building Acquired

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The Company’s contractual commitments for the acquired land and buildings in the Tarzana, California development project are limited to unreimbursed spend by the general contractor and as such, as of September 30, 2022, and December 31, 2021, $16.4 million and $63.2 million, respectively, is contractually committed to the development of this project.

Debt

In June 2022, the Company’s wholly-owned subsidiary, Complex Therapeutics Mezzanine LLC, and the Company's wholly-owned indirect subsidiary, Complex Therapeutics LLC, entered into a mortgage construction loan and mezzanine construction loan (together, the “Loan”) secured by its Tarzana, California land and building (the “Property”), currently under construction. The initial principal amount of the Loan was $52.1 million, with additional future principal of up to $32.9 million to fund ongoing Property construction costs. The Loan principal is payable in July 2025, with the option to extend until July 2027. As of September 30, 2022, the outstanding principal amount under the Loan was $65.6 million and unamortized debt issuance costs were $2.7 million. The Loan is guaranteed by the Company and secured by the Property, and bears interest at one-month Secured Overnight Financing Rate, plus 5.25% per annum. The Company's effective interest rate during the quarter ended September 30, 2022 was approximately 7.7%. The Loan contains customary negative and affirmative covenants that include limitations on the ability of the Company to enter into significant contracts and incur additional debt. The Company is also required to maintain consolidated net worth and liquid assets of at least $85.0 million and $85.0 million, respectively, as defined in the loan agreement. As of September 30, 2022, the Company was in compliance with the covenants of the Loan. The Company is also required to maintain certain insurance coverage on the Property. In connection with the Loan, the Company entered into an interest rate swap to effectively limit its maximum interest rate, as discussed in Note 4.

The net carrying amount of the liability component of the Loan was as follows (in thousands):

			September 30, 2022
Principal amount			$	65,628
Unamortized debt issuance cost			(2,654)
Net carrying amount			$	62,974

The following table sets forth the interest expense recognized related to the Loan (in thousands):

			Three and Nine Months Ended September 30, 2022
Contractual interest expense			$	806
Amortization of debt issuance cost			332
Total interest expense related to the Loan			$	1,138

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 November 2020, the Company executed a limited recourse promissory note with its Chief Executive Officer, 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 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

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the SEC. The principal and interest under the note may be repaid at any time without penalty. Because the Company only had 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 was recorded at the time the note receivable is settled in cash. 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 18,400,000 shares of its common stock at a price of $20.00 per share (see Note 2).

As of September 30, 2022, the Company had outstanding 129,753,672 shares of common stock.

Convertible Preferred Stock

Concurrent with the IPO, all then-outstanding shares of the Company's convertible preferred stock 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.

2021 Preferred Stock Activity

All then 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 is authorized to provide for the issuance 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, 2022 and December 31, 2021, there have been no shares of preferred stock issued 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 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.

As of September 30, 2022, 6,131,770 shares of common stock remained available for issuance under the 2021 Plan. As of September 30, 2022, the total number of shares authorized for issuance under the 2021 Plan was 12,854,437 shares.

Compensation expense for share-based awards is recognized over the requisite service period. The fair value of stock option awards is estimated using the Black-Scholes option-pricing model, which involves using assumptions regarding price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors.

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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 September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Research and development expense			$	3,094					$	4,677					$	9,919					$	8,127
General and administrative expense			4,888						4,057						13,879						9,166
Total stock-based compensation expense			$	7,982					$	8,734					$	23,798					$	17,293

As of September 30, 2022, there was $82.2 million of total unrecognized compensation cost related to unvested stock options granted under the 2018 Plan and 2021 Plan, which is expected to be recognized over a weighted average period of 2.5 years.

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 Company has not yet commenced offerings to employees under the ESPP.

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:

 

			September 30,
			2022						2021
Stock options to purchase common stock			23,376,213						19,840,732

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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, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2022. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Instil Bio, Inc. and our consolidated subsidiaries.

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, our expectations regarding our clinical trials, 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 submitted an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or the FDA, and were cleared to initiate DELTA-1, a Phase 2 trial in patients with advanced melanoma whose disease has progressed following PD-1 inhibitor therapy and, if BRAF-mutated, targeted therapy, in late 2021. ITIL-168 will be manufactured in our company-operated in-house manufacturing facilities for both our clinical trials and commercial sales, 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 tumor 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 initiated a Phase 1 trial for our lead CoStAR-TIL product candidate, ITIL-306, in patients with non-small cell lung cancer, ovarian cancer, and renal cell carcinoma in August 2022 and dosed the first patient in October 2022 prior to instituting the voluntary pause described below. The CoStAR molecule in ITIL-306 binds to folate receptor alpha, a tumor associated antigen that is commonly expressed in many solid tumors including the three cancers that will be studied initially with ITIL-306: NSCLC, ovarian cancer, and renal cell cancer. We expect to report initial clinical data from the Phase 1 trial for ITIL-306 in 2023.

In October 2022, we voluntarily paused enrollment in DELTA-1 as well as DELTA-2, a Phase 1 trial of ITIL-168 with pembrolizumab in patients with solid tumors, and the Phase 1 trial of ITIL-306 following a series of

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manufacturing failures in DELTA-1. Our ongoing investigation of the manufacturing failures identified a central source of contamination in the cell media. In conjunction with this pause, we are also evaluating opportunities to increase the robustness of our manufacturing process.

In addition, in October 2022, we notified the FDA and other regulatory agencies that an unplanned review of the data for the initial patients that had been dosed with ITIL-168 in the DELTA-1 trial was conducted in order to review risk-benefit. This review was inconclusive because the response data were not mature. Subsequently, the Data Safety Monitoring Board’s prespecified review found no safety concerns.

We plan to discuss next steps for the DELTA-1 trial with the FDA and other regulatory agencies, and after such discussions, or as a result of our ongoing investigation of our manufacturing process, we may be required to modify, delay or restart our ITIL-168 clinical development program. The Company is deferring enrollment in the DELTA-2 study to focus resources toward higher priority clinical programs. We plan to provide an update on our ITIL-168 clinical development program in the first quarter of 2023.

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. In March 2020, we acquired 100% of the share capital of Immetacyte and terminated the Immetacyte license agreement. We acquired Immetacyte primarily for the in process research and development, or IPR&D, which is critical to achieve our objective in developing an innovative cell therapy pipeline of autologous TIL therapies for the treatment of patients with cancer. Utilizing this IPR&D, we have optimized and scaled the manufacturing process.

Since inception, we have had significant operating losses. Our net loss was $56.2 million for the three months ended September 30, 2022 and $169.3 million for the nine months ended September 30, 2022. As of September 30, 2022, we had an accumulated deficit of $371.1 million. As of September 30, 2022, we had cash, cash equivalents, restricted cash, and marketable securities of $303.8 million, which consists of $41.1 million in cash and cash equivalents, $0.5 million in restricted cash, and $262.2 million in marketable securities. We expect to continue to incur net losses for the foreseeable future.

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. 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. In addition, a significant portion of our workforce continues to work 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 as a result of COVID-19, 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 variants and subvariants, 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, 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 addition, research and development expense is presented net of reimbursements from reimbursable tax and expenditure credits and grants from the U.K. government. For the three and nine months ended September 30, 2022 and September 30, 2021, we did not allocate our research and development expenses by program.

We expect our research and development expenses to change in line with our clinical development activities. 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, including the impacts of our voluntary pause in our clinical trials and the related investigation into our manufacturing processes;

•    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 change in line with the growth of the Company 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 Income

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Interest income consists of interest income from funds held in our cash and cash equivalent accounts, and marketable securities.

Interest Expense

Interest expense consists of interest expense on our note payable and amortization of loan origination costs.

Other Expense, Net

Other expense, net consists primarily of derivative instrument fair value gains, foreign exchange remeasurement gains and other expenses and income.

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. On September 30, 2022, we maintained a full valuation allowance against net deferred tax assets for the United States entity. 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.

Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021 (in thousands):

			Three Months Ended September 30,												Change
			2022						2021						$
Operating expenses:
Research and development			$	39,660					$	29,064					$	10,596
General and administrative			16,989						13,960						3,029
Total operating expenses			56,649						43,024						13,625
Loss from operations			(56,649)						(43,024)						(13,625)
Interest income			1,276						22						1,254
Interest expense			(807)						—						(807)
Other expense, net			(415)						(661)						246
Loss before income tax benefit			(56,595)						(43,663)						(12,932)
Income tax benefit			371						658						(287)
Net loss			$	(56,224)					$	(43,005)					$	(13,219)

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Research and Development Expenses

Research and development expenses were $39.7 million and $29.1 million for the three months ended September 30, 2022 and 2021, respectively. The increase in research and development expenses of $10.6 million was primarily due to:

•$2.7 million in costs from an increase in headcount, consisting of $4.7 million in wages and benefits, offset by a decrease in stock-based compensation expense of $1.6 million and a decrease of $0.4 million for other employee-related expenses in relation to our research and development personnel.

•$3.2 million in costs related to research and clinical development activities, including from our clinical trials and expanded clinical manufacturing activities; and

•$4.7 million of expenses related to facilities and overhead, depreciation and amortization, and other expenses.

General and Administrative Expenses

General and administrative expenses were $17.0 million and $14.0 million for the three months ended September 30, 2022 and 2021, respectively. The net increase of $3.0 million was primarily due to:

    

•$3.2 million in costs resulting from increased headcount and personnel related costs, including increased stock based compensation expense of $0.8 million, to support our growing business and for preparation of clinical trials; and

•$0.8 million in consulting and professional services costs, mainly consisting of an increase in expenses for human resource professional services, finance and legal consultants of $0.7 million and for business operation consultants of $0.1 million;

•offset by a decrease of $1.0 million in costs resulting from decreased facilities and offices costs.

Interest Income, Interest Expense and Other Expense, Net

Interest income, interest expense and other expense, net were $0.1 million of income and $0.6 million of expense for the three months ended September 30, 2022 and 2021, respectively. The total change of $0.7 million was primarily due to:

•$0.8 million of interest expense from our note payable;

•offset by a $0.2 million increase in other income, primarily consisting of a gain on fair value change on our derivative instrument for $0.8 million and a decrease in other expenses of $0.1 million, offset by a loss on foreign currency transactions of $0.7 million;

•offset by a $1.3 million increase in interest income from our investments.

Income Tax Benefit

Income tax benefit during the three months ended September 30, 2022 and 2021 were related to the deferred income taxes from our operations in the United Kingdom.

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Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021 (in thousands):

			Nine Months Ended September 30,												Change
			2022						2021						$
Operating expenses:
Research and development			$	120,334					$	64,674					$	55,660
General and administrative			49,325						37,134						12,191
Total operating expenses			169,659						101,808						67,851
Loss from operations			(169,659)						(101,808)						(67,851)
Interest income			1,859						45						1,814
Interest expense			(1,138)						—						(1,138)
Other expense, net			(1,863)						(702)						(1,161)
Loss before income tax benefit			(170,801)						(102,465)						(68,336)
Income tax benefit			1,468						1,021						447
Net loss			$	(169,333)					$	(101,444)					$	(67,889)

Research and Development Expenses

Research and development expenses were $120.3 million and $64.7 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in research and development expenses of $55.7 million was primarily due to:

•$27.3 million in costs from an increase in headcount, consisting of $23.9 million for wages and benefits, including an increase in stock-based compensation expense of $1.8 million and an increase of $1.6 million for other employee-related expenses in relation to our research and development personnel, to support increased clinical trial activities, including clinical manufacturing;

•$14.1 million in costs related to research and clinical development activities, including our clinical trials and expanded clinical manufacturing activities; and

•$14.3 million of expenses related to facilities and overhead, depreciation and amortization, and other expenses.

General and Administrative Expenses

General and administrative expenses were $49.3 million and $37.1 million for the nine months ended September 30, 2022 and 2021, respectively. The increase of $12.2 million was primarily due to:

    

•$12.7 million in costs resulting from increased headcount and personnel related costs, including increased stock-based compensation expense of $4.7 million, to support our growing business and for preparation of clinical trials;

•$1.2 million in consulting and professional services costs, resulting from increases in expenses for information technology and facility consultants of $0.1 million, business operations consultants of $0.5 million, and human resource professional services, finance and legal consultants of $0.6 million; and

•offset by a decrease of $1.7 million in costs resulting from decreased facilities expenses, offices costs, insurance expenses and other administrative expenses.

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Interest Income, Interest Expense and Other Expense, Net

Interest income, interest expense and other expense, net were $1.1 million of expense and $0.7 million of expense for the nine months ended September 30, 2022 and 2021, respectively. The increase of $0.5 million was primarily due to:

•$1.1 million in interest expense from our note payable; and

•$1.2 million in other expenses, primarily consisting of loss on foreign currency transactions of $2.1 million, offset by a gain on fair value change on our derivative instrument of $0.8 million and a decrease of other expenses of $0.1 million;

•offset by a $1.8 million increase in interest income from our investments.

Income Tax Benefit

Income tax benefit for the nine months ended September 30, 2022 and 2021 were related to the deferred income taxes from our operations in the United Kingdom.

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 September 30, 2022, we had cash, cash equivalents, restricted cash, and marketable securities of $303.8 million, which consists of $41.1 million in cash and cash equivalents, $0.5 million in restricted cash, and $262.2 million in marketable securities. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

Prior to our IPO, we funded our operations primarily through the issuance and sale of convertible preferred stock. From our inception through March 2021, we raised net cash proceeds of $380.1 million from the issuance and sale of our convertible preferred stock.

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.

On April 1, 2022, we filed an automatic shelf registration statement on Form S-3, or the 2022 Shelf Registration Statement. Pursuant to the 2022 Shelf Registration Statement, we may offer and sell an indeterminate amount and combination of shares of our common stock, shares of our preferred stock, various series of debt securities and warrants to purchase any of such securities in one or more registered offerings. We have not yet sold and issued any securities under the 2022 Shelf Registration Statement.

In June 2022, our wholly-owned subsidiary, Complex Therapeutics Mezzanine LLC, and our wholly-owned indirect subsidiary, Complex Therapeutics LLC, entered into a mortgage construction loan and mezzanine construction loan, or together, the Loan, secured by our Tarzana, California land and building, currently under construction. The initial principal amount of the Loan was $52.1 million, with additional future principal of up to $32.9 million to fund ongoing construction costs. As of September 30, 2022, we had $63.0 million in principal outstanding, net of debt issuance cost, under the Loan.

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Funding Requirements

Based on our current operating plan, we believe our existing cash and cash equivalents, marketable securities, and the expected proceeds from the completion of anticipated sale-leaseback of Tarzana, California manufacturing site will be sufficient to fund our operating expenses and capital expenditure requirements into 2025. 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 continue to be significant as we 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 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, including the impacts of our voluntary pause in our clinical trials, the results of our discussions with the FDA and other regulatory agencies, and the related investigation into our manufacturing process;

•    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, as well as our ability to complete the anticipated sale-leaseback of our Tarzana, California facility;

•    the extent to which we acquire or in-license other companies’ product candidates and technologies;

•    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 or adverse geopolitical and economic conditions.

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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 September 30, 2022, which payment is contingent on future events, was $13.8 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 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, the war in Ukraine, inflation and rising interest rates. 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. See "Risk Factors."

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 September 30, 2022, our future minimum lease payments under committed or non-cancelable lease agreements were $9.0 million.

Our contractual obligations and commitments primarily consist of amounts we will pay to the general contractor constructing and developing land and buildings in Tarzana, California, which we acquired in October 2020 for $37.6 million. We are in the process of developing this land for our U.S. operations, and our contractual commitments for this development project are limited to unreimbursed spend by the general contractor. As of September 30, 2022, $16.4 million was contractually committed to the development of this project.

In the normal course of business, we enter into contracts with Clinical Research Organizations, or CROs, and other third parties for preclinical studies and clinical trials, research and development supplies and other testing and manufacturing services. We are contractually obligated for approximately $48.8 million in future services related to clinical trials, depending on whether certain milestones are met, as of September 30, 2022.

Cash Flows

The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):

			Nine Months Ended September 30,
			2022						2021
Net cash provided by (used in):
Cash used in operating activities			$	(143,188)					$	(79,348)
Cash provided by (used in) investing activities			81,739						(534,354)
Cash provided by financing activities			65,684						392,966
Net increase (decrease) in cash, cash equivalents, and restricted cash			$	4,235					$	(220,736)

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Cash Flows from Operating Activities

Cash used in operating activities for the nine months ended September 30, 2022 was $143.2 million, which consisted of the net loss of $169.3 million and an increase of $4.0 million to our net operating assets and liabilities,

partially offset by $30.1 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities. The non-cash charges primarily consisted of stock-based compensation of $23.8 million, depreciation and amortization expense of $3.9 million and change in foreign exchange remeasurement of $2.8 million. The net change in our operating assets and liabilities was primarily due to an increase of $0.7 million in accounts payable, partially offset by a decrease of $0.2 million in accrued expenses and other liabilities, an increase of $2.2 million in prepaid expenses and other current assets and an increase of $2.3 million in other long-term assets and operating lease liabilities.

Cash used in operating activities for the nine months ended September 30, 2021 was $79.3 million, which consisted primarily of the net loss of $101.4 million, partially offset by $19.9 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and a $2.2 million net change to our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $17.3 million, and depreciation and amortization expense of $1.9 million. The net change in our operating assets and liabilities was primarily due to an increase of $3.8 million in accounts payable, and an increase of $4.5 million in accrued expenses and other liabilities, partially offset by an increase of $2.9 million in prepaid expenses and other current assets and an increase of $3.2 million in other long-term assets.

Cash Flows from Investing Activities

Cash provided by investing activities for the nine months ended September 30, 2022 was $81.7 million, which consisted primarily of $154.5 million of cash provided by marketable securities investments, offset by $71.6 million related to cash used to purchase property and equipment.

Cash used in investing activities for the nine months ended September 30, 2021 was $534.4 million, of which $39.4 million was related to purchases of property and equipment and $495.0 million was related to marketable securities.

Cash Flows from Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2022 was $65.7 million, which was primarily related to cash proceeds from our note payable of $64.5 million and $1.2 million from exercise of stock options.

Cash provided by financing activities for the nine months ended September 30, 2021 was $393.0 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 $1.6 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 requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not

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readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a description of critical accounting policies that require significant judgments and estimates during the preparation of our financial statements, refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" and Note 2 to our Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to our critical accounting policies from those disclosed in our 2021 Annual Report.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements applicable to us is included in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Emerging Growth Company Status 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 $1.235 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,” as defined in Rule 12b-2 under the Exchange Act. 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 $250.0 million or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700.0 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 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We had cash, cash equivalents, restricted cash, and marketable securities of $303.8 million, which consists of $41.1 million in cash and cash equivalents, $0.5 million in restricted cash, and $262.2 million in marketable securities as of September 30, 2022. 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 and debt, including our interest rate swap discussed in Note 6 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, 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.

The Company does not believe that inflation or foreign currency exchange rate fluctuations have had a significant impact on its results of operations for any periods presents herein.

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 September 30, 2022, 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 have materially affected, or are 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 continuing to work 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

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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, 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

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

RISK FACTORS

The following information sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. You should carefully consider the risks described below, in addition to the other information contained in this Quarterly Report on Form 10-Q and our other public filings. Our business, financial condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business operations.

Risks Associated with Our Business

Our business is subject to a number of risks of which you should be aware before making a decision to invest in our common stock. These risks are more fully described in this “Risk Factors” section, including the following:

•We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.

•We have a limited operating history and no history of commercializing products, which may make it difficult for an investor to evaluate the success of our business to date and to assess our future viability.

•We will need substantial additional funding to meet our financial obligations and to pursue our business objectives. If we are unable to raise capital when needed, we could be forced to delay further development of our technologies or product candidates or curtail our planned operations and the pursuit of our growth strategy.

•All of our product candidates are currently in clinical and preclinical development. If we are unable to successfully develop, receive regulatory approval for and commercialize our product candidates for the indications we seek, or successfully develop any other product candidates, or experience significant delays in doing so, our business will be harmed.

•Because ITIL-168, as well as ITIL-306 and any future product candidates developed from our CoStAR platform, represent novel approaches to the treatment of disease, there are many uncertainties regarding the development, market acceptance, third-party reimbursement coverage and commercial potential of our product candidates.

•The regulatory approval processes of the FDA, EMA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain required regulatory approval for our product candidates, our business will be substantially harmed.

•Success in preclinical studies or earlier clinical trials, including the compassionate use program, may not be indicative of results in future clinical trials. Our product candidates may not have favorable results in clinical trials or receive regulatory approval.

•Negative public opinion of TIL therapies, a dynamically evolving competitive landscape for our target indications or increased regulatory scrutiny of cell therapy using TILs may adversely impact the development or commercial strategy of our product candidates, or investing in manufacturing readiness for regulatory filings and success of our current and future product candidates.

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•As an organization, we are early in the process of conducting our first clinical trials, have no prior experience in conducting clinical trials, and may be unable to complete clinical trials for any product candidates we may develop, including ITIL-168 and ITIL-306. Further, the FDA, EMA or other foreign regulatory authorities may require us to obtain and submit additional nonclinical data supporting the comparability of ITIL-168 with the TIL product that was evaluated in the compassionate use program in the United Kingdom that was manufactured using a prior version of the ITIL-168 manufacturing process, or may not permit us to rely on the data from the compassionate use program to support the development of ITIL-168 at all, which could delay clinical development or marketing approval of ITIL-168.

•We may not be successful in our efforts to build a pipeline of additional product candidates.

•Our business and operations may be adversely affected by the evolving and ongoing COVID-19 global pandemic.

•Cell therapies are complex and difficult to manufacture. We have experienced, and may in the future experience, manufacturing problems that result in delays in the development or commercialization of our product candidates or otherwise harm our business.

•The treatable populations for our product candidates may be smaller than we or third parties currently project, which may affect the addressable markets for our product candidates.

•We face significant competition from other biotechnology and pharmaceutical companies, and from non-profit institutions, and our operating results will suffer if we fail to compete effectively.

•If we are unable to obtain or protect intellectual property rights related to any of our product candidates, we may not be able to compete effectively in our market.

•Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain.

Risks Related to our Financial Position and Capital Needs

We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.

Since our inception, we have incurred significant net losses, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. Our net losses were $169.3 million and $101.4 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $371.1 million. We have financed our operations with $719.0 million in net proceeds raised in our initial public offering and private placements of convertible preferred stock to date, as well as $64.5 million from our construction loan. We have no products approved for commercialization and have never generated any revenue from product sales.

All of our product candidates are still in clinical and preclinical testing. We expect to continue to incur significant expenses and operating losses over the next several years. We expect that it could be several years, if ever, before we have a commercialized product. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will continue to be significant as we:

•conduct our planned and ongoing clinical trials of ITIL-168 and ongoing clinical trial of ITIL-306, as well as initiate and complete additional clinical trials of future product candidates or current product candidates in new indications;

•complete the investigation of our manufacturing process and make any changes in such process to address the past manufacturing failures;

•continue to advance the preclinical and clinical development of our product candidates and our preclinical and discovery programs, including in our CoStAR platform;

•seek regulatory approval for any product candidates that successfully complete clinical trials;

•continue to develop our product candidate pipeline;

•scale up our clinical and regulatory capabilities;

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•manufacture current good manufacturing practices, or cGMP, material for clinical trials or potential commercial sales at our manufacturing facilities;

•establish and validate a commercial-scale cGMP manufacturing facility;

•establish a commercialization infrastructure and scale up internal and external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval;

•adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products;

•maintain, expand and protect our intellectual property portfolio;

•hire additional clinical, manufacturing quality control, regulatory, manufacturing and scientific and administrative personnel;

•add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and

•incur additional legal, accounting and other expenses in operating as a public company.

To date, we have not generated any revenue from product sales. To become and remain profitable, we must succeed in developing and eventually commercializing product candidates that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval, and manufacturing, marketing and selling any product candidates for which we may obtain regulatory approval, as well as discovering and developing additional product candidates. We are only in the preliminary stages of most of these activities and all of our product candidates are in clinical or preclinical development. We may never succeed in these activities and, even if we do, may never generate any revenue or revenue that is significant enough to achieve profitability.

Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our development efforts, obtain product approvals, diversify our offerings or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We have a limited operating history and no history of commercializing products, which may make it difficult for an investor to evaluate the success of our business to date and to assess our future viability.

We are a clinical-stage biopharmaceutical company with a limited operating history. We commenced operations in 2019, and our operations to date have been largely focused on organizing and staffing our company, business planning, raising capital, acquiring our technology and product candidates, acquiring our facilities in Tarzana, California, developing our manufacturing capabilities and developing our clinical and preclinical product candidates, including undertaking preclinical studies and conducting clinical trials. To date, we have not yet demonstrated our ability to successfully complete pivotal clinical trials, obtain regulatory approvals, manufacture a product on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing products.

We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will need to develop commercial capabilities, and we may not be successful in doing so.

We will need substantial additional funding to meet our financial obligations and to pursue our business objectives. If we are unable to raise capital when needed, we could be forced to delay further development of our technologies or product candidates or curtail our planned operations and the pursuit of our growth strategy.

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