S-1 1 d168165ds1.htm S-1 S-1
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As filed with to the Securities and Exchange Commission on May 25, 2021.

Registration No. 333-                        

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Lyell Immunopharma, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   83-1300510

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Lyell Immunopharma, Inc.

400 East Jamie Court, Suite 301

South San Francisco, California 94080

(650) 695-0677

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Elizabeth Homans

Chief Executive Officer

400 East Jamie Court, Suite 301

South San Francisco, California 94080

(650) 695-0677

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Dave Peinsipp

Charles S. Kim

Chadwick Mills

Cooley LLP

101 California Street, 5th Floor

San Francisco, California 94111

(415) 693-2000

 

Charles Newton

Chief Financial Officer

400 East Jamie Court, Suite 301

South San Francisco, California 94080

(650) 695-0677

 

Brian J. Cuneo

B. Shayne Kennedy

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94025

(650) 328-4600

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

  Proposed
Maximum
Aggregate
Offering
Price(1)(2)
 

Amount of

Registration Fee(2)

Common stock, par value $0.0001 per share

  $150,000,000   $16,365

 

 

(1)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended. Includes the aggregate offering price of any additional shares that the underwriters have the option to purchase.

(2)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price,

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, Dated May 25, 2021

                 shares

 

 

LOGO

Common Stock

 

 

This is an initial public offering of shares of common stock of Lyell Immunopharma, Inc. We are offering            shares of our common stock.

Prior to this offering, there has been no public market for our common stock. We currently expect the initial public offering price will be between $                 and $                 per share of common stock.

We intend to apply to list our common stock on the Nasdaq Global Market under the symbol “LYEL.”

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced reporting requirements in this prospectus and may elect to do so in future filings.

Investing in our common stock involves a high degree of risk. See the section titled “Risk Factors” beginning on page 12.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $        $    

Proceeds to Lyell Immunopharma, Inc., before expenses

   $        $    

 

(1)

See the section titled “Underwriting” for a description of the compensation payable to the underwriters.

We have granted the underwriters an option for a period of 30 days to purchase up to an additional                  shares of our common stock at the initial public offering price, less the underwriting discounts and commissions.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                 , 2021.

 

Goldman Sachs & Co. LLC   BofA Securities    J.P. Morgan      Morgan Stanley

Prospectus dated                 , 2021


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

Risk Factors

     12  

Special Note Regarding Forward-looking Statements

     59  

Market, Industry and Other Data

     61  

Use of Proceeds

     62  

Dividend Policy

     64  

Capitalization

     65  

Dilution

     68  

Selected Consolidated Financial Data

     70  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     72  

Founder’s Vision

     95  

Business

     97  

Management

     172  

Executive Compensation

     182  

Certain Relationships and Related Person Transactions

     198  

Principal Stockholders

     203  

Description of Capital Stock

     206  

Shares Eligible for Future Sale

     211  

Certain Material U.S. Federal Income Tax Consequences to Non-U.S. Holders

     214  

Underwriting

     219  

Legal Matters

     227  

Experts

     227  

Where you can find Additional Information

     227  

Index to Consolidated Financial Statements

     F-1  

 

 

Neither we nor the underwriters have authorized anyone to provide you any information or make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside of the United States: we have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus, and is qualified in its entirety by the more detailed information and audited consolidated financial statements and unaudited condensed consolidated financial statements included elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should carefully read this entire prospectus, including the information under the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context requires otherwise, references in this prospectus to “Lyell Immunopharma,” “Lyell,” the “Company,” “we,” “us” and “our” refer to Lyell Immunopharma, Inc.

Overview

We are a T cell reprogramming company dedicated to the mastery of T cells to cure patients with solid tumors. We have assembled a world-class team, comprising some of the foremost scientific leaders in the fields of oncology and adoptive cell therapy (ACT), including Drs. Rick Klausner, Nick Restifo, Stan Riddell and Crystal Mackall, who have each interrogated and elucidated the mechanisms of T cell biology and its interactions with cancer for decades. We believe the key to effective cell therapy is the mastery of the identity, fate and function of cells to create living medicines. We take a systematic, interrogative, cell biology-driven approach to overcome what we view as the two major barriers to successful ACT – (1) T cell exhaustion and (2) lack of durable stemness – through the application of our proprietary genetic and epigenetic reprogramming technologies, Gen-R and Epi-R. Our technologies are designed to be applied in a target and modality agnostic manner to chimeric antigen receptor (CAR), tumor-infiltrating lymphocytes (TIL) and T cell receptor (TCR) therapies to fundamentally improve the properties of T cells needed to eradicate solid tumors. We believe our autologous T cell therapies will generate improved, durable clinical outcomes that are potentially curative for patients with solid tumors. We are building a multi-modality product pipeline across several solid tumor indications with high unmet needs and anticipate having four investigational new drug application (IND) submissions by the end of 2022.

Our Technology Platforms

ACT has demonstrated profound results in some patients suffering from hematologic tumors, but solid tumors are more complex and have evolved multiple mechanisms to evade and ultimately overcome the immune system. This has limited the use of ACTs in non-hematologic settings. We believe T cell exhaustion and lack of durable stemness – the T cell’s loss of continual proliferative capacity and abilities of self-renewal and differentiation to effector states to eliminate solid tumors – are two major barriers limiting the efficacy of ACT in solid tumors.

We endeavor to overcome these two major barriers to ACT in solid tumors through our proprietary Gen-R and Epi-R technology platforms.

 

   

Gen-R – our proprietary ex vivo genetic reprogramming technology to overcome T cell exhaustion, which results from transcriptional and epigenetic changes that occur as T cells differentiate into a dysfunctional state. Our scientific co-founders discovered T cell exhaustion occurs more frequently in solid tumors than in hematologic cancers where CAR T cells have demonstrated efficacy. The discovery of Gen-R came from the realization that chronic antigen



 

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stimulation, or when the T cell is always “on,” combined with an immunosuppressive solid tumor microenvironment (TME), likely promotes the development of T cell exhaustion. In preclinical solid tumor models, Gen-R overcame T cell exhaustion and restored antitumor activity through the optimized overexpression of c-JUN, a protein which, when dysregulated, has been shown to play a crucial role in T cell exhaustion.

 

   

Epi-R – our proprietary ex vivo epigenetic reprogramming technology to create a novel population of T cells with durable stemness. Stemness, the quality of T cells capable of self-renewal, expansion, persistence and anti-tumor response has been reported in the literature to correlate with clinical responses to immunotherapy. However, we believe durable stemness is required for long-term efficacy against solid tumors. Durable stemness relates to the ability of T cells to maintain their stemness until the tumor is eradicated, that is, they have the ability to self-renew despite continued persistent signals from the tumor driving activation, proliferation and differentiation. We believe that as these cells proliferate, they generate progeny cells that can both differentiate to polyfunctional effector cells and/or re-populate the population of less differentiated T cell states as they continue to divide, thereby maintaining stemness. Epi-R is designed to intentionally and reproducibly generate populations of T cells which have this property of durable stemness. Furthermore, relating specifically to TIL, application of Epi-R has generated T cell preparations that exhibit increased polyclonality during expansion, and preserved their ability to target a diversity of tumor neoantigens.

Our Pipeline

We are utilizing our Gen-R and Epi-R technology platforms to develop a multi-modality product pipeline with four IND submissions expected by the end of 2022. Each of our programs provide opportunities to expand into additional indications beyond the patient populations we are initially targeting. Our product candidates are summarized in the table below:

 

LOGO



 

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LYL797: ROR1 + Gen-R & Epi-R

We are applying our Gen-R and Epi-R technology platforms to our lead CAR program, LYL797, which is expected to be an intravenous (IV) administered CAR T cell product candidate targeting ROR1 with a single-chain variable fragment derived from rabbit anti-R12 antibody that recognizes and binds to ROR1 and a proprietary optimized epidermal growth factor receptor (EGFRopt) safety switch. We are initially developing LYL797 for the treatment of ROR1+ non-small cell lung cancer (NSCLC) and triple negative breast cancer (TNBC). ROR1 expression is associated with poor prognosis. Significant subsets of patients with common cancers express ROR1, including TNBC (~60%) and NSCLC (~40%), two of the highest ROR1 expressing indications. If successful, we anticipate expanding into other ROR1+ cancers with a lower incidence of ROR1 expression, including potentially hormone receptor positive (HR+) breast cancer, ovarian and other solid tumors. We expect to submit an IND for LYL797 in the first quarter of 2022.

LYL845: TIL + Epi-R

We are applying our Epi-R technology to develop our product candidate, LYL845, which is expected to be an IV administered autologous TIL therapy in multiple solid tumors. TILs have previously shown clinical benefit in patients with melanoma as well as other solid tumors with high mutation burdens including advanced cervical, lung, breast and gastrointestinal cancers. TILs target a variety of tumor antigens, but it is thought that the clinical efficacy of TILs is largely driven by specific recognition of mutated tumor neoantigens. Further, broad TIL efficacy has been limited by poor enrichment of tumor-reactive T cells, poor quality and growth potential of expanded T cells and failure to maintain polyclonality of TILs during production. We have designed LYL845 to incorporate our Epi-R technology to result in enhanced T cell potency, antitumor activity and polyclonality of TILs. If successful, we expect to expand development broadly to potentially include melanoma, cervical, head and neck, pancreatic, breast, colorectal and NSCLC. We expect to submit an IND for LYL845 in the second half of 2022.

NY-ESO-1

Our collaborator, GSK, is developing a New York esophageal squamous cell carcinoma 1 (NY-ESO-1) TCR T cell product candidate, NY-ESO-1c259, currently in pivotal development. We are collaborating with them to potentially enhance this clinical-stage product candidate with Gen-R and Epi-R. Preclinical efforts and IND-enabling studies are underway. We anticipate GSK will conduct initial clinical trials with the enhanced product candidate in synovial sarcoma and multiple other solid tumor indications. We anticipate an IND submission in the first half of 2022.

Our Manufacturing Capabilities

We believe it is critically important to own, control and continuously monitor all aspects of the cell therapy manufacturing process in order to mitigate risks the field has seen, including challenges in managing production, supply chain, patient specimen chain of custody and quality control. We made a strategic decision to invest in building our own manufacturing center to control our supply chain, maximize efficiencies in cell product production time, cost and quality, and have the ability to rapidly incorporate disruptive advancements and new innovations. Controlling manufacturing also enables us to protect proprietary aspects of our Gen-R and Epi-R technology platforms. We view our manufacturing team and capabilities as a significant competitive advantage.

Our LyFE manufacturing center in Bothell, Washington is approximately 73,000 square feet and comprises laboratories, offices and manufacturing suites. LyFE has a flexible and modular design



 

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allowing us to produce plasmid, viral vector and T cell product to control and de-risk the sequence and timing of production of the major components of our supply chain related to our product candidates. At full staffing and capacity, we expect to be able to manufacture approximately 500 infusions per year depending on product candidate mix. We believe this capacity is sufficient to support our pipeline programs through pivotal trials and, if approved, early commercialization. We anticipate the facility to be current Good Manufacturing Practices (cGMPs) qualified and capable of cGMP manufacturing by the end of 2021.

Our Team

The scientific and leadership team we have assembled comprise some of the foremost leaders in the fields of oncology and ACT. These thought leaders have each interrogated and elucidated the mechanisms of T cell biology and its interactions with cancer for decades and have authored over 1,000 publications focused on the interaction between the immune system and cancer. Our management team are experienced executives who come from academia and industry-leading cell and gene therapy companies including Atara, Juno Therapeutics and Sangamo; oncology therapeutic development companies including Amgen, AstraZeneca, Genentech, Incyte and Seagen; and cancer diagnostic companies including Genomic Health, GRAIL and Illumina. The core members of our scientific and leadership team include:

 

   

Dr. Rick Klausner.     We were founded in 2018 by Dr. Rick Klausner, former Director of the National Cancer Institute (NCI), co-founder of Juno and GRAIL and whose lab in the 1980s isolated the critical components of the TCR that enabled the creation of CAR T cells. Dr. Klausner is our Executive Chairman. He is well known for his work in cell and molecular biology, immunology and human genetics, and has been the author of more than 300 scientific articles and several books, in addition to receiving numerous awards, honorary degrees and other honors. He oversaw the writing of The National Science Education Standards, the first such standards for U.S. Science Education, and served as Liaison to the White House Office of Science & Technology Policy. He is a member of the National Academy of Sciences, the Institute of Medicine and the American Academy of Arts and Sciences.

 

   

Liz Homans.     Our CEO, Ms. Homans, brings over 30 years of strategy, product development and commercialization experience. She spent over a decade at Genentech in multiple divisions including global product development, regulatory operations and U.S. sales and marketing. She spent most of her Genentech career leading large complex oncology development programs from Phase 2 through completion of pivotal trials submission, approval and launch. She is also an experienced commercial leader having led the U.S. Xolair franchise through two years of double-digit growth. She completed her tenure at Genentech by managing the U.S. HER2+ breast cancer franchise. Ms. Homans also led global regulatory operations for Roche. Prior to Genentech she spent four years at Jazz Pharmaceuticals where she built the project leadership and portfolio strategy team and she also has just under a decade of business strategy consulting experience.

 

   

Dr. Nick Restifo.     Prior to joining Lyell as our Executive Vice President of Research, Dr. Restifo spent 31 years at the NCI with a sole focus on the development of immunotherapeutic treatments for patients with cancer. His contributions to the field include the molecular definition of the qualities of highly effective antitumor T cells; identification of the gene expression within tumors that is required for successful immunotherapy; and understanding the impact of host factors in cancer immunotherapy. His basic and clinical findings of how immune cells can destroy tumors have become mainstays of cell-based immunotherapies being used worldwide, documented in more than 340 publications and numerous book chapters on cancer immunotherapy.



 

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Dr. Stan Riddell.     Dr. Riddell is a Founder of Lyell and Head of our R&D Executive Committee. He is also a Professor, Program in Immunology and the Immunotherapy Integrated Research Center at the Fred Hutchinson Cancer Research, Professor of Medicine at the University of Washington, Distinguished Affiliate Professor at the Technical University of Munich and a cofounder of Juno Therapeutics. Dr. Riddell has designed multiple clinical trials of adoptive T cell therapy using unmodified and genetically modified T cells including the first trial of CD19 CAR modified T cells of defined subset composition, which formed the foundation for Liso-Cel, which is FDA approved for treatment of diffuse large B cell lymphoma. He has more than 225 publications and his research has contributed to understanding the role of human T cell subsets in protective immunity to pathogens and tumors.

 

   

Dr. Crystal Mackall.     Dr. Mackall, a Founder of Lyell, is the Ernest and Amelia Gallo Family Professor of Pediatrics and Medicine at Stanford University. She serves as Founding Director of the Stanford Center for Cancer Cell Therapy, Associate Director of Stanford Cancer Institute, Leader of the Cancer Immunology and Immunotherapy Program and Director of the Parker Institute for Cancer Immunotherapy at Stanford. During a 27-year tenure culminating as Chief of the Pediatric Oncology Branch, NCI, and now at Stanford, she has led an internationally recognized translational research program focused on immune-oncology.

Our Strategy

Our goal is to utilize our proprietary technologies to develop curative ACT for patients with solid tumors. Key components of our business strategy to achieve this goal include:

 

   

Leverage our two proprietary, cell reprogramming platform technologies to fundamentally improve T cell efficacy and eradicate solid tumors.

 

   

Rapidly advance and continue to pursue our deep multi-modality pipeline of product candidates and leading edge research.

 

   

Continually innovate to develop and advance disruptive, next generation platform technologies for cell-based therapy.

 

   

Establish proprietary, state of the art manufacturing infrastructure and capabilities to control all aspects of cell product preparations.

 

   

Implement digital technologies and cloud solutions to accelerate and enhance our science and operations.

 

   

Aggressively generate, secure and defend intellectual property on our differentiated technology platforms and product candidates.

Risks Related to Our Business

Investing in our common stock involves substantial risk. The risks described under the section titled “Risk Factors” immediately following this prospectus summary may cause us to not realize the full benefits of our objectives or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges include the following:

 

   

We are a preclinical biopharmaceutical company and have incurred substantial losses since our inception and anticipate that we will continue to incur substantial and increasing net losses for the foreseeable future.



 

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We operate in a rapidly evolving field and have a limited operating history, which may make it difficult to evaluate the success of our business to date and to assess our future viability.

 

   

Even if this offering is successful, we will require substantial additional capital to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

 

   

We are early in our research and development efforts and all of our product candidates are still in preclinical development. If we are unable to successfully develop and commercialize product candidates or experience significant delays in doing so, our business may be harmed.

 

   

Our product candidates and technology platforms are based on novel technologies that are unproven and may not result in approvable or marketable products, which exposes us to unforeseen risks and makes it difficult for us to predict the time and cost of product development and potential for regulatory approval and we may not be successful in our efforts to use and expand our technology platforms to build a pipeline of product candidates.

 

   

Our cellular therapy product candidates represent new therapeutic approaches that could result in heightened regulatory scrutiny, delays in clinical development or delays in or our inability to achieve regulatory approval, commercialization or payor coverage of our product candidates.

 

   

The results of research, preclinical studies or earlier clinical trials are not necessarily predictive of future results. Any product candidate we advance into clinical trials may not have favorable results in later clinical trials or receive regulatory approval.

 

   

Clinical development involves a lengthy and expensive process with an uncertain outcome.

 

   

We intend to manufacture at least a portion of our product candidates ourselves. Delays in commissioning and receiving regulatory approvals for our manufacturing facility could delay our development plans and thereby limit our ability to generate product revenues.

 

   

The manufacturing of cellular therapies is very complex. We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs, delay our programs or limit supply of our product candidates.

 

   

We have entered into a collaboration with GSK and may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.

 

   

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

 

   

Our business could be adversely affected by the effects of health epidemics, including the recent COVID-19 pandemic, in regions where we or third parties on which we rely have significant manufacturing facilities, concentrations of potential clinical trial sites or other business operations.

 

   

If we are unable to obtain and maintain sufficient intellectual property protection for our product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our ability to commercialize our product candidates successfully and to compete effectively may be adversely affected.

Corporate Information

We were founded in June 2018 as a Delaware corporation. Our principal executive offices are located at 400 East Jamie Court, Suite 301, South San Francisco, California 94080 and our telephone



 

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number is (650) 695-0677. Our website address is www.lyell.com. Information contained in, or accessible through, our website is not a part of this prospectus and the inclusion of our website address in this prospectus is only an inactive textual reference.

Trademarks and Service Marks

We use the Lyell logo and other marks as trademarks in the United States and other countries. This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

Implications of Being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We may take advantage of 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 under Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), 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. We may take advantage of these exemptions for up to five years or until we are no longer an “emerging growth company,” whichever is earlier. We will cease to be an emerging growth company prior to the end of such five-year period if certain earlier events occur, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the Exchange Act), our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period. In particular, in this prospectus, we have provided only two years of audited consolidated financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not “emerging growth companies.”



 

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The Offering

 

Common stock offered by us

                shares.

 

Option to purchase additional shares

We have granted the underwriters an option for a period of 30 days to purchase up to an additional                  shares of our common stock at the initial public offering price, less underwriting discounts and commissions.

 

Common stock to be outstanding immediately after this offering

                shares (or             shares if the underwriters exercise their option to purchase additional shares in full).

 

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $            million (or approximately $                 million if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We currently intend to use the net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, to fund through completion of Phase 1 clinical trials of LYL797 and LYL845, other research and development efforts to further advance our Gen-R, Epi-R and cell rejuvenation technology platforms, expansion of our manufacturing capacity and general corporate purposes, including working capital, operating expenses and other capital expenditures. See the section titled “Use of Proceeds” for additional information.

 

Risk factors

See the section titled “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.

 

Directed share program

At our request, the underwriters have reserved up to                 shares of our common stock offered by this prospectus, excluding the additional shares that the underwriters have a 30-day option to purchase, for sale at the initial public offering price through a directed share program to certain of our directors and officers and certain other parties related to us. Shares purchased by our directors and officers will be subject to the 180-day lock-up restriction described in the section titled “Underwriting.” If these persons purchase the reserved shares, it



 

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will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus. See the section titled “Underwriting—Directed Share Program” for additional information.

 

Proposed Nasdaq Global Market trading symbol

“LYEL”

The number of shares of our common stock to be outstanding after this offering is based on 217,829,956 shares of common stock outstanding as of March 31, 2021 (including (i) 194,474,431 shares issuable upon the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2021 and (ii) 5,525,002 shares of unvested restricted common stock subject to repurchase as of such date) and excludes:

 

   

40,556,956 shares of our common stock issuable upon the exercise of outstanding stock options as of March 31, 2021, with a weighted-average exercise price of $3.92 per share;

 

   

1,930,000 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to March 31, 2021, with a weighted-average exercise price of $13.20 per share;

 

   

            shares of our common stock reserved for future issuance under our 2021 Equity Incentive Plan (2021 Plan), which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan and any shares underlying outstanding stock awards granted under our 2018 Equity Incentive Plan (2018 Plan), that expire or are repurchased, forfeited, cancelled or withheld, as more fully described in the section titled “Executive Compensation—Equity Benefit Plans”; and

 

   

            shares of our common stock reserved for issuance under our 2021 Employee Stock Purchase Plan (ESPP), which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for future issuance under our ESPP.

Unless otherwise indicated, this prospectus assumes or gives effect to:

 

   

the automatic conversion of all outstanding shares of our convertible preferred stock as of March 31, 2021 into an aggregate of 194,474,431 shares of our common stock upon the closing of this offering;

 

   

no exercise of the outstanding options described above;

 

   

no exercise by the underwriters of their option to purchase                 additional shares of common stock from us in this offering;

 

   

an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus; and

 

   

the filing and effectiveness of our amended and restated certificate of incorporation to be in effect immediately after the closing of this offering and the adoption of our amended and restated bylaws upon the closing of this offering.



 

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Summary Consolidated Financial Data

The following tables set forth our summary consolidated financial data for the periods and as of the dates indicated. The following summary consolidated statements of operations and comprehensive loss data for the years ended December 31, 2019 and 2020, except for pro forma amounts, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations and comprehensive loss data for the three months ended March 31, 2020 and 2021, except for pro forma amounts, and the summary consolidated balance sheet data as of March 31, 2021, except for pro forma amounts, have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our unaudited condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements included elsewhere in this prospectus and include, in our opinion, all adjustments of a normal and recurring nature that are necessary for the fair statement of the financial information set forth in those statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected for any period in the future and our interim results are not necessarily indicative of results that may be expected for the full year. You should read the following summary consolidated financial data together with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Selected Consolidated Financial Data” and our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus. The summary consolidated financial data included in this section are not intended to replace the audited consolidated financial statements and unaudited condensed consolidated financial statements and are qualified in their entirety by our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus.

 

    Year Ended
December 31,
    Three Months Ended
March 31,
 
    2019     2020     2020     2021  
    (in thousands, except per share data)  

Consolidated Statements of Operations and Comprehensive Loss Data

     

Revenue

  $ 657     $ 7,756     $ 1,256     $ 2,445  

Operating expenses (income):

       

Research and development

    63,595       182,243       25,500       41,529  

General and administrative

    39,151       46,881       8,880       16,831  

Other operating income, net

          (9,431     (120     (545
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    102,746       219,693       34,260       57,815  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (102,089     (211,937     (33,004     (55,370

Interest income, net

    8,121       5,939       2,341       354  

Other (expense) income, net

    (35,409     1,526       1,423       (27
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (129,377     (204,472     (29,240     (55,043

Other comprehensive gain (loss):

       

Net unrealized gain (loss) on marketable securities

    454       (198     632       (93
 

 

 

   

 

 

   

 

 

   

 

 

 

Net comprehensive loss

  $ (128,923   $ (204,670   $ (28,608   $ (55,136
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributed to common stockholders:

 

     

Net loss

  $ (129,377   $ (204,472   $ (29,240   $ (55,043

Deemed dividends upon issuance or repurchase of convertible preferred stock

    (1,144     (3,582     (3,582      
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributed to common stockholders

  $ (130,521   $ (208,054   $ (32,822   $ (55,043
 

 

 

   

 

 

   

 

 

   

 

 

 


 

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    Year Ended
December 31,
    Three Months Ended
March 31,
 
    2019     2020     2020     2021  
    (in thousands, except per share data)  

Net loss per common share, basic and diluted(1)

  $ (24.04   $ (15.69 )     $ (2.82   $ (3.19
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per common share, basic and diluted(1)

    5,429       13,258       11,656       17,272  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per common share, basic and diluted (unaudited)(2)

    $ (1.04     $ (0.26
 

 

 

     

 

 

 

Weighted-average shares used to compute pro forma net loss per common share, basic and diluted (unaudited)(2)

      200,327         211,746  
   

 

 

     

 

 

 

 

(1)

See Note 14 to our audited consolidated financial statements and Note 11 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for a description of how we compute basic and diluted net loss per common share and the number of shares used in computing these amounts.

(2)

See the subsection titled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Unaudited Pro Forma Information” for an explanation of the calculations of our basic and diluted pro forma net loss per common share and the weighted-average number of shares outstanding used in the computation of the per share amount.

 

     As of
March 31, 2021
 
     Actual      Pro Forma(1)     Pro Forma
As Adjusted(2)(3)
 
            (in thousands)        

Consolidated Balance Sheet Data

       

Cash, cash equivalents and marketable securities

   $ 640,137      $ 640,137     $                        

Working capital(4)

     552,923        552,923    

Total assets

     877,189        877,189    

Total liabilities

     200,269        200,269    

Convertible preferred stock

     1,010,968           

Accumulated deficit

     (389,186)        (389,186  

Total stockholders’ (deficit) equity

     (334,048)        676,920    

 

(1)

The pro forma column in the consolidated balance sheet data gives effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 194,474,431 shares of common stock, which will occur upon the closing of this offering and the related reclassification of the carrying value of our convertible preferred stock to permanent equity upon the closing of this offering and (ii) the filing and effectiveness of our amended and restated certificate of incorporation to be in effect immediately after the closing of this offering.

(2)

The pro forma as adjusted column in the consolidated balance sheet data gives effect to (i) the items described in footnote (1) above and (ii) the issuance and sale of                shares of our common stock in this offering at the assumed initial public offering price of $        per share after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

The pro forma as adjusted information is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $        per share would increase or decrease, as applicable, each of our cash, cash equivalents and marketable securities, working capital, total assets and total stockholders’ deficit by $        million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of common stock offered by us would increase or decrease, as applicable, each of our cash, cash equivalents and marketable securities, working capital, total assets, and total stockholders’ deficit by $        million and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(4)

Working capital is defined as current assets less current liabilities. See our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.



 

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RISKS FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus, before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Relating to Our Financial Condition, Limited Operating History and Need for Additional Capital

We are a preclinical biopharmaceutical company and have incurred substantial losses since our inception and anticipate that we will continue to incur substantial and increasing net losses for the foreseeable future.

Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to prove effective, gain regulatory approval or become commercially viable. We are a preclinical biopharmaceutical company, and we do not have any products approved by regulatory authorities and have incurred significant research, development and other expenses related to our ongoing operations and expect to continue to incur such expenses. Since our inception, we have not generated any revenue from product sales and have incurred significant net losses. Our net losses were $129.4 million and $204.5 million for the years ended December 31, 2019 and 2020, respectively, and $29.2 million and $55.0 million for the three months ended March 31, 2020 and 2021, respectively. Substantially all of our net losses since inception have resulted from our research and development programs and general and administrative costs associated with our operations. As of March 31, 2021, we had an accumulated deficit of $389.2 million.

We do not expect to generate revenue from product sales for the foreseeable future, if at all. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate these losses to increase as we continue to research, develop and seek regulatory approvals for our product candidates, expand our manufacturing capabilities, in-license or acquire additional technologies and potentially begin to commercialize product candidates that may achieve regulatory approval. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Moreover, our net losses may fluctuate significantly from quarter to quarter and year to year, such that a period to period comparison of our results of operations may not be a good indication of our future performance. If any of our product candidates fails in research and development or clinical trials or does not gain regulatory approval, or, if approved, fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

We anticipate that our expenses and operating losses will increase substantially over the foreseeable future. The expected increase in expenses will be driven in large part by our ongoing activities, if and as we:

 

   

continue preclinical development of our current and future product candidates and initiate additional preclinical studies;

 

   

commence clinical trials of our current and future product candidates;

 

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advance our Gen-R, Epi-R and cell rejuvenation technology platforms as well as other research and development efforts;

 

   

attract, hire and retain qualified personnel;

 

   

seek regulatory approval of our current and future product candidates;

 

   

expand our manufacturing and process development capabilities;

 

   

expand our operational, financial and management systems;

 

   

acquire and license technology platforms;

 

   

continue to develop, protect and defend our intellectual property portfolio; and

 

   

incur additional legal, accounting or other expenses in operating our business, including the additional costs associated with operating as a public company.

We operate in a rapidly evolving field and have a limited operating history, which may make it difficult to evaluate the success of our business to date and to assess our future viability.

We operate in a rapidly evolving field and, having commenced operations in June 2018, have a limited operating history, which makes it difficult to evaluate our business and prospects. Our primary activities to date have included developing T cell therapies, performing research and development, acquiring technology, entering into strategic collaboration and license agreements, enabling manufacturing activities in support of our product candidate development efforts, organizing and staffing the company, business planning, establishing our intellectual property portfolio, raising capital and providing general and administrative support for these activities. Any predictions about our future success, performance or viability, may not be as accurate as they could be if we had a longer operating history or approved products on the market.

In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition. We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, any of our quarterly or annual periods’ results are not indicative of future operating performance.

We currently have no products approved for sale and have never generated revenue from product sales. We may never generate revenue from product sales or achieve profitability.

To date, we have not generated any revenues from product sales. Our ability to generate revenues from product sales and achieve profitability will depend on our ability to successfully develop and subsequently obtain regulatory approval for and commercialize, our product candidates. Our ability to generate revenues and achieve profitability also depends on a number of additional factors, including our ability to:

 

   

successfully complete our research activities to identify the technologies and product candidates to further investigate in clinical trials;

 

   

successfully complete development activities, including the necessary clinical trials;

 

   

complete and submit regulatory submissions to the U.S. Food and Drug Administration (FDA) the European Medicines Agency (EMA) or other agencies and obtain regulatory approval for indications for which there is a commercial market;

 

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obtain coverage and adequate reimbursement from third parties, including government and private payors;

 

   

set commercially viable prices for our products, if any;

 

   

develop manufacturing and distribution processes for our product candidates;

 

   

develop commercial quantities of our products at acceptable cost levels;

 

   

establish and maintain adequate supply of our product candidates, including the starting materials and reagents needed;

 

   

complete our own manufacturing facility such that we can maintain the supply of our product candidates in a manner that is compliant with global legal requirements or to the extent necessary, establish and maintain manufacturing relationships with reliable third parties;

 

   

achieve market acceptance of our products, if any;

 

   

attract, hire and retain qualified personnel;

 

   

protect our rights in our intellectual property portfolio;

 

   

develop a commercial organization capable of sales, marketing and distribution for any products we intend to sell ourselves in the markets in which we choose to commercialize on our own; and

 

   

find suitable distribution partners to help us market, sell and distribute our approved products in other markets.

Our revenues for any product for which regulatory approval is obtained will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price and whether we own the commercial rights for that territory. In addition, we anticipate incurring significant costs associated with commercializing any approved product candidate. As a result, even if we generate revenue from product sales, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce our operations.

Even if this offering is successful, we will require substantial additional capital to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

We expect to expend substantial resources for the foreseeable future to advance and expand our research pipeline, conduct preclinical studies and proceed to clinical development and manufacturing of our product candidates. We also expect to continue to expend resources for the development of our technology platforms. These expenditures will include costs associated with research and development, potentially acquiring or licensing new technologies, conducting preclinical studies and clinical trials and potentially obtaining regulatory approvals and manufacturing products, as well as marketing and selling products approved for sale, if any. We will also need to make significant expenditures to develop a commercial organization capable of sales, marketing and distribution for any products, if any, that we intend to sell ourselves in the markets in which we choose to commercialize. In addition, we may be required to make substantial payments related to our success payment agreements and other contingent consideration payments under our license and collaboration agreements. Because the design and outcome of our planned and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the discovery, development and commercialization of our potential product candidates and other unanticipated costs may arise.

 

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We do not have any committed external source of funds. Additional funds may not be available when we need them on terms that are acceptable to us, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for our product candidates or delay, limit, reduce or terminate our establishment of sales, marketing and distribution capabilities or other activities that may be necessary to commercialize our product candidates.

Our success payment obligations in our success payment agreements may result in dilution to our stockholders or may be a drain on our cash resources to satisfy the payment obligations.

We agreed to make success payments payable in cash or publicly-tradeable shares of our common stock at our discretion pursuant to our success payment agreements with Fred Hutchinson Cancer Research Center (Fred Hutch) and The Board of Trustees of the Leland Stanford Junior University (Stanford). These success payments will be based on increases in the per share fair market value of our common stock during the success payment period, and will become due and payable upon the occurrence of certain future events, including an initial public offering of our securities, a change of control or conclusion of the agreed-on success payment period. The total amount of success payments that we may become obligated to make is currently $400.0 million and may increase in the future due to amendments of our existing success payment agreements or additional success payment agreements that we may enter into in the future. For information related to our success payment obligations, see the subsection titled under “Business—Collaboration, License and Success Payment Agreements.”

In order to satisfy our obligations to make these success payments, if and when they are triggered, we may issue equity or convertible debt securities that may cause dilution to our stockholders, or we may use our existing cash to satisfy the success payment obligation in cash, which may adversely affect our financial position. In addition, these success payments may impede our ability to raise money in future public offerings of debt or equity securities or to obtain a third-party line of credit.

The success payment agreements may cause operating results to fluctuate significantly from quarter to quarter and year to year, which may reduce the usefulness of our consolidated financial statements.

Our success payment obligations are recorded as liabilities on our consolidated balance sheets. Under U.S. generally accepted accounting principles (GAAP), we are required to estimate the fair value of these liabilities as of each quarter end and changes in the estimated fair value are accreted to research and development expense over the service period of the collaboration agreement. Factors that may lead to increases or decreases in the estimated fair value of this liability include, among others, changes in the value of the common stock, changes in volatility and changes in the risk-free rate. As a result, our operating results and financial condition as reported by GAAP may fluctuate significantly from quarter to quarter and from year to year and may reduce the usefulness of our GAAP consolidated financial statements. As of December 31, 2020 and March 31, 2021, the estimated fair values of the liabilities associated with the Fred Hutch success payments were $8.0 million and $18.2 million, respectively, and as of December 31, 2020 and March 31, 2021, the estimated fair values of the liabilities associated with the Stanford success payments were $8.9 million and $19.6 million, respectively.

 

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Risks Related to Our Business and Industry

We are early in our research and development efforts and all of our product candidates are still in preclinical development. If we are unable to successfully develop and commercialize product candidates or experience significant delays in doing so, our business may be harmed.

We are early in our research and development efforts, and all of our product candidates are still in preclinical development. We have not yet demonstrated our ability to successfully commence or complete any clinical trials (including Phase 3 or other pivotal clinical trials), obtain regulatory approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. We have invested substantial resources in developing our technology platforms and our product candidates, conducting preclinical studies, building our manufacturing facilities and capabilities and preparing for potential clinical trials, each of which will be required prior to any regulatory approval and commercialization. Our ability to generate revenue from product sales, which we do not expect will occur for several years, if ever, will depend heavily on the successful research and development and eventual commercialization of one or more product candidates. The success of our efforts to identify and develop product candidates will depend on many factors, including the following:

 

   

timely and successful completion of our preclinical studies and research activities to identify and develop product candidates to investigate in clinical trials;

 

   

Submission to proceed with clinical trials under INDs from the FDA, or comparable applications to foreign regulatory authorities that allow the commencement of our planned or future clinical trials for our product candidates;

 

   

completion of preclinical studies and successful enrollment and completion of clinical trials in compliance with Good Clinical Practice (GCP) requirements with positive results;

 

   

the prevalence and severity of adverse events experienced with any of our product candidates;

 

   

successfully developing or making arrangements with third parties for, manufacturing and distribution processes for our product candidates and for commercial manufacturing and distribution for any of our product candidates that receive regulatory approval;

 

   

receipt of timely regulatory approvals from applicable authorities for our product candidates for their intended uses;

 

   

protecting our rights in our intellectual property portfolio, including by obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

 

   

establishing or making arrangements with third-party manufacturers or completing our own manufacturing facility for clinical and commercial manufacturing purposes;

 

   

establishing capabilities and infrastructure to obtain the tumor tissues needed to develop and, if successful, commercialize approved products from our TIL program;

 

   

manufacturing our product candidates at an acceptable cost;

 

   

launching commercial sales of our products, if approved by applicable regulatory authorities, whether alone or in collaboration with others;

 

   

acceptance of our products, if approved by applicable regulatory authorities, by patients and the medical community;

 

   

obtaining and maintaining coverage and adequate reimbursement by third-party payors, including government payors, for our products, if approved by applicable regulatory authorities;

 

   

effectively competing with other marketed therapies;

 

   

maintaining compliance with regulatory requirements, including the cGMP requirements;

 

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maintaining a continued acceptable benefit/risk profile of the products following approval; and

 

   

maintaining and growing an organization of scientists and functional experts who can develop and commercialize our products and technology.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully develop and commercialize our product candidates, which could harm our business. If we do not receive marketing approvals for any product candidate we develop, we may not be able to continue our operations.

Our product candidates and technology platforms are based on novel technologies that are unproven and may not result in approvable or marketable products, which exposes us to unforeseen risks and makes it difficult for us to predict the time and cost of product development and potential for regulatory approval and we may not be successful in our efforts to use and expand our technology platforms to build a pipeline of product candidates.

We are seeking to identify and develop a broad pipeline of product candidates using our proprietary technology platforms. We have not commenced clinical trials for any product candidates developed with these platforms. The scientific research that forms the basis of our efforts to develop product candidates with our technology platforms is still ongoing. We are not aware of any FDA approved therapeutics utilizing similar technology. Further, the scientific evidence to support the feasibility of developing therapeutic treatments based on our technology platforms are both preliminary and limited. Additionally, we have not tested any of the product candidates in humans, and our current data is limited to animal models and preclinical cell lines, the results of which may not translate into humans or may not accurately predict the safety and efficacy of our product candidates in humans. As a result, we are exposed to a number of unforeseen risks and it is difficult to predict the types of challenges and risks that we may encounter during development of our product candidates.

Given the novelty of our technology platforms, we intend to work closely with the FDA and comparable foreign regulatory authorities to perform the requisite scientific analyses and evaluation of our methods to obtain regulatory approval for our product candidates; however, due to a lack of relevant experiences, the regulatory pathway with the FDA and comparable regulatory authorities may be more complex and time-consuming relative to other more well-known therapeutics. Even if we obtain human data to support our product candidates, the FDA or comparable foreign regulatory agencies may lack experience in evaluating the safety and efficacy of our product candidates developed using our technology platforms, which could result in a longer than expected regulatory review process, increase our expected development costs and delay or prevent commercialization of our product candidates. The validation process takes time and resources, may require independent third-party analyses and may not be accepted or approved by the FDA and comparable foreign regulatory authorities. There can be no assurance as to the length of clinical development, that number of patients that the FDA may require to be enrolled in clinical trials to establish the safety, purity and potency of our product candidates, or that the data generated in these clinical trials will be acceptable to the FDA to support marketing approvals. We cannot be certain that our approach will lead to the development of approvable or marketable products, alone or in combination with other therapies.

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific, and medical personnel. We are highly dependent on our management, manufacturing, scientific and medical

 

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personnel. The loss of the services of any of our executive officers, other key employees, and other scientific and medical advisors, and our inability to find suitable replacements could result in delays in product development and harm our business. We conduct substantially all of our operations at our facilities in the San Francisco and Seattle metropolitan areas. These regions are headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in these markets is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options or other equity incentives that vest over time may be significantly affected by factors beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain, and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.

Any future litigation or adversarial proceedings against us could be costly and time-consuming to defend.

We may in the future become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by third parties in connection with commercial disputes or employment claims made by our current or former employees. Litigation or adversarial proceedings might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, reputation, overall financial condition and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby harming our business.

If we cannot maintain our company culture as we grow, our success and our business may be harmed.

We believe our culture has been a key contributor to our success to date. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our objectives. As we grow and are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain the beneficial aspects of our culture. If we fail to maintain our company culture, our business may be adversely affected.

We currently have no marketing, sales, or distribution infrastructure and we intend to either establish a sales and marketing infrastructure or outsource this function to a third party. Either of these commercialization strategies carries substantial risks to us.

We currently have no marketing, sales and distribution capabilities because all of our product candidates are still in preclinical development. If any of our product candidates complete clinical development and are approved, we intend to either establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates in a legally compliant manner, or to outsource this function to a third party. There are risks involved if we decide to establish our own sales and marketing capabilities or enter into arrangements with third

 

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parties to perform these services. To the extent that we enter into collaboration agreements with respect to marketing, sales or distribution, our product revenue may be lower than if we directly

marketed or sold any approved products. Such collaborative arrangements with partners may place the commercialization of our products outside of our control and would make us subject to a number of

risks including that we may not be able to control the amount or timing of resources that our collaborative partner devotes to our products or that our collaborator’s willingness or ability to complete its obligations, and our obligations under our arrangements may be adversely affected by business combinations or significant changes in our collaborator’s business strategy.

If we are unable to enter into these arrangements on acceptable terms or at all, we may not be able to successfully commercialize any approved products. If we are not successful in commercializing any approved products, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses, which would have a material adverse effect on our business, financial condition and results of operations.

Our business could be adversely affected by the effects of health epidemics, including the recent COVID-19 pandemic, in regions where we or third parties on which we rely have significant manufacturing facilities, concentrations of potential clinical trial sites or other business operations.

Our business could be adversely affected by health epidemics, including the COVID-19 pandemic, in regions where we or third parties on which we rely have significant manufacturing facilities, concentrations of potential clinical trial sites or other business operations. It is not possible at this time to estimate the overall impact that the COVID-19 pandemic could have on our business. For example, as a result of the COVID-19 pandemic, the States of California and Washington, where our operations are located, have issued orders limiting activities to varying levels, including at the most restrictive level, an order for all residents to remain at home, except for the performance of essential activities, which include biomedical research. We have implemented policies that enable some of our employees to work in the research laboratories and for other employees to work remotely, and such policies may continue for an indefinite period. We have also implemented various safety protocols for all on-site personnel, including the requirement to wear masks and maintain social distance. We continue to evaluate the impact COVID-19 may have on our ability to effectively conduct our business operations as planned, and there can be no assurance that we will be able to avoid part or all of any impact from the spread of COVID-19 or its consequences.

In addition, our preclinical study and future clinical trial plans may be affected by the COVID-19 outbreak. Site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic, which may delay enrollment in our future global clinical trials, and some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, and we may be unable to obtain blood samples for testing.

The ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. Several measures are currently being implemented by the United States and other governments to address the current COVID-19 pandemic and its economic impacts. At this time, it is impossible to predict the success of these measures and whether or not they will have unforeseen negative consequences for our business. We do not yet know the full extent of potential delays or impacts on our business, our planned preclinical studies or clinical trials, healthcare systems or the global economy as a whole. Nor do we know when and how such regulations may be eased. The foregoing and other continued disruptions to our business as a result of COVID-19 could result in an adverse effect on our business, results of operations, financial condition and cash flows. Furthermore, the COVID-19 pandemic could heighten the risks in certain of the other risk factors described herein.

 

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Risks Related to Manufacturing

We intend to manufacture at least a portion of our product candidates ourselves. Delays in commissioning and receiving regulatory approvals for our manufacturing facility could delay our development plans and thereby limit our ability to generate product revenues.

We have built our own manufacturing facility in Bothell, Washington. The facility is expected to support preclinical and development product candidates, and product-specific qualification to support clinical production is needed. If we are not able to qualify a specific product candidate or the appropriate regulatory approvals for the new facility are delayed, we may be unable to manufacture sufficient quantities of our product candidates, if at all, which would limit our development activities and our opportunities for growth.

In addition, our manufacturing facility will be subject to ongoing, periodic inspection by the FDA, EMA, or other applicable regulatory agencies to ensure compliance with cGMPs and current Good Tissue Practices (cGTPs). Our failure to follow and document our adherence to these regulations or other regulatory requirements may lead to significant delays in the availability of products for clinical or, in the future, commercial use. This may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval of commercial marketing applications for our product candidates. We also may encounter problems with the following:

 

   

achieving adequate or clinical-grade materials that meet regulatory agency standards or specifications with consistent and acceptable production yield and costs;

 

   

shortages of qualified personnel, raw materials or key contractors; and

 

   

ongoing compliance with cGMP regulations and other requirements of the FDA, EMA, or other comparable regulatory agencies.

Failure to comply with applicable regulations could also result in sanctions being imposed on us, including fines, injunctions, civil penalties, a requirement to suspend or put on hold one or more of our clinical trials, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could harm our business.

Developing advanced manufacturing techniques and process controls is required to fully utilize our facility. Without further investment, advances in manufacturing techniques may render our facility and equipment inadequate or obsolete. We may also require further investment to build additional manufacturing facilities or expand the capacity of our existing ones.

The manufacturing of cellular therapies is very complex. We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs, delay our programs or limit supply of our product candidates.

Developing commercially viable manufacturing processes for cellular therapies is a difficult and uncertain task and requires significant expertise and capital investment. We are still in the early stages of developing and implementing manufacturing processes for our product candidates. In particular, for autologous cell therapies the starting material is the patient’s own cells which inherently adds complexity and variability to the manufacturing process, and we have not yet manufactured a cellular therapy for a patient with cancer. In addition, we have only recently completed construction of our Bothell, Washington manufacturing facility and have not commenced any clinical scale operations. Our ability to consistently and reliably manufacture our cellular therapy product candidates is essential to our success, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including cost overruns, potential problems with process scale-up,

 

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process reproducibility, stability issues, consistency and timely availability of reagents or raw materials. Furthermore, our manufacturing processes may have significant dependencies on third parties, which will pose additional risks to our manufacturing capabilities. Additionally, we do not yet have sufficient information to reliably estimate the cost of the commercial manufacturing and processing of our product candidates, and the actual cost to manufacture and process our product candidates could materially and adversely affect the commercial viability of our product candidates. As a result, we may never be able to develop a commercially viable product.

In addition to the factors mentioned above, the overall process of manufacturing cellular therapies is extremely susceptible to product loss due to low cell viability, contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing and distribution processes for any of our product candidates could result in reduced production yields, impact to key product quality attributes and other supply disruptions. Product defects can also occur unexpectedly. These deviations and disruptions could delay our programs. If we are not able to capably manage this complexity and variability, our ability to timely and successfully provide our products candidates to patients could be delayed. In addition, the complexities of utilizing a patient’s own cells as the starting material requires that we have suitable cells capable of yielding a viable cellular therapy product, which may not be possible for severely immune-compromised or heavily pre-treated patients.

The process of successfully manufacturing products for clinical testing and commercialization may be particularly challenging, even if such products otherwise prove to be safe and effective. The manufacture of these product candidates involves complex processes. Some of these processes require specialized equipment and highly skilled and trained personnel. The process of manufacturing these product candidates will be susceptible to additional risks, given the need to maintain aseptic conditions throughout the manufacturing process. Contamination with microbials, viruses or other pathogens in either the donor material or materials utilized in the manufacturing process or ingress of microbiological material at any point in the process may result in contaminated, unusable product or necessitate the closing of a manufacturing facility for an extended period of time to allow us to investigate and remedy the contamination. These types of contaminations could result in delays in the manufacture of products which could result in delays in the development of our product candidates. These contaminations could also increase the risk of adverse side effects.

Any adverse developments affecting manufacturing operations for our product candidates may result in lot failures, inventory shortages, shipment delays, product withdrawals or recalls or other interruptions in supply which could delay the development of our product candidates. If we are unable to obtain sufficient supply of our product candidates, whether due to production shortages or other supply interruptions resulting from the ongoing COVID-19 pandemic or otherwise, our clinical trials or regulatory approval may be delayed. We may also have to write off inventory, incur other charges and expenses for supply of product that fails to meet specifications, undertake costly remediation efforts, or seek more costly manufacturing alternatives. In addition, parts of the supply chain may have long lead times or may come from a small number of suppliers. If we are not able to appropriately manage our supply chain our ability to successfully produce our product candidates could be delayed or harmed. Inability to meet the demand for our product candidates could damage our reputation and the reputation of our products among physicians, healthcare payors, patients or the medical community that supports our product development efforts, including hospitals and outpatient clinics.

Furthermore, the manufacturing facilities in which our product candidates will be made could be adversely affected by earthquakes and other natural disasters, equipment failures, labor shortages, power failures, health epidemics and numerous other factors. If any of these events were to occur and impact our manufacturing facilities, our business would be materially and adversely affected.

 

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If our sole clinical or commercial manufacturing facility or our contract manufacturing organization is damaged or destroyed or production at these facilities is otherwise interrupted, our business would be negatively affected.

If any manufacturing facility in our manufacturing network, or the equipment in these facilities, is either damaged or destroyed, we may not be able to quickly or inexpensively replace our manufacturing capacity, if we are able to replace it at all. In the event of a temporary or protracted loss of a facility or its equipment, we may not be able to transfer manufacturing to a third party in the time required to maintain supply. Even if we could transfer manufacturing to a third party, the shift would likely be expensive and time-consuming, particularly since the new facility would need to comply with the necessary regulatory requirements or may require regulatory approval before selling any products manufactured at that facility. Such an event could substantially delay our clinical trials or commercialization of our product candidates.

Currently, we maintain insurance coverage against damage to our property and to cover business interruption and research and development restoration expenses. However, our insurance coverage may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses we may suffer. We may be unable to meet our requirements for our product candidates if there were a catastrophic event or failure of our current manufacturing facility or processes.

If we are unable to develop or scale our own manufacturing, we may have to rely on third parties to manufacture our product candidates, which subjects us to risks and could delay or prevent our development and/or commercialization, if approved, of our product candidates.

If we are unable to develop or scale or own manufacturing capabilities for our product candidates, we will be reliant on third parties to manufacture our product candidates. We may be unable to identify manufacturers for our product candidates or the materials required to develop the cellular therapy on acceptable terms or at all because the number of potential manufacturers is limited. Engaging a third party manufacturer will require testing and regulatory interactions, and a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA questions, if any. Our third-party manufacturers may be unable to timely formulate and manufacture our product or produce the quantity and quality required to meet our clinical and commercial needs, if any.

Furthermore, the facilities used by manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state agencies to ensure strict compliance with government regulations and corresponding foreign standards, and we do not have control over third-party manufacturers’ compliance with cGMPs for the manufacture of our product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to obtain and/or maintain regulatory approval for our product candidates manufactured in these facilities. In addition, we have no control over the ability of our third-party manufacturers to maintain adequate control, quality assurance and qualified personnel required to meet our clinical and commercial needs, if any. If the FDA or a comparable foreign regulatory authority does not approve the manufacture of our product candidates at these facilities or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. In addition, any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that any approvals we have obtained could be revoked, which would adversely affect our business and reputation.

We may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our products. Also, our third-

 

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party manufacturers could breach or terminate their agreement with us because of their own financial difficulties or business priorities, at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.

Furthermore, our third-party manufacturers would also be subject to the same risks we face in developing our own manufacturing capabilities, as described above. Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA or the commercialization of our product candidates or result in higher costs or deprive us of potential product revenue.

Cell-based therapies rely on the availability of specialty raw materials, which may not be available to us on acceptable terms or at all.

Our product candidates require many specialty raw materials. As a result, we may be required to outsource aspects of our manufacturing supply chain. Many of the specialty raw materials may be manufactured by small companies with limited resources and experience to support a commercial product, and the suppliers may not be able to deliver raw materials to our specifications. In such case, identifying and engaging an alternative supplier or manufacturer could result in delay, and we may not be able to find other acceptable suppliers or manufacturers on acceptable terms, or at all. Switching suppliers or manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines. If we change suppliers or manufacturers for commercial production, applicable regulatory agencies may require us to conduct additional studies or trials. If key suppliers or manufacturers are lost, or if the supply of the materials is diminished or discontinued, we may not be able to develop, manufacture and market our product candidates in a timely and competitive manner, or at all. An inability to continue to source product from any of these suppliers, which could be due to a number of issues, including regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business.

In addition, those suppliers may not have the capacity to support commercial products manufactured by biopharmaceutical firms. The suppliers may be ill-equipped to support our needs, especially in non-routine circumstances like an FDA inspection, or medical crises such as widespread contamination. We may not be able to contract with these companies on acceptable terms or at all. Accordingly, we may experience delays in receiving key raw materials to support clinical or commercial manufacturing. In addition, some raw materials are currently available from a single supplier, or a small number of suppliers. We cannot be sure that these suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose. These factors could cause the delay of studies or trials, regulatory submissions, required approvals or commercialization of product candidates that we develop, cause us to incur higher costs and prevent us from commercializing our product candidates successfully.

Risks Related to Our Dependence on Third-Parties

We intend to rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

We do not currently have the ability to independently conduct any clinical trials. We intend to rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as

 

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contract research organizations (CROs), to conduct GCP-compliant clinical trials on our product candidates properly and on time. Negotiating budgets and contracts with CROs and study sites may result in delays to our development timelines and increased costs. While we will control only certain aspects of these third parties’ activities, nevertheless, we will be responsible for ensuring that each of our trials are conducted in accordance with applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMPs and will require a large number of test patients. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Any third parties conducting our clinical trials will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could affect their performance on our behalf. If these third parties do not successfully

carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

If any of our relationships with trial sites or any CRO that we may use in the future terminates, we may not be able to enter into arrangements with alternative trial sites or CROs or do so on commercially reasonable terms. Switching or adding third parties to conduct clinical trials involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet desired clinical development timelines.

We do and will continue to or intend to rely on outside scientists and their third-party research institutions for research and development and early clinical testing of our product candidates. These scientists and institutions may have other commitments or conflicts of interest, which could limit our access to their expertise and harm our ability to leverage our technology platforms.

We rely on our third-party research institution collaborators for some research capabilities. However, the research we are funding constitutes only a small portion of the overall research of each research institution. Other research being conducted by these institutions may at times receive higher priority than research on the programs we are funding. We typically have less control of the research, clinical trial protocols and patient enrollment than we might with activity led by our employees.

 

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The outside scientists who conduct the research and development upon which portions of our product candidate pipeline depends, are not our employees; rather, they serve as either independent contractors or the primary investigators under research collaboration agreements that we have with their sponsoring academic or research institution. Such scientists and collaborators may have other commitments that would limit their availability to us. Although our scientific advisors generally agree not to do competing work, if an actual or potential conflict of interest between their work for us and their work for another entity arises, we may lose their services. These factors could adversely affect the timing of the clinical trials, the timing of receipt and reporting of clinical data, the timing of our IND submissions, and our ability to conduct future planned clinical trials. It is also possible that some of our valuable proprietary knowledge may become publicly known through these scientific advisors if they breach their confidentiality agreements with us, which would cause competitive harm to, and have an adverse effect on, our business.

We have entered into a collaboration with GlaxoSmithKline (GSK) and may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.

We have entered into a research and development collaboration with GSK for our NY-ESO-1 program and other potential product opportunities. In the future, we may also enter into additional license and collaboration arrangements. Any collaboration arrangement that we enter into is subject to numerous risks, which may include the following:

 

   

the collaborator has significant discretion in determining the efforts and resources that they will apply to a program or product candidate under the collaboration;

 

   

the collaborator may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;

 

   

the collaborator may delay clinical trials, provide insufficient funding for a clinical trial, preferentially enroll patients on a portion of a clinical trial not testing our product candidates, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;

 

   

the collaborator could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

 

   

the collaborator may not commit sufficient resources to marketing and distribution of our products;

 

   

the collaborator may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

 

   

disputes may arise between us and the collaborator that cause the delay or termination of the research, development or commercialization of our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;

 

   

the collaboration may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and

 

   

the collaborator may own or co-own intellectual property covering our product candidates that results from our collaborating with them, and in such cases, we would not have the exclusive right to commercialize such intellectual property.

 

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In particular, failure by GSK to meet each of its obligations under our collaboration agreement or failure by GSK to apply sufficient efforts at developing and commercializing collaboration products may adversely affect our business and our results of operations. GSK could independently develop, or develop with its other third party collaborators, products or product candidates that compete directly or indirectly with our products or product candidates and that could adversely impact GSK’s willingness to exercise an option under our collaboration or GSK’s level of diligence for our collaboration products for which it has exercised an option. Additionally, GSK’s exercise of an option for a program that includes a given product candidate may also lead to changes to clinical and regulatory development strategy for such product candidate, at GSK’s discretion, which may impact development timelines for such product candidate and may adversely affect the value of our stock. GSK will also require some level of assistance from us with respect to product candidates for which it exercises an option, and this assistance could be burdensome on our organization and resources and disrupt our own development and commercialization activities for product candidates for which we retain rights.

We may form or seek further strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates our research, and any future product candidates that we may pursue. Such alliances will be subject to many of the risks set forth above. Moreover, any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex.

As a result of these risks, we may not be able to realize the benefit of our existing collaboration or any future collaborations or licensing agreements we may enter into. Any delays in entering into new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.

We may not realize the benefits of potential future collaborations, licenses, product acquisitions or other strategic transactions.

We have entered into, and may desire to enter into in the future, collaborations, licenses or other strategic transactions for the acquisition of products or business opportunities, in each case where we believe such arrangement will complement or augment our existing business. These relationships or transactions, or those like them, may require us to incur nonrecurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders, reduce the potential profitability of the products that are the subject of the relationship or disrupt our management and business. For example, we entered into a collaboration agreement and stock purchase agreement with PACT Pharma, Inc. (PACT) in June 2020, and in February 2021, we filed a demand for arbitration seeking to, among other things, rescind the agreements with PACT and recover the consideration paid thereunder. In addition, we face significant competition in seeking appropriate strategic alliances and transactions and the negotiation process is time-consuming and complex and there can be no assurance that we can enter into any of these transactions even if we desire to do so. Moreover, we may not be successful in our efforts to establish a strategic alliance or other alternative arrangements for any future product candidates and programs because our research and development pipeline may be insufficient, our product candidates or programs may be deemed to be at too early a stage of development for collaborative effort and third parties may not view our product candidates and programs as having the requisite potential to demonstrate a positive benefit/risk profile. Any delays in entering into new strategic alliance agreements related to our product candidates could also delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market.

 

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If we license products or acquire businesses, we may not be able to realize the benefit of these transactions if we are unable to successfully integrate them with our existing operations and company culture. There are other risks and uncertainties involved in these transactions, including unanticipated liabilities related to acquired intellectual property rights, products or companies and disruption in our relationship with collaborators or suppliers as a result of such a transaction. We cannot be certain that, following an acquisition or license, we will achieve the financial or strategic results that would justify the transaction.

We will depend on enrollment and retention of patients in our clinical trials for our product candidates. If we experience delays or difficulties enrolling or retaining patients in our clinical trials, our research and development efforts and business, financial condition, and results of operations could be materially adversely affected.

Successful and timely completion of clinical trials will require that we enroll and retain a sufficient number of patient candidates. Any clinical trials we conduct may be subject to delays for a variety of reasons, including as a result of patient enrollment taking longer than anticipated, patient withdrawal, or adverse events. These types of developments could cause us to delay the trial or halt further development.

Our clinical trials will compete with other clinical trials that are in the same therapeutic areas as our product candidates, and this competition reduces the number and types of patients available to us, as some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Moreover, enrolling patients in clinical trials for diseases in which there is an approved standard of care is challenging, as patients will first receive the applicable standard of care. Many patients who respond positively to the standard of care do not enroll in clinical trials. This may limit the number of eligible patients able to enroll in our clinical trials who have the potential to benefit from our product candidates and could extend development timelines or increase costs for these programs. Patients who fail to respond positively to the standard of care treatment will be eligible for clinical trials of unapproved drug candidates. However, these prior treatment regimens may render our therapies less effective in clinical trials.

Because the number of qualified clinical investigators and clinical trial sites is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites.

Patient enrollment depends on many factors, including:

 

   

the size and nature of the patient population;

 

   

the severity of the disease under investigation;

 

   

eligibility criteria for the trial;

 

   

the proximity of patients to clinical sites;

 

   

the design of the clinical protocol;

 

   

the ability to obtain and maintain patient consents;

 

   

perceived risks and benefits of the product candidate under evaluation, including any perceived risks associated with genetically modified product candidates;

 

   

the ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

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the risk that patients enrolled in clinical trials will drop out of the trials before the administration of our product candidates or trial completion;

 

   

the availability of competing clinical trials;

 

   

the availability of such patients during the COVID-19 pandemic;

 

   

the availability of new drugs approved for the indication the clinical trial is investigating; and

 

   

clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies.

These factors may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process, and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

We face competition from numerous pharmaceutical and biotechnology enterprises, as well as from academic institutions, government agencies and private and public research institutions. Our ability to enroll clinical trials or our commercial opportunities will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects or are less expensive than any products that we may develop. Additionally, our commercial opportunities will be reduced or eliminated if novel upstream products or changes in treatment protocols reduce the overall incidence or prevalence of our current or future target diseases. Competition could result in reduced sales and pricing pressure on our product candidates, if approved by applicable regulatory authorities. In addition, significant delays in the development of our product candidates could allow our competitors to bring products to market before us and impair any ability to commercialize our product candidates.

Risks Related to Regulation and Legal Compliance

All of our product candidates are currently in preclinical development, and our future success is dependent on the successful development and regulatory approval of our product candidates.

We currently have no products approved for commercial sale, and all of our product candidates are currently in preclinical development. The future success of our business is substantially dependent on our ability to obtain regulatory approval for our product candidates for the indications we seek, and, if approved, to successfully commercialize one or more product candidates in a timely manner. Each of our programs and product candidates will require additional preclinical and clinical development, regulatory approval, obtaining manufacturing supply, capacity and expertise, building a commercial organization or successfully outsourcing commercialization, substantial investment and significant marketing efforts before we generate any revenue from product sales. We do not have any products that are approved for commercial sale, and we may never be able to develop or commercialize marketable products.

We cannot commercialize product candidates in the United States without first obtaining regulatory approval for the product from the FDA; similarly, we cannot commercialize product

 

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candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, we must demonstrate with substantial evidence from and to the satisfaction of the FDA and foreign regulatory authorities, that the product candidate is safe, pure and potent for use for that target indication and that the manufacturing facilities, processes and controls are adequate with respect to such product candidate to assure safety, purity and potency.

The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any future product candidates will ever obtain regulatory approval. Furthermore, the regulatory approval process for novel product candidates, such as T cell product candidates and next-generation T cell programs, can be more complex and consequently more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates.

Even if a product candidate were to successfully obtain approval from the FDA and comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval for one of our product candidates in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding to continue the development of that product or generate revenues attributable to that product candidate. Also, any regulatory approval of our current or future product candidates, once obtained, may be withdrawn.

Our cellular therapy product candidates represent new therapeutic approaches that could result in heightened regulatory scrutiny, delays in clinical development or delays in or our inability to achieve regulatory approval, commercialization or payor coverage of our product candidates.

Our future success is dependent on the successful development of our cellular therapies in general and our development product candidates in particular. Because these programs represent a new approach to the treatment of cancer, developing and, if approved, commercializing our product candidates subject us to a number of challenges. Moreover, we cannot be sure that the manufacturing processes used in connection with our cellular therapy product candidates will yield a sufficient supply of satisfactory products that are safe, pure and potent, scalable or profitable.

In addition to FDA oversight and oversight by institutional review boards (IRBs) under guidelines promulgated by the National Institutes of Health (NIH), gene therapy clinical trials are also subject to review and oversight by an institutional biosafety committee (IBC), a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment. While the NIH guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Although the FDA decides whether trials of cell therapies that involve genetic engineering may proceed, the review process and determinations of other reviewing bodies can impede or delay the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation.

 

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Actual or perceived safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved by applicable regulatory authorities, of physicians to subscribe to the novel treatment mechanics. The FDA or other applicable regulatory authorities may ask for specific post-market requirements, and additional information informing benefits or risks of our products may emerge at any time prior to or after regulatory approval.

Physicians, hospitals and third-party payors often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. Physicians may not be willing to undergo training to adopt this novel therapy, may decide the therapy is too complex to adopt without appropriate training or not cost-efficient, and may choose not to administer the therapy. Based on these and other factors, hospitals and payors may decide that the benefits of this new therapy do not or will not outweigh its costs.

The results of research, preclinical studies or earlier clinical trials are not necessarily predictive of future results. Any product candidate we advance into clinical trials may not have favorable results in later clinical trials or receive regulatory approval.

Success in research, preclinical studies and early clinical trials does not ensure that later clinical trials will generate similar results and otherwise provide adequate data to demonstrate the efficacy and safety of an investigational product. Likewise, a number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in late-stage clinical trials, even after seeing promising results in earlier preclinical studies or clinical trials. Thus, even if the results from our initial research and preclinical activities appear positive, we do not know whether subsequent late-stage clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market any product candidates.

Moreover, final study results may not be consistent with interim study results. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval for any of our product candidates may be adversely impacted. Even if we believe that we have adequate data to support an application for regulatory approval to market any of our product candidates, the FDA or other regulatory authorities may not agree and may require that we conduct additional clinical trials.

Clinical development involves a lengthy and expensive process with an uncertain outcome.

All of our product candidates are in preclinical development and their risk of failure is high. The clinical trials and manufacturing of our product candidates are, and the manufacturing and marketing of our products, if approved, will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. In particular, because our product candidates are subject to regulation as biological products, we will need to demonstrate that they are safe, pure and potent for use in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.

The clinical testing that will be required for any product candidates we choose to advance is expensive and can take many years to complete, and its outcome is inherently uncertain. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Failure can occur at any time during the clinical trial process. Even if our future clinical trials are

 

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completed as planned, we cannot be certain that their results will support the safety and effectiveness of our product candidates for their targeted indications or support continued clinical development of such product candidates. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and clinical trials.

In addition, even if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. Moreover, results acceptable to support approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory approval in that other jurisdiction. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

To date, we have not completed any clinical trials required for the approval of our product candidates. We may experience delays in initiating or conducting any future clinical trials, and we do not know whether clinical trials will begin or enroll subjects on time, will need to be redesigned, will achieve expected enrollment rates or will be completed on schedule, if at all. For example, obtaining sufficient and specific tumor tissues will be needed for the anticipated TIL clinical trial. Our inability to obtain the specific tumor tissues or sufficient amount of tumor tissues could delay the clinical trial. There can be no assurance that the FDA or comparable foreign regulatory authorities will not put clinical trials of any of our product candidates on clinical hold in the future. Clinical trials can be delayed, suspended or terminated for a variety of reasons, including in connection with:

 

   

inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of clinical trials;

 

   

delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for advanced clinical trials;

 

   

delays in reaching agreement with the FDA or other regulatory authorities as to the design or implementation of our clinical trials;

 

   

obtaining regulatory authorization to commence a clinical trial;

 

   

reaching an agreement on acceptable terms with clinical trial sites or prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different clinical trial sites;

 

   

obtaining IRB or ethics committee approval at each trial site;

 

   

recruiting suitable patients to participate in a clinical trial;

 

   

having patients complete a clinical trial or return for post-treatment follow-up;

 

   

inspections of clinical trial sites or operations by applicable regulatory authorities, or the imposition of a clinical hold;

 

   

clinical sites, CROs or other third parties deviating from trial protocol or dropping out of a trial;

 

   

failure to perform in accordance with applicable regulatory requirements, including the FDA’s GCP requirements, or applicable regulatory requirements in other countries;

 

   

addressing patient safety concerns that arise during the course of a trial, including occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

 

   

adding a sufficient number of clinical trial sites;

 

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manufacturing sufficient quantities of product candidate for use in clinical trials; or

 

   

suspensions or terminations by IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board for such trial or by the FDA or other regulatory authorities due to a number of factors, including those described above.

Further, a clinical trial may be suspended or terminated by us, the institutional review boards for the institutions in which such trials are being conducted, the Data Monitoring Committee for such trial, or the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

We cannot predict with any certainty whether or when we might complete a given clinical trial, if at all. If we experience delays or quality issues in the conduct, completion or termination of any clinical trial of our product candidates, the approval and commercial prospects of such product candidate will be harmed, and our ability to generate product revenues from such product candidate will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may ultimately lead to the denial of regulatory approval of our product candidates.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any regulatory approval. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authority. As a result of safety or toxicity issues that we may experience in our clinical trials, we may not continue the development of nor receive approval to market any product candidates, which could prevent us from ever generating product revenues or achieving profitability. For example, previous clinical trials utilizing a CAR T cell to treat hematologic tumors have shown an increased risk of cytokine release syndrome and immune effector cell-associated neurotoxicity syndrome. Adverse events may also be associated with the lymphodepletion regimen utilized with cellular therapies. Additionally, ROR1 is expressed on a number of normal tissues. As a result, ROR1 could cause on-target, off-tumor toxicity. c-JUN is also potentially an oncogene and could cause healthy cells to transform into malignant cells. Results of our trials could reveal an unacceptably high severity and incidence of side effects, or side effects outweighing the benefits of our product candidates. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development or deny approval of our product candidates for any or all targeted indications. The side effects experienced could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims.

In the event that any of our product candidates receives regulatory approval and we or others later identify undesirable or unacceptable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw or limit approvals of such products and require us to take our approved product off the market;

 

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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies, or issue other communications containing warnings or other safety information about the product;

 

   

regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to patients, or that we implement a risk evaluation and mitigation strategy (REMS) plan to ensure that the benefits of the product outweigh its risks;

 

   

we may be required to change the dose or the way the product is administered, conduct additional clinical trials, or change the labeling of the product;

 

   

we may be subject to limitations on how we may promote or manufacture the product;

 

   

sales of the product may decrease significantly;

 

   

we may be subject to litigation or product liability claims; and

 

   

our reputation may suffer.

Any of these events could prevent us or our potential future partners from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale of any products.

Interim, topline, or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data becomes available or as we make changes to our manufacturing processes and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose interim, topline, or preliminary data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. Further, modifications or improvements to our manufacturing processes for a therapy may result in changes to the characteristics or behavior of the product candidate that could cause our product candidates to perform differently and affect the results of our ongoing clinical trials. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available.

From time to time, we may also disclose preliminary or interim data from our preclinical studies and clinical trials. Preliminary or interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Additionally, disclosure of preliminary or interim data by us or by our competitors could result in volatility in the price of our common stock.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate and our company in general. If the interim,

 

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topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, any of our potential product candidates may be harmed, which could harm our business, operating results, prospects, or financial condition.

The FDA regulatory approval process is lengthy, time-consuming and inherently unpredictable. If we are not able to obtain required regulatory approval of our product candidates, our business will be substantially harmed.

We expect the novel nature of our product candidates to create challenges in obtaining regulatory approval. For example, the FDA has limited experience with commercial development of T cell therapies for cancer. Accordingly, the regulatory approval pathway for our product candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained.

Prior to obtaining approval to commercialize any drug product candidate in the United States or abroad, we must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe, pure and potent for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or after approval, or it may object to elements of our clinical development programs.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

   

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

   

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

   

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

   

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

   

the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

   

the approval policies or regulations of the FDA or comparable foreign authorities may significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of products in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval and marketing authorization process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval and marketing authorization to market our product candidates, which would significantly harm our business, financial condition, results of operations and prospects.

We could also encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that

 

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have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, the institutional review boards for the institutions in which such trials are being conducted, the Data Monitoring Committee for such trial, or the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or a regulatory authority concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of the marketing application we submit. Any such delay or rejection could prevent or delay us from commercializing our current or future product candidates.

If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may ultimately lead to the denial of regulatory approval of our product candidates.

Even if our product candidates obtain regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

If the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, testing, labeling, packaging, distribution, import, export, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs for any clinical trials that we conduct post-approval, all of which may result in significant expense and limit our ability to commercialize such products. In addition, any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate.

Manufacturers and manufacturers’ facilities are required to comply with extensive FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations, as well as, for the manufacture of certain of our product candidates, the FDA’s cGTPs for the use of human cellular and tissue products to prevent the introduction, transmission or spread of communicable diseases. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMPs, cGTPs and adherence to commitments made in any approved marketing application. Accordingly, we

 

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and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, quality control and distribution.

If there are changes in the application of legislation or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include issuing warning letters or untitled letters, imposing fines on us, imposing restrictions on the product or its manufacture, and requiring us to recall or remove the product from the market. The regulators could also suspend or withdraw our marketing authorizations, requiring us to conduct additional clinical trials, change our product labeling, or submit additional applications for marketing authorization. If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect our business, financial condition and results of operations.

In addition, if we have any product candidate approved, our product labeling, advertising and promotion will be subject to regulatory requirements and continuing regulatory review. In the United States, the FDA and the Federal Trade Commission (FTC) strictly regulate the promotional claims that may be made about pharmaceutical products to ensure that any claims about such products are consistent with regulatory approvals, not misleading or false in any particular, and adequately substantiated by clinical data. The promotion of a drug product in a manner that is false, misleading, unsubstantiated, or for unapproved (or off-label) uses may result in enforcement letters, inquiries and investigations and civil and criminal sanctions by the FDA, FTC and other regulatory authorities. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions and may result in false claims litigation under federal and state statutes, which can lead to consent decrees, civil monetary penalties, restitution, criminal fines and imprisonment, and exclusion from participation in Medicare, Medicaid and other federal and state healthcare programs. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The government has also required that companies enter into consent decrees and/or imposed permanent injunctions under which specified promotional conduct is changed or curtailed.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

 

   

issue warning letters;

 

   

issue, or require us to issue, safety-related communications, such as safety alerts, field alerts, “Dear Doctor” letters to healthcare professionals, or import alerts;

 

   

impose civil or criminal penalties;

 

   

suspend, limit, or withdraw regulatory approval;

 

   

suspend any of our preclinical studies and clinical trials;

 

   

refuse to approve pending applications or supplements to approved applications submitted by us;

 

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impose restrictions on our operations, including closing our and our contract manufacturers’ facilities; or

 

   

seize or detain products, refuse to permit the import or export of products, or require us to conduct a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products, if approved. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.

Moreover, the policies of the FDA and of comparable foreign regulatory authorities may change and additional government regulations may be enacted that could prevent, limit, or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration took several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. It is difficult to predict how these orders will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose restrictions on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. In addition, if we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

We may be subject to applicable fraud and abuse, including anti-kickback and false claims, transparency, health information privacy and security and other healthcare laws. Failure to comply with such laws, may result in substantial penalties.

We may be subject to broadly applicable healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we conduct research, market, sell and distribute any product candidates for which we obtain marketing approval. The healthcare laws that may affect us include: the federal fraud and abuse laws, including the federal anti-kickback, and false claims and civil monetary penalties laws; federal data privacy and security laws; and federal transparency laws related to ownership and investment interests and payments and/or other transfers of value made to or held by physicians (including doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals and, beginning in 2022, information regarding payments and transfers of value provided to and other healthcare professionals during the previous year. In addition, many states have similar laws and regulations that may differ from each other and federal law in significant ways, thus complicating compliance efforts. Moreover, several states require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Additionally, some state and local laws require the registration of biopharmaceutical sales representatives in the jurisdiction.

Ensuring that our operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that

 

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governmental authorities will conclude that our business practices, including our relationships with physicians and other healthcare providers, some of whom are compensated in the form of stock options for consulting services provided, may not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, disgorgement, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and/or oversight if a corporate integrity agreement or similar agreement is executed to resolve allegations of non-compliance with these laws and the curtailment or restructuring of operations. In addition, violations may also result in reputational harm, diminished profits and future earnings.

Changes in healthcare policies, laws and regulations may impact our ability to obtain approval for, or commercialize our product candidates, if approved.

In the United States and some foreign jurisdictions there have been, and continue to be, several legislative and regulatory changes and proposed reforms of the healthcare system in an effort to contain costs, improve quality and expand access to care. In the United States, there have been and continue to be a number of healthcare-related legislative initiatives, as well as executive, judicial and Congressional challenges to existing healthcare laws that have significantly affected, and could continue to significantly affect, the healthcare industry. For example, the U.S. Supreme Court is currently reviewing the constitutionality of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, together with subsequent amendments and regulations (collectively, the ACA); it is unclear when a decision will be made. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs and review the relationship between pricing and manufacturer patient programs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels and pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford prescription medications such as our product candidates, assuming FDA approval. Our ability to achieve acceptable levels of coverage and reimbursement for products by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize our product candidates. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a payor-by-payor basis. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that a procedure is safe, effective and medically necessary; appropriate for the specific patient; cost-effective; supported by peer-reviewed medical journals; included in clinical practice guidelines; and

 

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neither cosmetic, experimental, nor investigational. Assuming we obtain coverage for our product candidates by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the European Union or elsewhere will be available for our product candidates or any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

Similarly, a significant trend in the healthcare industry is cost containment. Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. As such, cost containment reform efforts may result in an adverse effect on our operations. Obtaining coverage and adequate reimbursement for our product candidates may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. Similarly, because our product candidates are physician-administered, separate reimbursement for the product itself may or may not be available. Instead, the administering physician may or may not be reimbursed for providing the treatment or procedure in which our product is used.

We intend to rely on third parties to conduct, supervise and monitor a significant portion of our research and preclinical testing and clinical trials for our product candidates, and if those third parties do not successfully carry out their contractual duties, comply with regulatory requirements or otherwise perform satisfactorily, we may not be able to obtain regulatory approval or commercialize product candidates, or such approval or commercialization may be delayed, and our business may be substantially harmed.

We intend to engage CROs and other third parties to conduct our planned preclinical studies or clinical trials. If any of our relationships with these third parties terminate, we may not be able to timely enter into arrangements with alternative third parties or to do so on commercially reasonable terms, if at all. Switching or adding CROs involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects. Further, the performance of our CROs and other third parties conducting our trials may also be interrupted by the ongoing COVID-19 pandemic, including due to travel or quarantine policies, heightened exposure of CRO or clinical site or other vendor staff who are healthcare providers to COVID-19 or prioritization of resources toward the pandemic.

In addition, any third parties conducting our clinical trials will not be our employees, and except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our clinical programs. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. Consequently, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed significantly.

We rely on these parties for execution of our preclinical studies and clinical trials, and generally do not control their activities. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For

 

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example, we will remain responsible for ensuring that each of our clinical trials are conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. If we or any of our CROs or other third parties, including trial sites, fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials complies with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP conditions. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval for product candidates.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new biologics or modifications to cleared or approved biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough FDA employees and stop critical activities.

Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities, and on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020 the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Additionally, on April 15, 2021, the FDA issued a guidance document in which the FDA described its plans to conduct voluntary remote interactive evaluations of certain drug manufacturing facilities and clinical research sites. According to the guidance, the FDA intends to request such remote interactive evaluations in situations where an in-person inspection would not be prioritized, deemed mission-critical, or where direct inspection is otherwise limited by travel restrictions, but where

 

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the FDA determines that remote evaluation would still be appropriate. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Risks Relating to Our Intellectual Property

If we are unable to obtain and maintain sufficient intellectual property protection for our product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our ability to commercialize our product candidates successfully and to compete effectively may be adversely affected.

We rely upon a combination of patents, trademarks, trade secrets and confidentiality agreements to protect the intellectual property related to our technology and product candidates. We own or possess certain intellectual property, and other intellectual property are owned or possessed by our partners and are in-licensed to us. When we refer to “our” technologies, inventions, patents, patent applications or other intellectual property rights, we are referring to both the rights that we own or possess as well as those that we in-license, many of which are critical to our intellectual property protection and our business. If the intellectual property that we rely on is not adequately protected, competitors may be able to use our technologies and erode or negate any competitive advantage we may have.

The patentability of inventions and the validity, enforceability and scope of patents in the biotechnology field is uncertain because it involves complex legal, scientific and factual considerations, and it has in recent years been the subject of significant litigation. Moreover, the standards applied by the U.S. Patent and Trademark Office (USPTO) and non-U.S. patent offices in granting patents are not always applied uniformly or predictably. There is also no assurance that all potentially relevant prior art relating to our patents and patent applications is known to us or has been found in the instances where searching was done. We may be unaware of prior art that could be used to invalidate an issued patent or prevent a pending patent application from issuing as a patent. There also may be prior art of which we are aware, but which we do not believe affects the validity, enforceability or patentability of a claim of one of our patents or patent applications, which may, nonetheless, ultimately be found to affect the validity, enforceability or patentability of such claim. As a consequence of these and other factors, our patent applications may fail to result in issued patents with claims that cover our product candidates in the United States or in other countries.

Even if patents have issued or do successfully issue from patent applications, and even if these patents cover our product candidates, third parties may challenge the validity, enforceability or scope thereof, which may result in these patents being narrowed, invalidated or held to be unenforceable. No assurance can be given that if challenged, our patents would be declared by a court to be valid or enforceable. Even if unchallenged, our patents and patent applications or other intellectual property rights may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. The possibility exists that others will develop products on an independent basis which have the same effect as our product candidates and which do not infringe our patents or other intellectual property rights, or that others will design around the claims of patents that we have had issued that cover our product candidates. If the breadth or strength of protection provided by our patents and patent applications with respect to our product candidates is threatened, it could jeopardize our ability to commercialize our product candidates and dissuade companies from collaborating with us.

 

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We may also desire to seek licenses from third parties who own or have rights to intellectual property that may be useful for providing exclusivity for our product candidates, or for providing the ability to develop and commercialize a product candidate in an unrestricted manner. There is no guarantee that we will be able to obtain such licenses from third parties on commercially reasonable terms, or at all.

In addition, the USPTO and various foreign governmental or inter-governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during and after the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete, irreversible loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market, which could have a material adverse effect on our business.

United States patent applications containing or that at any time contained a claim not entitled to a priority date before March 16, 2013 are subject to the “first to file” system implemented by the America Invents Act (2011). The first to file system requires us to be cognizant going forward of the time from invention to filing of a patent application. Because patent applications in the U.S. and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our partners were the first to file any patent application related to a product candidate.

In addition, our registered or unregistered trademarks or trade names may be challenged, infringed or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we view as valuable to building name recognition among potential partners and customers in our markets of interest. At times, competitors or other third parties have adopted or may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion and/or litigation. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce, protect, or defend our proprietary rights related to trademarks may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.

The lives of our patents may not be sufficient to effectively protect our products and business.

Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its first nonprovisional effective filing date. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from biosimilar or generic medications. In addition, although upon issuance in the United States a patent’s life can be increased based on certain delays caused by the USPTO, this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. The patent term of certain patents can also be extended with respect to a specific product to recapture time lost in clinical trials and regulatory review by the FDA. A patent’s life also can be shortened by a terminal disclaimer over an earlier filed patent or patent application. If we do not have sufficient patent life to protect our products, our business and results of operations will be adversely affected.

 

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We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting, enforcing and defending patents on all of our product candidates in all countries throughout the world would be prohibitively expensive. Our intellectual property rights in certain countries outside the United States may be less extensive than those in the United States. In addition, the laws of certain foreign countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we and our partners may not be able to prevent third parties from practicing our inventions in countries outside the United States, or from selling or importing infringing products made using our inventions in other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection or where we do not have exclusive rights under the relevant patents to develop their own products and, further, may export otherwise-infringing products to territories where we and our partners have patent protection but where enforcement is not as strong as that in the U.S. These infringing products may compete with our product candidates in jurisdictions where we or our partners have no issued patents or where we do not have exclusive rights under the relevant patents, or our patent claims and other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us and our partners to stop the infringement of our patents or marketing of competing products in violation of our intellectual property rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims against us or our partners. We or our partners may not prevail in any lawsuits that we or our licensors initiate, and even if we or our licensors are successful the damages or other remedies awarded, if any, may not be commercially meaningful.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, we or our partners may have limited remedies, which could materially diminish the value of such patent. If we or our partners are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.

If we are sued for infringing or misappropriating the intellectual property rights of third parties, the resulting litigation could be costly and time-consuming and could prevent or delay our development and commercialization efforts.

Our commercial success depends, in part, on us and our partners not infringing the patents and proprietary rights of third parties. There is a substantial amount of litigation and other adversarial proceedings, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interference or derivation proceedings, oppositions, and inter partes and post-grant review proceedings before the USPTO and non-U.S. patent offices. Numerous U.S. and non-U.S. issued patents and pending patent applications owned by third parties exist in the fields in which we are developing, and may develop, product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of third parties’ patent rights, as it may not always be clear to industry participants, including us, which patents cover various types of products, methods of making, or methods of use.

 

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The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable.

Third parties may assert infringement or misappropriation claims against us based on existing or future intellectual property rights, alleging that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacturing of our product candidates that we failed to identify. For example, patent applications covering our product candidates could have been filed by others without our knowledge, since these applications generally remain confidential for some period of time after their filing date. Even pending patent applications that have been published, including some of which we are aware, could be later amended in a manner that could cover our product candidates or their use or manufacture. In addition, we may have analyzed patents or patent applications of third parties that we believe are relevant to our activities and believe that we are free to operate in relation to any of our product candidates, but our competitors may obtain issued claims, including in patents we consider to be unrelated, which may block our efforts or potentially result in any of our product candidates or our activities infringing their claims.

If we or our partners are sued for patent infringement, we would need to demonstrate that our product candidates, products and methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving that a patent is invalid is difficult and even if we are successful in the relevant proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted from other activities. If one or more claims of any issued third-party patents were held by a court of competent jurisdiction to cover aspects of our materials, formulations, methods of manufacture or methods for treatment, we could be forced, including by court order, to cease developing, manufacturing or commercializing the relevant product candidate until the relevant patent expired. Alternatively, we may desire or be required to obtain a license from such third party in order to use the infringing technology and to continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonably terms, or at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property licensed to us. If we are unable to obtain a necessary license on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.

We may face claims that we misappropriated the confidential information or trade secrets of a third party. If we are found to have misappropriated a third-party’s trade secrets, we may be prevented from further using these trade secrets, which could limit our ability to develop our product candidates.

Defending against intellectual property claims, regardless of their merit, could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle before a final judgment, any litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. During the course of any intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions and other interim proceedings in the litigation and these announcements may have negative impact on the perceived value of our product candidates, programs or intellectual property. In the event of a successful intellectual property claim against us, we may have to pay substantial damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent, or to redesign our infringing product candidates, which may be impossible or require substantial time and monetary expenditure. In addition to paying monetary damages, we may lose valuable intellectual property rights or personnel and the parties

 

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making claims against us may obtain injunctive or other equitable relief, which could impose limitations on the conduct of our business. We may also elect to enter into license agreements in order to settle patent infringement claims prior to litigation, and any of these license agreements may require us to pay royalties and other fees that could be significant. As a result of all of the foregoing, any actual or threatened intellectual property claim could prevent us from developing or commercializing a product candidate or force us to cease some aspect of our business operations.

We have in-licensed a significant portion of our intellectual property from our partners. If we breach any of our license agreements with these partners, we could potentially lose the ability to continue the development and potential commercialization of one or more of our product candidates.

We hold rights under license agreements with our partners. Our discovery and development technology platforms are built, in part, around intellectual property rights in-licensed from our partners. Under our existing license agreements, we are subject to various obligations, which may include diligence obligations with respect to development and commercialization activities, payment obligations upon achievement of certain milestones and royalties on product sales. If there is any conflict, dispute, disagreement or issue of nonperformance between us and our counterparties regarding our rights or obligations under these license agreements, including any conflict, dispute or disagreement arising from our failure to satisfy diligence or payment obligations, we may be liable to pay damages and our counterparties may have a right to terminate the affected license. The termination of any license agreement with one of our partners could adversely affect our ability to utilize the intellectual property that is subject to that license agreement in our discovery and development efforts, our ability to enter into future collaboration, licensing and/or marketing agreements for one or more affected product candidates and our ability to commercialize the affected product candidates. Furthermore, disagreements under any of these license agreements may arise, including those related to:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

whether and to the extent to which our technology and processes may infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

our right to sublicense patent and other rights to third parties under collaborative development relationships; and

 

   

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners.

These disagreements may harm our relationship with the partner, which could have negative impacts on other aspects of our business.

We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses.

Presently we have rights to the intellectual property, through licenses from third parties and under patent applications that we own or will own, to develop our product candidates. Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights.

Our product candidates may also require specific formulations, manufacturing methods, or technologies to work effectively and efficiently, and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third party intellectual property rights from third parties that we identify. We may fail to obtain any of these

 

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licenses at a reasonable cost or on reasonable terms; such failure would harm our business. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. We may need to cease use of the compositions or methods covered by such third-party intellectual property rights.

The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies that may be more established or have greater resources than we do may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

Intellectual property discovered through government funded programs may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit our exclusive rights and limit our ability to contract with non-U.S. manufacturers.

We have acquired or licensed, or may require in the future, intellectual property rights that have been generated through the use of U.S. government funding or grant. Pursuant to the Bayh-Dole Act of 1980, the U.S. government has certain rights in inventions developed with government funding. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the United States. This preference for U.S. industry may be waived by the federal agency that provided the funding if the owner or assignee of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. industry may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful and have an adverse effect on the success of our business.

Third parties may infringe our patents or misappropriate or otherwise violate our intellectual property rights. Our patent applications cannot be enforced against third parties practicing the technology claimed in these applications unless and until a patent issues from the applications, and then only to the extent the issued claims cover the technology. In the future, we or our partners may elect to initiate legal proceedings to enforce or defend our or our partners’ intellectual property rights, to protect our or our partners’ trade secrets or to determine the validity or scope of our intellectual property rights. Any claims that we or our partners assert against perceived infringers could also provoke these parties to assert counterclaims against us or our partners alleging that we or our

 

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partners infringe their intellectual property rights or that our intellectual property rights are invalid. In patent litigation in the United States, defendant counterclaims alleging noninfringement, invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert noninfringement, invalidity or unenforceability of a patent. The outcome following legal assertions of noninfringement, unpatentability, invalidity and unenforceability is unpredictable. With respect to the validity of patent rights, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of unpatentability, invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.

Interference, derivation or opposition proceedings provoked by third parties, brought by us or our partners, or brought by the USPTO or any non-U.S. patent authority, may be necessary to determine the priority of inventions or matters of inventorship with respect to our patents or patent applications. We or our partners may also become involved in other proceedings, such as reexamination or opposition proceedings, inter partes review, post-grant review or other preissuance or post-grant proceedings in the USPTO or its foreign counterparts relating to our intellectual property or the intellectual property of others. Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover and protect our product candidates. An unfavorable outcome in any of these proceedings could require us or our partners to cease using the related technology and commercializing our product candidates, or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us or our partners a license on commercially reasonable terms if any license is offered at all. Even if we or our licensors obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensors. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Any intellectual property proceedings can be expensive and time-consuming. Our or our partners’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our partners can. Accordingly, despite our or our partners’ efforts, we or our partners may not be able to prevent third parties from infringing upon or misappropriating our intellectual property rights, particularly in countries where the laws may not protect our rights as fully as in the U.S. Even if we are successful in the relevant proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted from other activities. In addition, in an infringement proceeding, a court may decide that one or more of our patents is invalid or unenforceable, in whole or in part, may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question, and/or may require us to pay the other party attorneys’ fees. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments.

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

We may in the future be subject to claims that former employees, collaborators, or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For

 

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example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

If we are unable to protect the confidentiality of our trade secrets and other proprietary information, the value of our technology could be adversely affected and our business could be harmed.

In addition to seeking the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce, and other elements of our technology, discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, including by enabling them to develop and commercialize products substantially similar to or competitive with our product candidates, thus eroding our competitive position in the market.

Trade secrets can be difficult to protect. We seek to protect our proprietary, confidential technology and processes, in part, by entering into confidentiality agreements and invention assignment agreements with our employees, consultants and outside scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or outside scientific advisors might intentionally or inadvertently disclose our trade secrets or confidential, proprietary information to competitors. In addition, competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.

Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, the laws of certain foreign countries do not protect proprietary rights such as trade secrets to the same extent or in the same manner as the laws of the U.S. Misappropriation or unauthorized disclosure of our trade secrets to third parties could impair our competitive advantage in the market and could adversely affect our business, results of operations and financial condition.

We may be subject to claims that our employees, consultants or independent contractors have breached non-compete or non-solicit obligations and/or wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise breached non-compete or non-solicit obligations with respect to such individuals’ prior employers, or used or disclosed confidential information of these third parties or such individuals’ former employers. Dealing with such claims and negotiating with potential claimants could result in substantial cost and be a distraction to our management and employees. In addition, litigation may be necessary to defend against these claims, and even if we are successful in

 

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defending against these claims, such litigation could result in further costs to us and distraction to our management and employees.

Risks Related to This Offering and Ownership of Our Common Stock

We do not know whether a market will develop for our common stock or what the market price of our common stock will be. As a result, it may be difficult for you to sell your shares of our common stock.

There is currently no public trading market for our common stock. If a market for our common stock does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price, or at all. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations, clinical trial results, regulatory approval process and progression of our product pipeline may not meet the expectations of securities research analysts and investors. As a result of these and other factors, the price of our common stock may fall.

You will incur immediate and substantial dilution as a result of this offering.

If you purchase common stock in this offering, you will incur immediate and substantial dilution of $                per share, representing the difference between the assumed initial public offering price of $                per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and our pro forma net tangible book value per share after giving effect to this offering and reclassification of all of our outstanding common stock and redeemable convertible preferred stock into a single class of common stock prior to the closing of the offering. As of March 31, 2021, there were 40,556,956 shares of common stock issuable upon exercise of outstanding stock options with a weighted-average exercise price of $3.92 per share. To the extent that these outstanding options are exercised, or we issue additional equity or convertible securities in the future, or the underwriters exercise their option to purchase additional shares, you will incur further dilution. See the section titled “Dilution” for a further description of the dilution you will experience immediately after this offering.

Insiders will continue to have substantial influence over us after this offering, which could limit your ability to affect the outcome of key transactions, including a change of control.

After this offering, our directors, executive officers, holders of more than 5% of our outstanding stock and their respective affiliates will beneficially own shares representing approximately                 % of our outstanding common stock, excluding any shares of common stock that may be purchased pursuant to our directed share program described in “Underwriting.” As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section titled “Use of Proceeds” in this prospectus. Our management may spend a portion or all of the net proceeds from this offering in ways that our stockholders may not desire or that may not yield a favorable return. The failure by our management to apply these funds effectively could harm our business, financial condition, results of operations and

 

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prospects. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Participation in this offering by our existing stockholders and their affiliated entities may reduce the public float for our common stock.

To the extent certain of our existing stockholders and their affiliated entities participate in this offering, such purchases would reduce the non-affiliate public float of our shares, meaning the number of shares of our common stock that are not held by officers, directors and controlling stockholders. A reduction in the public float could reduce the number of shares that are available to be traded at any given time, thereby adversely impacting the liquidity of our common stock and depressing the price at which you may be able to sell shares of common stock purchased in this offering.

We do not anticipate paying any dividends on our common stock for the foreseeable future. Investors in this offering may never obtain a return on their investment.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations. In addition, any future credit facility or debt securities may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. If we do not pay cash dividends, you could receive a return on your investment in our common stock only if you are able to sell your shares in the future and the market price of our common stock has increased when you sell your shares. As a result, investors seeking cash dividends should not purchase our common stock.

Delaware law and provisions in our amended and restated certificate of incorporation and bylaws that will be in effect prior to the closing of this offering might discourage, delay, or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions in our amended and restated certificate of incorporation and bylaws that will be in effect prior to the closing of this offering may discourage, delay, or prevent a merger, acquisition, or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our organizational documents will:

 

   

establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms;

 

   

provide that our directors may be removed only for cause;

 

   

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

   

eliminate cumulative voting in the election of directors;

 

   

authorize our board of directors to issue shares of preferred stock and determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;

 

   

permit stockholders to take actions only at a duly called annual or special meeting and not by unanimous written consent;

 

   

prohibit stockholders from calling a special meeting of stockholders;

 

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require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings;

 

   

authorize our board of directors, by a majority vote, to amend certain provisions of the bylaws; and

 

   

require the affirmative vote of at least                % or more of the outstanding shares of common stock to amend many of the provisions described above.

In addition, Section 203 of the General Corporation Law of the State of Delaware (DGCL) prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, which is generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws, or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

 

   

any derivative action or proceeding brought on our behalf;

 

   

any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees, or stockholders to us or our stockholders;

 

   

any action asserting a claim arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation and bylaws; and

 

   

any action asserting a claim governed by the internal affairs doctrine.

Furthermore, our amended and restated certificate of incorporation will also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (Securities Act). However, these provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Any person purchasing or otherwise acquiring or holding any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes with us or with our directors, officers, other employees or agents, or our other stockholders, which may discourage such lawsuits against us and such other persons, or may result in additional expense to a stockholder seeking to bring a claim against us. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition.

 

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We have in the past identified a material weakness in our internal control over financial reporting. If we identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may significantly harm our business and the value of our common stock.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act (Section 404) requires that we evaluate and determine the effectiveness of our internal control over financial reporting. This assessment will need to include the disclosure of any material weaknesses in such internal control. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis.

In connection with the finalization of our consolidated financial statements as of and for the year ended December 31, 2019, we and our independent auditors concluded that a material weakness existed in our internal control over financial reporting relating to the review of the technical accounting for settlement of tranche liabilities. Specifically, in connection with our Series A preferred stock financing in 2019, we recorded a correcting adjustment to increase other non-operating expense for the change in fair value of the Series A preferred tranche liability after we initially recorded the amount as a deemed dividend. There were and have been no other tranche liabilities after the settlement of this liability in February 2019.

Although we believe that we have remediated this material weakness by hiring additional accounting and financial reporting personnel and have not identified any material weaknesses in connection with the finalization of our consolidated financial statements as of and for the year ended December 31, 2020, we cannot assure you that we will not identify other material weaknesses in the future. Furthermore, we may not have identified all material weaknesses, and our current controls and any new controls that we develop may become inadequate because of changes in personnel or conditions in our business or otherwise. Accordingly, we cannot assure you that any future material weaknesses will not result in a material misstatement of our consolidated financial statements and/or our failure to meet our public reporting obligations. In addition, if we and/or our independent registered public accounting firm are unable to conclude that our internal control over financial reporting is effective in the future, investor confidence in the accuracy and completeness of our consolidated financial statements would be adversely affected, which could significantly harm our business and the value of our common stock.

General Risk Factors

If we fail to maintain proper and effective internal controls over financial reporting our ability to produce accurate and timely consolidated financial statements could be impaired.

Pursuant to Section 404, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ending December 31, 2021. When we lose our status as an “emerging growth company” and become an “accelerated filer” or a “large accelerated filer,” our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we will need to implement additional financial and management controls, reporting systems and procedures, and hire additional accounting and finance staff.

 

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We cannot assure you that there will not be future material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations, or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by The Nasdaq Stock Market, the U.S. Securities and Exchange Commission (SEC), or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon the completion of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We must design our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. For example, our directors or executive officers could inadvertently fail to disclose a new relationship or arrangement causing us to fail to make a required related party transaction disclosure. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

The market price of our common stock may be volatile, which could result in substantial losses for investors purchasing shares in this offering.

The initial public offering price for our common stock will be determined through negotiations with the underwriters. This initial public offering price may differ from the market price of our common stock after the offering. As a result, you may not be able to sell your common stock at or above the initial public offering price. Some of the factors that may cause the market price of our common stock to fluctuate include:

 

   

the timing and results of preclinical studies and clinical trials for our product candidates;

 

   

failure or discontinuation of any of our product development and research programs;

 

   

the success of existing or new competitive product candidates or technologies;

 

   

results of clinical trials, or regulatory approvals of our competitors;

 

   

commencement or termination of collaborations for our product development and research programs;

 

   

regulatory or legal developments in the United States and other countries;

 

   

the recruitment or departure of key personnel;

 

   

developments or disputes including those concerning patent applications, issued patents, or other proprietary rights;

 

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the impact of COVID-19 on our business and on global economic conditions;

 

   

the level of expenses related to any of our research programs or clinical development programs;

 

   

actual or anticipated changes in our estimates as to our financial results or development timelines;

 

   

whether our financial results, forecasts and development timelines meet the expectations of securities analysts or investors;

 

   

announcement or expectation of additional financing efforts;

 

   

sales of our common stock by us, our insiders, or other stockholders and the expiration of market standoff or lock-up agreements;

 

   

changes in estimates or recommendations by securities analysts, if any, that cover our stock;

 

   

market conditions in the healthcare sector;

 

   

general economic, industry and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

In recent years, stock markets in general, and the market for healthcare companies in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. Following periods of such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

If securities analysts do not publish research or reports about our business or if they publish negative or neutral evaluations of our stock, the price of our stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or securities analysts publish about us or our business. We do not currently have, and may never obtain, research coverage by industry or securities analysts. If no or few analysts commence coverage of us, the trading price of our stock could decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business initiate coverage with a neutral or sell rating or downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

Sales of a substantial number of shares of our common stock by our existing stockholders following this offering could cause the price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market could occur at any time following the expiration of the market standoff and lock-up agreements or the early release of these agreements or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, and could reduce the market price of our common stock. After this offering, we will have                shares of common stock that will be outstanding. Of these shares, the                shares we are selling in this offering may be resold in the public market immediately, unless purchased by our affiliates. Substantially all of the remaining shares of our common stock that

 

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will be outstanding after this offering are currently prohibited or otherwise restricted under securities laws, market standoff agreements entered into by our stockholders with us, or lock-up agreements entered into by our stockholders with the underwriters; however, subject to applicable securities law restrictions and excluding shares of restricted stock that will remain unvested, these shares will be able to be sold in the public market beginning 180 days after the date of this prospectus. The representatives may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. Shares issued upon the exercise of stock options outstanding under our equity incentive plans or pursuant to future awards granted under those plans will become available for sale in the public market to the extent permitted by the provisions of applicable vesting schedules, any applicable market standoff and lock-up agreements, and Rule 144 and Rule 701 under the Securities Act. See the section titled “Shares Eligible for Future Sale” for additional information.

Moreover, after this offering, holders of an aggregate of                shares of our common stock will have rights, subject to conditions, to require us to file registration statements with the SEC covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also plan to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates and the lock-up agreements described in the section titled “Underwriting” in this prospectus. If any of these additional shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations, or require us to relinquish rights to our technologies or our products.

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. We, and indirectly, our stockholders, will bear the cost of issuing and servicing securities issued in any such transactions. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings. To the extent that we raise additional capital through the sale of equity or debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term but limit our potential cash flow and revenue in the future. If we raise additional funds through strategic partnerships, alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or our products, or grant licenses on terms unfavorable to us. Certain of the foregoing transactions may require us to obtain stockholder approval, which we may not be able to obtain.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

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 by SEC rules and plan to rely on exemptions from certain disclosure requirements that are applicable to other SEC-registered public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 not being required to comply with the auditor requirements to

 

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communicate critical audit matters in the auditor’s report on the financial statements, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, the information we provide stockholders will be different than the information that is available with respect to other public companies. We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Future acquisitions, strategic investments, partnerships, or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our operating results and financial condition.

We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our technology platforms, enhance our technical capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not such acquisitions are completed. In addition, we have only limited experience in acquiring other businesses, and we may not successfully identify desirable acquisition targets, or if we acquire additional businesses, we may not be able to integrate them effectively. following the acquisition. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, as well as unfavorable accounting treatment and exposure to claims and disputes by third parties, including intellectual property claims. We also may not generate sufficient financial returns to offset the costs and expenses related to any acquisitions. In addition, if an acquired business fails to meet our expectations, our business, operating results and financial condition may suffer.

We will incur increased costs as a result of operating as a public company. Our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. Section 404, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements and rules of The Nasdaq Stock Market LLC (Nasdaq Listing Rules), and other applicable U.S. rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will need to hire additional accounting, finance and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company, and our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we

 

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expect that the rules and regulations applicable to us as a public company may make it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the SEC after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2020, we had federal and state net operating loss (NOLs) carryforwards of approximately $116.1 million and $61.2 million, respectively. Under the Tax Cuts and Jobs Act of 2017 (the Tax Act), as modified by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), our NOLs generated in tax years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLs in tax years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act. In addition, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended (the Code), if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited. We may have experienced ownership changes in the past and may experience ownership changes as a result of this offering and/or subsequent shifts in our stock ownership (some of which may be outside our control). As a result, our ability to use our pre-change NOLs and tax credits to offset post-change taxable income, if any, could be subject to limitations. Similar provisions of state tax law may also apply. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. For example, California recently imposed limits on the usability of California state NOLs and tax credits to offset California taxable income in tax years beginning after December 31, 2019 and before January 1, 2023. As a result, even if we attain profitability, we may be unable to use a material portion of our NOLs and tax credits.

 

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Our business and operations would suffer in the event of computer system failures or security breaches.

Our internal computer systems, and those of our partners, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures. We exercise little or no control over these third parties, which increases our vulnerability to problems with their systems. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, the further development of our product candidates could be delayed and our business could be otherwise adversely affected.

While we have not experienced any material system failure, accident or security breach to date, we cannot assure you that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages, breaches in our systems or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition. For example, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs and the development of our product candidates could be delayed. In addition, the loss of clinical trial data for our product candidates could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. Furthermore, significant disruptions of our internal information technology systems or security breaches could result in the loss, misappropriation, and/or unauthorized access, use, or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information, and personal information), which could result in financial, legal, business, and reputational harm to us. For example, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding our clinical trial subjects or employees, could harm our reputation directly, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data protection and other losses.

Our agreements with third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement or other liabilities relating to or arising from our contractual obligations. Large indemnity payments could harm our business and financial condition. Although we normally contractually limit our liability with respect to such obligations, we may still incur substantial liability. Any dispute with a third party with respect to such obligations could have adverse effects on our relationship with that third party and relationships with other existing or new partners, harming our business.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, product candidates, planned nonclinical studies and clinical trials, results of nonclinical studies, clinical trials, research and development costs, regulatory approvals, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

the sufficiency of our existing cash to fund our future operating expenses and capital expenditure requirements;

 

   

the accuracy of our estimates regarding expenses, revenue opportunities, capital requirements and needs for additional financing;

 

   

the scope, progress, results and costs of developing LYL797, LYL845 or any other product candidates we may develop, and conducting preclinical studies and clinical trials, including for LYL797 and LYL845;

 

   

the timing and costs involved in obtaining and maintaining regulatory approval of LYL797, LYL845 or any other product candidates we may develop, and the timing or likelihood of regulatory filings and approvals, including our expectation to seek special designations for our product candidates for various diseases;

 

   

our expectations regarding GSK’s plans for the NY-ESO-1 program;

 

   

our plans relating to commercializing LYL797, LYL845 or any other product candidates we may develop, if approved, including the geographic areas of focus and our ability to grow a sales force;

 

   

the size of the market opportunity for LYL797, LYL845 or any other product candidates we may develop in each of the diseases we target;

 

   

our reliance on third parties to conduct nonclinical research activities for LYL797, LYL845 or any other product candidates we may develop;

 

   

the characteristics, safety, efficacy and therapeutic effects of LYL797, LYL845 or any other product candidates we may develop;

 

   

our estimates of the number of patients in the United States who suffer from the diseases we target and the number of subjects that will enroll in our clinical trials;

 

   

the progress and focus of our current and future clinical trials, and the reporting of data from those trials, including the timing thereof;

 

   

the ability of our clinical trials to demonstrate the safety and efficacy of LYL797, LYL845 or any other product candidates we may develop, and other positive results;

 

   

the success of competing therapies that are, or may become, available;

 

   

developments relating to our competitors and our industry, including competing product candidates and therapies;

 

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our plans relating to the further development and manufacturing of LYL797, LYL845 or any other product candidates we may develop, including additional indications that we may pursue;

 

   

existing regulations and regulatory developments in the United States and other jurisdictions;

 

   

our potential and ability to successfully manufacture and supply LYL797, LYL845 or any other product candidates we may develop for clinical trials and for commercial use, if approved;

 

   

the rate and degree of market acceptance of LYL797, LYL845 or any other product candidates we may develop, as well as the pricing and reimbursement of LYL797, LYL845 or any other product candidates we may develop, if approved;

 

   

our continued reliance on third parties to conduct additional clinical trials of LYL797, LYL845 or any other product candidates we may develop, and for the manufacture of our product candidates;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights, including LYL797, LYL845 or any other product candidates we may develop;

 

   

our ability to retain the continued service of our key personnel and to identify, hire, and then retain additional qualified personnel;

 

   

our expectations regarding the impact of the COVID-19 pandemic on our business and operations, including clinical trials, manufacturing suppliers, collaborators, use of contract research organizations (CROs) and employees;

 

   

our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act; and

 

   

our anticipated use of our existing cash, cash equivalents and marketable securities and the proceeds from this offering.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this prospectus, whether as a result of any new information, future events or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

 

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MARKET, INDUSTRY AND OTHER DATA

We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from independent market research, industry and general publications and surveys, governmental agencies and publicly available information in addition to research, surveys and studies conducted by third parties. Internal estimates are derived from publicly available information released by industry analysts and third-party sources, our internal research and our industry experience, and are based on assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires. In addition, while we believe the industry, market and competitive position data included in this prospectus is reliable and based on reasonable assumptions, such data involve risks and uncertainties and are subject to change based on various factors, including those discussed in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties or by us.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $                million (or approximately $                million if the underwriters’ option to purchase                additional shares of our common stock is exercised in full) based on the assumed initial public offering price of $    per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $                per share would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $                million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of common stock offered by us would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $                million, assuming the initial public offering price of $                per share remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to obtain additional capital to support our operations, establish a public market for our common stock and facilitate our future access to the public capital markets.

We currently intend to use the net proceeds we receive from this offering, together with our existing cash, cash equivalents and marketable securities, as follows:

 

   

approximately $                million to fund through completion of the Phase 1 clinical trial of LYL797;

 

   

approximately $                million to fund through completion of the Phase 1 clinical trial of LYL845;

 

   

approximately $                million to fund other research and development efforts to further advance our Gen-R, Epi-R and cell rejuvenation technology platforms;

 

   

approximately $                million to further expand our manufacturing capabilities for our product candidates; and

 

   

the remainder for general corporate purposes, including working capital, operating expenses and other capital expenditures.

We may also use a portion of the net proceeds and our existing cash, cash equivalents and marketable securities to in-license, acquire, or invest in complementary businesses, technology platforms, products or assets. However, we have no current commitments or obligations to do so.

We believe, based on our current operating plan, that the net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, will be sufficient to fund our operations for at least the next                months following the date of this prospectus. In particular, we expect that the net proceeds from this offering will allow us to further advance our Gen-R, Epi-R and cell rejuvenation technology platforms as well as progress the development of LYL797 and LYL845. However, our expected use of proceeds from this offering described above represents our current intentions based on our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the proceeds to be received upon the closing of this offering or the actual amounts that we will spend on the uses set forth above. The net proceeds from this offering, together with our existing cash, cash equivalents and marketable securities, will not be sufficient for us to fund LYL797 and LYL845 through regulatory approval, and we anticipate needing to raise additional capital to complete the development and commercialization of LYL797 and LYL845 and any future product candidates we may develop.

 

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The amounts and timing of our actual expenditures will depend on numerous factors, including the time and cost necessary to conduct our planned clinical trials, the results of our planned clinical trials and other factors described in the section titled “Risk Factors” in this prospectus, as well as the amount of cash used in our operations and any unforeseen cash needs. Therefore, our actual expenditures may differ materially from the estimates described above. We may find it necessary or advisable to use the net proceeds for other purposes. We will have broad discretion over how to use the net proceeds to us from this offering. We intend to invest the net proceeds to us from this offering that are not used as described above in short-term, investment-grade, interest-bearing instruments.

 

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DIVIDEND POLICY

We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock. We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to applicable laws, and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, our ability to pay cash dividends on our capital stock in the future may be limited by the terms of any future debt or preferred securities we issue or any credit facilities we enter into.

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and marketable securities and capitalization as of March 31, 2021:

 

   

on an actual basis;

 

   

on a pro forma basis, giving effect to the (i) automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 194,474,431 shares of our common stock which will occur upon the closing of this offering, and the related reclassification of the carrying value of our convertible preferred stock to permanent equity upon the closing of this offering, and (ii) filing and effectiveness of our amended and restated certificate of incorporation that will be in effect immediately after the closing of this offering; and

 

   

on a pro forma as adjusted basis, giving effect to the (i) pro forma adjustments set forth above and (ii) our receipt of net proceeds from the sale of                shares of common stock in this offering at the assumed initial public offering price of $                per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with the sections titled “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock,” and our unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus.

 

     As of March 31, 2021  
     Actual      Pro Forma      Pro Forma
As Adjusted
 
                      
     (in thousands, except share and per
share amounts)
 

Cash, cash equivalents and marketable securities

   $ 640,137      $ 640,137      $                
  

 

 

    

 

 

    

 

 

 

Series A convertible preferred stock, $0.0001 par value per share; 97,933,475 shares authorized, 97,386,669 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   $ 210,158      $ —        $    

Series AA convertible preferred stock, $0.0001 par value per share; 30,253,189 shares authorized, 30,253,189 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     146,325        —       

Series B convertible preferred stock, $0.0001 par value per share; 23,929,531 shares authorized, 23,929,531 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     162,018        —       

Series C convertible preferred stock, $0.0001 par value per share; 42,905,042 shares authorized, 42,905,042 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     492,467        —       

 

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     As of March 31, 2021  
     Actual     Pro Forma     Pro Forma
As Adjusted
 
                    
     (in thousands, except share and per
share amounts)
 

Stockholders’ (deficit) equity:

      

Preferred stock, $0.0001 par value per share; no shares authorized, issued or outstanding, actual;                  shares authorized, pro forma and pro forma as adjusted; no shares issued or outstanding, pro forma and pro forma as adjusted

     —         —      

Common stock, $0.0001 par value per share; 264,905,000 shares authorized, 17,830,523 shares issued and outstanding, actual;                  shares authorized, pro forma and pro forma as adjusted; 217,829,956 shares issued and outstanding, pro forma;                  shares issued and outstanding, pro forma as adjusted

     2       22    

Additional paid-in capital

     54,973       1,065,921    

Accumulated other comprehensive income

     163       163    

Accumulated deficit

     (389,186     (389,186  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (334,048     676,920    
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 676,920     $ 676,920     $                
  

 

 

   

 

 

   

 

 

 

The pro forma as adjusted information above is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $            per share would increase or decrease, as applicable, each of our pro forma as adjusted cash, cash equivalents and marketable securities, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $                million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares common stock offered by us would increase or decrease, as applicable, each of our pro forma as adjusted cash, cash equivalents and marketable securities, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $                million, assuming the assumed initial public offering price of $            per share remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of our common stock to be issued and outstanding, pro forma and pro forma as adjusted in the table above is based on 217,829,956 shares of common stock outstanding as of March 31, 2021 (including (i) 194,474,431 shares issuable upon the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2021 and (ii) 5,525,002 shares of unvested restricted common stock subject to repurchase as of such date, but which are not considered outstanding for accounting purposes), and excludes:

 

   

40,556,956 shares of our common stock issuable upon the exercise of outstanding stock options as of March 31, 2021, with a weighted-average exercise price of $3.92 per share;

 

   

1,930,000 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to March 31, 2021, with a weighted-average exercise price of $13.20 per share;

 

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            shares of our common stock reserved for future issuance under our 2021 Plan, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan and any shares underlying outstanding stock awards granted under our 2018 Plan, that expire or are repurchased, forfeited, cancelled or withheld, as more fully described in the section titled “Executive Compensation—Equity Benefit Plans”; and

 

   

            shares of our common stock reserved for issuance under our ESPP, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for future issuance under our ESPP.

 

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma as adjusted net tangible book value per share immediately after this offering.

As of March 31, 2021, we had a historical net tangible book value (deficit) of ($334.3) million, or ($14.31) per share of common stock based on the 23,355,525 shares of common stock outstanding as of such date, including 5,525,002 shares subject to repurchase as of such date. Our historical net tangible book value per share represents total tangible assets less total liabilities and convertible preferred stock, which is not included within permanent equity, divided by the number of shares of common stock outstanding as of March 31, 2021, including 5,525,002 shares subject to repurchase as of such date.

Our pro forma net tangible book value as of March 31, 2021 was $676.7 million, or $3.11 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by 217,829,956 shares of common stock outstanding as of such date, including 5,525,002 shares subject to repurchase as of such date, after giving effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 194,474,431 shares of our common stock and the related reclassification of the carrying value of our convertible preferred stock to permanent equity upon the closing of this offering, and (ii) the filing and effectiveness of our amended and restated certificate of incorporation that will be in effect immediately after the closing of this offering.

After giving effect to the sale by us of                shares of common stock in this offering at the assumed initial public offering price of $            per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2021 would have been $                million, or $            per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $            per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $            per share to investors purchasing common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash paid by an investor for a share of common stock in this offering. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $                

Historical net tangible book deficit per share as of March 31, 2021

   $ (14.31  

Pro forma increase in historical net tangible book value per share attributable to the pro forma transaction described in the preceding paragraphs

     17.42    
  

 

 

   

Pro forma net tangible book value per share as of March 31, 2021

     3.11    

Increase in pro forma as adjusted net tangible book value per share attributable to investors purchasing shares in this offering

    
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

    
    

 

 

 

Dilution in pro forma as adjusted net tangible book value per share to investors purchasing shares in this offering

     $    
    

 

 

 

The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. Each $1.00 increase or decrease in the assumed initial public offering price of $            per share would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share after this offering by $            per share and

 

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increase or decrease, as applicable, the dilution to investors purchasing shares in this offering by $            per share, in each case assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of common stock offered by us would increase or decrease our pro forma as adjusted net tangible book value by approximately $            per share and decrease or increase, as applicable, the dilution to investors purchasing shares in this offering by approximately $            per share, in each case assuming the assumed initial public offering price of $            per share remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares of common stock in full, the pro forma net tangible book value per share, as adjusted to give effect to this offering, would be $            per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $            per share.

The foregoing discussion and tables above (other than the historical net tangible book value calculation) are based on 217,829,956 shares of common stock outstanding as of March 31, 2021 (including (i) 194,474,431 shares issuable upon the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2021 and (ii) 5,525,002 shares of unvested restricted common stock subject to repurchase as of such date), and excludes:

 

   

40,556,956 shares of our common stock issuable upon the exercise of outstanding stock options as of March 31, 2021, with a weighted-average exercise price of $3.92 per share;

 

   

1,930,000 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to March 31, 2021, with a weighted-average exercise price of $13.20 per share;

 

   

            shares of our common stock reserved for future issuance under our 2021 Plan, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan and any shares underlying outstanding stock awards granted under our 2018 Plan that expire or are repurchased, forfeited, cancelled or withheld, as more fully described in the section titled “Executive Compensation—Equity Benefit Plans”; and

 

   

            shares of our common stock reserved for issuance under our ESPP, which will become effective once the registration statement of which this prospectus forms a part is declared effective, as well as any future automatic annual increases in the number of shares of common stock reserved for future issuance under our ESPP.

To the extent that any outstanding options are exercised or new options are issued under our stock-based compensation plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following tables set forth our selected consolidated financial data for the periods and as of the dates indicated. The following selected consolidated statements of operations and comprehensive loss data for the years ended December 31, 2019 and 2020, except for pro forma amounts, and our selected consolidated balance sheet data as of December 31, 2019 and 2020, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations and comprehensive loss data for the three months ended March 31, 2020 and 2021, except for pro forma amounts, and the selected consolidated balance sheet data as of March 31, 2021, have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our unaudited condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in our opinion, all adjustments of a normal and recurring nature that are necessary for the fair statement of the financial information set forth in those statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected for any period in the future and our interim results are not necessarily indicative of the results that may be expected for the full year. You should read the following selected financial data together with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Summary Consolidated Financial Data” and our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus. The selected consolidated financial data included in this section are not intended to replace the audited consolidated financial statements and unaudited condensed consolidated financial statements and are qualified in their entirety by our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus.

 

     Year Ended December 31,     Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     (in thousands, except per share data)  

Consolidated Statements of Operations and Comprehensive Loss Data

        

Revenue

   $ 657     $ 7,756     $ 1,256     $ 2,445  

Operating expenses (income):

        

Research and development

     63,595       182,243       25,500       41,529  

General and administrative

     39,151       46,881       8,880       16,831  

Other operating income, net

           (9,431     (120     (545
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     102,746       219,693       34,260       57,815  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (102,089     (211,937     (33,004     (55,370

Interest income, net

     8,121       5,939       2,341       354  

Other (expense) income, net

     (35,409     1,526       1,423       (27
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (129,377     (204,472     (29,240     (55,043

Other comprehensive gain (loss):

        

Net unrealized gain (loss) on marketable securities

     454       (198     632       (93
  

 

 

   

 

 

   

 

 

   

 

 

 

Net comprehensive loss

   $ (128,923   $ (204,670   $ (28,608   $ (55,136
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributed to common stockholders:

        

Net loss

   $ (129,377   $ (204,472   $ (29,240   $ (55,043

Deemed dividends upon issuance or repurchase of convertible preferred stock

     (1,144     (3,582     (3,582      
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributed to common stockholders

   $ (130,521   $ (208,054   $ (32,822   $ (55,043
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Year Ended December 31,     Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     (in thousands, except per share data)  

Net loss per common share, basic and diluted(1)

   $ (24.04   $ (15.69   $ (2.82   $ (3.19
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per common share, basic and diluted(1)

     5,429       13,258       11,656       17,272  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per common share, basic and diluted (unaudited)(2)

     $ (1.04     $ (0.26
    

 

 

     

 

 

 

Weighted-average shares used to compute pro forma net loss per common share, basic and diluted (unaudited)(2)

       200,327         211,746  
    

 

 

     

 

 

 

 

(1)

See Note 14 to our audited consolidated financial statements and Note 11 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for a description of how we compute basic and diluted net loss per common share and the number of shares used in computing these amounts.

(2)

See the subsection titled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Unaudited Pro Forma Information” for an explanation of the calculations of our basic and diluted pro forma net loss per common share and the weighted-average number of shares outstanding used in the computation of the per share amount.

 

 

     As of December 31,     As of March 31,
2021
 
     2019     2020  
     (in thousands)  

Consolidated Balance Sheet Data

      

Cash, cash equivalents and marketable securities

   $ 471,032     $ 692,614     $ 640,137  

Working capital(1)

     418,214       568,262       552,923  

Total assets

     555,631       908,280       877,189  

Total liabilities

     147,576       189,840       200,269  

Convertible preferred stock

     519,163       1,010,968       1,010,968  

Accumulated deficit

     (129,671     (334,143     (389,186

Total stockholders’ deficit

     (111,108     (292,528     (334,048

 

(1)

Working capital is defined as current assets less current liabilities. See our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Consolidated Financial Data,” and our audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of several factors, including those set forth in the section titled “Risk Factors.” See also the section titled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a T cell reprogramming company dedicated to the mastery of T cells to cure patients with solid tumors. We have assembled a world-class team, comprising some of the foremost scientific leaders in the fields of oncology and ACT, including Drs. Rick Klausner, Nick Restifo, Stan Riddell and Crystal Mackall, who have each interrogated and elucidated the mechanisms of T cell biology and its interactions with cancer for decades. We believe the key to effective cell therapy is the mastery of the identity, fate and function of cells to create living medicines. We take a systematic, interrogative, cell biology-driven approach to overcome what we view as the two major barriers to successful ACT – (1) T cell exhaustion and (2) lack of durable stemness – through the application of our proprietary epigenetic and genetic reprogramming technology platforms, Gen-R and Epi-R. Our technology platforms are designed to be applied in a target and modality agnostic manner to CAR, TIL and TCR therapies to fundamentally improve the properties of T cells needed to eradicate solid tumors. We believe our autologous T cell therapies will generate improved, durable clinical outcomes that are potentially curative for patients with solid tumors.

We are utilizing our Gen-R and Epi-R technology platforms to develop a multi-modality product pipeline across several solid tumor indications with high unmet needs and anticipate having four IND submissions by the end of 2022. Each of our programs provide opportunities to expand into additional indications beyond the patient populations we are initially targeting. Our product candidates are summarized in the table below:

 

 

LOGO

 

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We were incorporated in June 2018. Our primary activities to date have included developing T cell therapies, performing research and development, acquiring technology, entering into strategic collaboration and license agreements, enabling manufacturing activities in support of our product candidate development efforts, organizing and staffing the company, business planning, establishing our intellectual property portfolio, raising capital and providing general and administrative support for these activities. All of our programs are currently in preclinical development, and we have not yet tested any product candidates in humans and do not have any products approved for sale. Since our inception, we have incurred net losses each year. Our net losses were $129.4 million and $204.5 million for the years ended December 31, 2019 and 2020, respectively, and $29.2 million and $55.0 million for the three months ended March 31, 2020 and 2021, respectively. As of March 31, 2021, we had an accumulated deficit of $389.2 million. Our net losses resulted primarily from our research and development programs and, to a lesser extent, general and administrative costs associated with our operations.

To date, we have funded our operations primarily from the issuance and sale of our convertible preferred stock and to a lesser extent from a collaboration, and we have not generated any revenue from product sales. From June 29, 2018 (inception) through March 31, 2021, we raised an aggregate of $980.7 million in gross proceeds from the sales of our convertible preferred stock. As of March 31, 2021, we had cash, cash equivalents and marketable securities of $640.1 million. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities, together with the net proceeds from this offering, will be sufficient to meet our working capital and capital expenditure needs for at least the next          months.

We anticipate that our expenses and operating losses will increase substantially over the foreseeable future. The expected increase in expenses will be driven in large part by our ongoing activities, if and as we:

 

   

continue preclinical development of our current and future product candidates and initiate additional preclinical studies;

 

   

commence clinical trials of our current and future product candidates;

 

   

advance our Gen-R, Epi-R and cell rejuvenation technology platforms as well as other research and development efforts;

 

   

attract, hire and retain qualified personnel;

 

   

seek regulatory approval of our current and future product candidates;

 

   

expand our manufacturing and process development capabilities;

 

   

expand our operational, financial and management systems;

 

   

acquire and license technology platforms;

 

   

continue to develop, protect and defend our intellectual property portfolio; and

 

   

incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company.

We believe it is critically important to own, control and continuously monitor all aspects of the cell therapy manufacturing process in order to mitigate risks the field has seen, including challenges in managing production, supply chain, patient specimen chain of custody and quality control. We made a strategic decision to invest substantial capital in building our own manufacturing facility to control our supply chain, maximize efficiencies in cell product production time, cost and quality and have the ability to rapidly incorporate disruptive advancements and new innovations. Controlling manufacturing also enables us to protect proprietary aspects of our Gen-R and Epi-R technology platforms. We view our manufacturing team and capabilities as a significant competitive advantage.

 

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In 2019, we entered into two operating lease agreements for a combined approximately 73,000 square feet of space to develop a cell therapy manufacturing facility located in Bothell, Washington. This LyFE manufacturing center has a flexible and modular design allowing us to produce plasmid, viral vector and T cell product to control and de-risk the sequence and timing of production of the major components of our supply chain related to our product candidates. At full staffing and capacity, we expect to be able to manufacture approximately 500 infusions per year depending on product candidate mix. We anticipate the facility to be cGMP qualified by the end of 2021. We believe this capacity is sufficient to support our pipeline programs through pivotal trials and, if approved, early commercialization. We anticipate continued investment in our manufacturing facility and capabilities to support our operating strategy.

The global COVID-19 pandemic continues to evolve rapidly, and we will continue to monitor it closely. The extent of the impact of the COVID-19 pandemic on our business, operations and development timelines and plans remains uncertain and will depend on certain developments, including the duration and spread of the outbreak and its impact on our clinical trial plans, CROs, contract manufacturing organizations and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. While the implications of the COVID-19 pandemic on our operations remain uncertain, to date, we have not experienced delays in our discovery and development activities as a result of the COVID-19 pandemic. We have closely monitored the COVID-19 pandemic and have strived to follow recommended containment and mitigation measures, including the guidance from the Centers for Disease Control and Prevention (CDC) as well as the states of California and Washington and applicable counties. For most of the pandemic, essential laboratory and support employees worked in our facilities to continue and progress experiments. We implemented preventative measures at our facilities in order to minimize the risk of employee exposure to the virus, including the following requirements: that each employee who entered a facility agreed to comply with social distancing, frequent hand washing and the requirement to wear masks. We also increased cleaning of high touch areas, provided hand sanitizing stations and implemented an employee questionnaire to ensure employee health status and to provide for limited on-site tracing if needed. Finally, commencing in early March 2020, we suspended all non-essential business travel and directed all employees who are not essential laboratory personnel to work from home. We expect to continue such measures for the near foreseeable future. We will continue to actively monitor the situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business.

We anticipate that we will need to raise additional capital in the future to fund our operations, including the commercialization of any approved product candidates. Until such time, if ever, as we can generate significant product revenue, we expect to finance our operations with our existing cash, cash equivalents and marketable securities, the net proceeds from this offering, any future equity or debt financings and upfront and milestone and royalties payments, if any, received under future licenses or collaborations. We may not be able to raise additional capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected.

Collaboration, License and Success Payment Agreements

Below is a summary of the key terms for certain of our collaboration and license agreements. For a more detailed description of these and our collaboration, license and success payment agreements, see the section titled “Business—Collaboration, License and Success Payment Agreements” and Notes 2 and 3 to our audited consolidated financial statements and unaudited condensed consolidated financial statements included elsewhere in this prospectus.

 

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Fred Hutch

In December 2018, we entered into an exclusive license agreement with Fred Hutch to access certain intellectual property for the development of CARs and TCRs. In connection with this agreement, we paid $150,000 in cash and issued to Fred Hutch 1,075,000 shares of our common stock for total consideration of $0.8 million.

In December 2018, we entered into a research and collaboration agreement with Fred Hutch for the development of cellular immunotherapy products. Pursuant to this agreement, we are required to fund $12.0 million in research performed by Fred Hutch, and we recorded research and development expense of $3.7 million and $4.1 million for the years ended December 31, 2019 and 2020, respectively, and $1.0 million for both the three months ended March 31, 2020 and 2021.

We also entered into a letter agreement with Fred Hutch in December 2018, pursuant to which we may be required to make success payments (Fred Hutch Success Payments) up to an aggregate of $200.0 million based on increases in the fair market value of our Series A convertible preferred stock, or any security into which such stock has been converted or exchanged. All shares of Series A convertible preferred stock will automatically convert into shares of common stock upon the closing of this offering on a one-for-one basis. The potential Fred Hutch Success Payments are based on multiples of increased value ranging from 10x to 50x based on a comparison of the fair value of the Series A convertible preferred stock (or common stock into which it is converted upon the closing of this offering) relative to its original issuance price at pre-determined valuation measurement dates. The Fred Hutch Success Payments can be achieved over a maximum of nine years from the effective date of the agreement. The following table summarizes the potential success payments, which are payable in cash, cash equivalents or, at our discretion, publicly-tradeable shares of our common stock:

 

Multiple of initial equity value at issuance

   10x      20x      30x      40x      50x  

Per share Series A convertible preferred stock price required for payment

   $ 18.29      $ 36.58      $ 54.86      $ 73.15      $ 91.44  

Aggregate success payment(s) (in millions)

   $ 10      $ 40      $ 90      $ 140      $ 200  

The valuation measurement dates are triggered by the following events: the one-year anniversary of an initial public offering of our common stock and each two-year anniversary of the initial public offering thereafter, the closing of a change in control transaction, and the last day of the term of the success payment agreement, unless the term has ended due to the closing of a change of control transaction.

The estimated fair value of the Fred Hutch Success Payments as of December 31, 2019 and 2020 and March 31, 2021 was $3.8 million, $8.0 million and $18.2 million, respectively. With respect to Fred Hutch Success Payments, we recognized expense of $0.4 million and $4.8 million for the years ended December 31, 2019 and 2020, respectively, and $2.1 million and $8.1 million for the three months ended March 31, 2020 and 2021, respectively.

Stanford

In January 2019, we entered into an exclusive license agreement with Stanford to access certain intellectual property for the development of CARs and TCRs. In connection with this agreement, we paid $400,000 in cash and issued Stanford 910,000 shares of our common stock, for total consideration of $3.0 million, which was recorded as research and development expense for the year ended December 31, 2019. We are also required to pay Stanford an annual maintenance fee on the second anniversary of the agreement date, and each anniversary thereafter until the date of the first commercial sale of a licensed product. Under the agreement, we may also be required to make certain

 

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pre-specified development milestone payments up to an aggregate of $3.7 million for the first licensed product for each target, and pre-specified commercial milestone payments up to an aggregate of $2.5 million for all licensed products.

In October 2020, we entered into a research and collaboration agreement with Stanford for the development of cellular immunotherapy products. Pursuant to this agreement, we are required to fund $12.0 million in research performed by Stanford, and we recorded research and development expense of $0.8 million for both the year ended December 31, 2020 and the three months ended March 31, 2021. There was no expense recorded associated with the research and collaboration agreement with Stanford for the year ended December 31, 2019 and the three months ended March 31, 2020.

We also entered into a letter agreement with Stanford in October 2020, pursuant to which we may be required to make success payments (Stanford Success Payments) up to an aggregate of $200.0 million based on increases in the fair market value of our Series A convertible preferred stock, or any security into which such stock has been converted or exchanged. All shares of Series A convertible preferred stock will automatically convert into shares of common stock upon the closing of this offering on a one-for-one basis. The potential Stanford Success Payments are based on multiples of increased value ranging from 10x to 50x based on a comparison of the fair value of the Series A convertible preferred stock (or common stock into which it is converted upon the closing of this offering) relative to its original issuance price at pre-determined valuation measurement dates. The Stanford Success Payments can be achieved over a maximum of nine years from the effective date of the agreement. The following table summarizes the potential success payments, which are payable in cash, cash equivalents or, at our discretion, publicly-tradeable shares of our common stock:

 

Multiple of initial equity value at issuance

   10x      20x      30x      40x      50x  

Per share Series A convertible preferred stock price required for payment

   $ 18.29      $ 36.58      $ 54.86      $ 73.15      $ 91.44  

Aggregate success payment(s) (in millions)

   $ 10      $ 40      $ 90      $ 140      $ 200  

The valuation measurement dates are triggered by the following events: the one-year anniversary of an initial public offering of our common stock and each two-year anniversary of the initial public offering thereafter, the closing of a change in control transaction, and the last day of the term of the success payment agreement, unless the term has ended due to the closing of a change of control transaction.

The estimated fair value of the Stanford Success Payments as of December 31, 2020 and March 31, 2021 was $8.9 million and $19.6 million, respectively. With respect to Stanford Success Payments, we recognized expense of $0.6 million for the year ended December 31, 2020 and $1.9 million for the three months ended March 31, 2021. There was no expense recorded associated with the Stanford Success Payments for the year ended December 31, 2019 and the three months ended March 31, 2020.

GSK Collaboration Agreement

In May 2019, we entered into a collaboration agreement with GSK, amended in June 2020 (the GSK Agreement), for potential T cell therapies that apply our platform technologies and cell therapy innovations to TCRs or CARs under distinct collaboration programs. Pursuant to the GSK Agreement, we received an upfront payment of $45.0 million which was recorded as deferred revenue and revenue is recognized as the research and development services are rendered. For potential TCR or CAR therapies that are the subject of a collaboration program under the GSK Agreement, we are responsible for certain research and development activities, at our cost, up to GSK’s option point. These are expensed as research and development as incurred. Generally, each party is responsible for its own cost and expense to conduct each collaboration program. In April 2021, GSK exercised its

 

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option to the NY-ESO-1 TCR with Gen-R program and GSK will assume responsibility for future research and development of this program at its cost and expense. We are eligible to receive up to two one-time payments, totaling approximately $200.0 million in aggregate, for technology validation of Lyell’s cell therapy innovations. For each cell therapy target for which there has been a joint collaboration program, we also could receive up to approximately $400.0 million in aggregate in development and sales milestones for a target that is already within GSK’s pipeline and meets certain criteria, up to approximately $900.0 million in aggregate in development and sales milestones for all other targets, and tiered royalties on a per-product basis ranging from low to high single digits for targets that are already within GSK’s pipeline and meet certain criteria, or from high single digit to low teens for all other targets. Royalties and milestones are paid once per target, even if there is more than one Lyell innovation applied to a T cell therapy directed to that target.

NCI License Agreement

In December 2020, we entered into a license agreement with NCI to access certain intellectual property for the development of treatment of human cancers. In connection with this agreement, we paid $100,000 upfront, and a prorated annual maintenance payment for 2020 of approximately $3,100, for total consideration of approximately $103,100, which was recorded in research and development expense for the year ended December 31, 2020. We are also required to pay NCI annual maintenance payments which may be credited against earned royalties. Under the agreement, we may also be required to make certain prespecified development milestone payments up to an aggregate of $3.1 million, and pre-specified commercial milestone payments up to a maximum aggregate of $12.0 million for all licensed products.

Components of Operating Results

Revenue

We have no products approved for sale and have never generated any revenue from product sales.

To date, we have generated revenue primarily from the recognition of a portion of the upfront payment under the GSK Agreement that we entered into in May 2019. As we continue to conduct research under the GSK Agreement, we will recognize revenue based upon our estimate of the progress made. In the future, we may generate additional revenue from other collaborations, strategic alliances, licensing agreements, product sales, or a combination of these.

Operating Expenses

Research and Development

To date, research and development expenses consist of costs incurred by us for the discovery and development of our technology platforms and product candidates and includes costs incurred in connection with strategic collaborations, costs to license technology, personnel-related costs, including stock-based compensation expense, facility and technology related costs, research and laboratory expenses, as well as other expenses, which include consulting fees and other costs. Upfront payments and milestones paid to third parties in connection with technology platforms which have not reached technological feasibility and do not have an alternative future use are expensed as incurred.

Research and development expenses also include non-cash expense related to the change in the estimated fair value of the liabilities associated with our success payments granted to Fred Hutch and Stanford. See the subsection titled “—Critical Accounting Policies and Significant Judgments and Estimates—Success Payments” below. Research and development expenses related to our success payment liabilities are unpredictable and may vary significantly from quarter to quarter and year to year due to changes in our assumptions used in the calculation.

 

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We deploy our employee and infrastructure resources across multiple research and development programs for identifying and developing product candidates and establishing manufacturing capabilities. Due to the stage of development and number of ongoing programs and our ability to use resources across several programs, most of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory and other indirect facility and operating costs.

Research and development activities account for a significant portion of our operating expenses. We anticipate that our research and development expenses will increase over the foreseeable future as we expand our research and development efforts including completing preclinical studies, commencing clinical trials, completing clinical trials, seeking regulatory approval of our product candidates, identifying new product candidates, and incurring costs to acquire and license technology platforms. A change in the outcome of any of these variables could mean a significant change in the costs and timing associated with the development of our product candidates. Because all of our product candidates are still in preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the preclinical development, clinical development and commercialization of product candidates or whether, or when, we may achieve profitability.

Our research and development expenses may vary significantly based on factors such as:

 

   

the number and scope of preclinical and IND-enabling studies;

 

   

per patient trial costs;

 

   

the number of trials required for approval;

 

   

the number of sites included in the trials;

 

   

the countries in which the trials are conducted;

 

   

the length of time required to enroll eligible patients;

 

   

the number of patients that participate in the trials;

 

   

the drop-out or discontinuation rates of patients;

 

   

potential additional safety monitoring requested by regulatory agencies;

 

   

the duration of patient participation in the trials and follow-up;

 

   

the cost and timing of manufacturing our product candidates;

 

   

the phase of development of our product candidates;

 

   

the efficacy and safety profile of our product candidates;

 

   

the extent to which we establish additional collaboration or license agreements; and

 

   

whether we choose to partner any of our product candidates and the terms of such partnership.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and future clinical trials.

General and Administrative

General and administrative costs include personnel-related expenses, including stock-based compensation expense, for personnel in executive, legal, finance and other administrative functions,

 

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legal costs, transaction costs related to collaboration and licensing agreements, as well as fees paid for accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include those related to corporate and patent matters.

We anticipate that our general and administrative expenses will increase over the foreseeable future to support our continued research and development activities, operations generally, future business development opportunities, consulting fees, as well as due to the increased costs of operating as a public company such as costs related to accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs.

Other Operating Income, Net

Other operating income, net consists primarily of gains recorded on the sale of assets and upon lease remeasurement.

Interest Income, Net

Interest income, net consists primarily of interest earned on our cash, cash equivalents and marketable securities balance.

Other (Expense) Income, Net

Other (expense) income, net consists primarily of the changes in the fair value of our convertible preferred tranche liabilities and an equity warrant investment held.

Deemed Dividends Upon Issuance or Repurchase of Convertible Preferred Stock

For the year ended December 31, 2019, deemed dividends upon issuance or repurchase of convertible preferred stock consists of the amount by which the fair value of the convertible preferred stock, not subject to our convertible preferred stock tranche liabilities from our Series A convertible preferred stock financing, exceeded the cash proceeds from the sale and issuance of such convertible preferred stock. For the three months ended March 31, 2020 and the year ended December 31, 2020, deemed dividends upon issuance or repurchase of convertible preferred stock consists of the amount by which the cash paid for the repurchase of convertible preferred stock exceeded the carrying value of such convertible preferred stock.

 

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Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2021

The following table summarizes our results of operations for the periods presented (in thousands):

 

     Three Months Ended
March 31,
       
     2020     2021     Change  

Revenue

   $ 1,256     $ 2,445     $ 1,189  

Operating expenses (income):

      

Research and development

     25,500       41,529       16,029  

General and administrative

     8,880       16,831       7,951  

Other operating income, net

     (120     (545     (425
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     34,260       57,815       23,555  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (33,004     (55,370     (22,366

Interest income, net

     2,341       354       (1,987

Other income (expense), net

     1,423       (27     (1,450
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (29,240   $ (55,043   $ (25,803
  

 

 

   

 

 

   

 

 

 

Net loss attributed to common stockholders:

      

Net loss

   $ (29,240   $ (55,043   $ (25,803

Deemed dividends upon issuance or repurchase of convertible preferred stock

     (3,582     -       3,582  
  

 

 

   

 

 

   

 

 

 

Net loss attributed to common stockholders

   $ (32,822   $ (55,043   $ (22,221
  

 

 

   

 

 

   

 

 

 

Revenue

Revenue was $1.3 million and $2.4 million for the three months ended March 31, 2020 and 2021, respectively. Revenue recognized for the three months ended March 31, 2020 and 2021 was primarily related to the recognized portion of the upfront license fee pursuant to the GSK Agreement, which was effective in July 2019. The increase of $1.2 million is due to increased research and development activities under the GSK Agreement for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Research and Development Expenses

The following table summarizes the components of our research and development expenses for the periods presented (in thousands):

 

     Three Months Ended
March 31,
        
     2020      2021      Change  

Personnel

   $ 10,755      $ 14,833      $ 4,078  

Success payments

     2,070        9,967        7,897  

Facilities and technology

     5,628        7,537        1,909  

Research and laboratory

     4,944        4,476        (468

Collaborations and licenses

     1,843        4,013        2,170  

Other

     260        703        443  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 25,500      $ 41,529      $ 16,029  
  

 

 

    

 

 

    

 

 

 

 

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Research and development expenses were $25.5 million and $41.5 million for the three months ended March 31, 2020 and 2021, respectively. The increase of $16.0 million was primarily due to:

 

   

an increase of $7.9 million associated with our Fred Hutch and Stanford success payments liabilities primarily due to the increase in the estimated per share fair value of our Series A preferred stock (or common stock into which it is converted upon the closing of this offering);

 

   

an increase in personnel-related expenses of $4.1 million, including $2.8 million of stock- based compensation expense, which was primarily related to an increase in headcount to expand our research and development capabilities;

 

   

an increase in collaborations and licenses costs of $2.2 million, including costs incurred in connection with strategic collaborations and costs to license technology; and

 

   

an increase in facilities and technology costs of $1.9 million including rent, depreciation, information technology related expenses and other allocated overhead costs.

General and Administrative Expenses

General and administrative expenses were $8.9 million and $16.8 million for the three months ended March 31, 2020 and 2021, respectively. The increase of $7.9 million was primarily due to an increase of $6.7 million in stock-based compensation expense primarily related to award modifications and new awards granted. Additionally, consulting and legal costs increased $0.7 million.

Interest Income, Net

Interest income, net, was $2.3 million and $0.4 million for the three months ended March 31, 2020 and 2021, respectively. The decrease of $1.9 million was primarily due to lower interest rates on cash, cash equivalents and marketable securities balances.

Other Income (Expense), Net

For the three months ended March 31, 2020 and 2021, other income (expense), net consisted primarily of the addition in 2020, and the subsequent changes in fair value, of an equity warrant investment held.

 

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Comparison of the Years Ended December 31, 2019 and 2020

The following table summarizes our results of operations for the periods presented (in thousands):

 

     Year Ended
December 31,
       
     2019     2020     Change  

Revenue

   $ 657     $ 7,756     $ 7,099  

Operating expenses (income):

      

Research and development

     63,595       182,243       118,648  

General and administrative

     39,151       46,881       7,730  

Other operating income, net

           (9,431     (9,431
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     102,746       219,693       116,947  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (102,089     (211,937     (109,848

Interest income, net

     8,121       5,939       (2,182

Other (expense) income, net

     (35,409     1,526       36,935  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (129,377   $ (204,472   $ (75,095
  

 

 

   

 

 

   

 

 

 

Net loss attributed to common stockholders:

      

Net loss

   $ (129,377   $ (204,472   $ (75,095

Deemed dividends upon issuance or repurchase of convertible preferred stock

     (1,144     (3,582     (2,438
  

 

 

   

 

 

   

 

 

 

Net loss attributed to common stockholders

   $ (130,521   $ (208,054   $ (77,533
  

 

 

   

 

 

   

 

 

 

Revenue

Revenue was $0.7 million and $7.8 million for the years ended December 31, 2019 and 2020, respectively. Revenue recognized for the years ended December 31, 2019 and 2020 was related to the recognized portion of the upfront license fee pursuant to the GSK Agreement, which was effective in July 2019. The increase of $7.1 million is due to the longer recognition period as we performed a full year of research and development activities under the GSK Agreement for the year ended December 31, 2020 compared to only a portion of the year for the year ended December 31, 2019.

Research and Development Expenses

The following table summarizes the components of our research and development expenses for the periods presented (in thousands):

 

     Year Ended
December 31,
        
     2019      2020      Change  

Collaborations and licenses

   $ 10,392      $ 79,015      $ 68,623  

Personnel

     31,634        54,112        22,478  

Facilities and technology

     11,378        24,560        13,182  

Research and laboratory

     8,355        17,914        9,559  

Success payments

     436        5,337        4,901  

Other

     1,400        1,305        (95
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 63,595      $ 182,243      $ 118,648  
  

 

 

    

 

 

    

 

 

 

 

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Research and development expenses were $63.6 million and $182.2 million for the years ended December 31, 2019 and 2020, respectively. The increase of $118.6 million was primarily due to:

 

   

an increase of $68.6 million associated with collaborative agreements and license agreements primarily related to the commitment agreement upfront payment to PACT of $63.6 million, consisting of the $50.0 million upfront payment and $13.6 million deemed to be the difference between the purchase price of the preferred stock shares we purchased from PACT and the associated value of the preferred shares, and $7.5 million in acquired in-process research and development expense related to the asset acquisition of Immulus, Inc. (Immulus), recorded for the year ended December 31, 2020;

 

   

an increase in personnel-related expenses of $22.5 million, including $10.1 million of stock-based compensation expense, which was primarily related to an increase in headcount to expand our research and development capabilities;

 

   

an increase in facilities and technology costs of $13.2 million including rent, depreciation, information technology related expenses and other allocated overhead costs;

 

   

an increase in research and laboratory of $9.6 million, including laboratory supplies, preclinical studies, and other external research expenses; and

 

   

an increase of $4.9 million associated with our Fred Hutch and Stanford success payments liabilities.

General and Administrative Expenses

General and administrative expenses were $39.2 million and $46.9 million for the years ended December 31, 2019 and 2020, respectively. The increase of $7.7 million was primarily due to an increase of $7.4 million in stock-based compensation expense primarily related to award modifications. Additionally, facilities and information technology related expenses increased $2.9 million. These increases were partially offset by a decrease in consulting and legal costs of $1.6 million.

Other Operating Income, Net

For the year ended December 31, 2020, other operating income, net consisted primarily of a gain recorded on the sale of assets of $4.9 million and a gain recorded upon lease remeasurement of $2.9 million.

Interest Income, Net

Interest income, net, was $8.1 million and $5.9 million for the years ended December 31, 2019 and 2020, respectively. The decrease of $2.2 million was due to lower interest rates on cash, cash equivalents, and marketable securities balances, partially offset by higher average cash, cash equivalents and marketable securities balances in 2020 compared to 2019.

Other (Expense) Income, Net

For the year ended December 31, 2019, other (expense) income, net consisted primarily of expense recorded due to the change in fair value of our convertible preferred tranche liabilities of $35.4 million. For the year ended December 31, 2020, other (expense) income, net consisted primarily of the addition and the change in fair value of an equity warrant investment held of $1.3 million.

Unaudited Pro Forma Information

Immediately prior to the completion of this offering, all outstanding shares of our convertible preferred stock will convert into shares of our common stock. The unaudited pro forma basic and

 

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diluted net loss per common share for the year ended December 31, 2020 and the three months ended March 31, 2021 was computed using the weighted-average number of shares of common stock outstanding, including the pro forma effect of the conversion of all outstanding shares of convertible preferred stock into shares of common stock, as if such conversion had occurred at the beginning of the period, or their issuance dates if later. Pro forma net loss per share does not include the shares expected to be sold in this offering.

The following table sets forth the computation of the unaudited pro forma basic and diluted net loss per common share for the periods presented:

 

     Year Ended
December 31,
2020
    Three Months
Ended

March 31,
2021
 

Numerator

    

Net loss attributed to common stockholders

   $ (208,054   $ (55,043
  

 

 

   

 

 

 

Denominator

    

Weighted-average common shares outstanding

     13,258       17,272  

Weighted-average convertible preferred stock

     187,069       194,474  
  

 

 

   

 

 

 

Pro forma weighted-average shares outstanding, basic and diluted

     200,327       211,746  
  

 

 

   

 

 

 

Pro forma net loss per common share, basic and diluted

   $ (1.04   $ (0.26
  

 

 

   

 

 

 

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have funded our operations primarily through the sale and issuance of convertible preferred stock. As of March 31, 2021, we had $640.1 million in cash, cash equivalents and marketable securities. Since our inception, we have incurred significant operating losses. We have not yet commercialized any product candidates and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever. We had an accumulated deficit of $389.2 million as of March 31, 2021. From June 29, 2018 (inception) through March 31, 2021, we raised an aggregate of $980.7 million in gross proceeds from the sales of our convertible preferred stock.

Future Funding Requirements

We expect to incur additional losses in the foreseeable future as we conduct and expand our research and development efforts, including conducting preclinical studies and clinical trials, developing new product candidates, establishing internal manufacturing capabilities and funding our operations generally. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities, together with the net proceeds from this offering, will be sufficient to meet our working capital and capital expenditure needs for at least the next                 . However, we anticipate that we will need to raise additional capital in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

Our future capital requirements will depend on many factors, including:

 

   

the scope, timing, progress, costs and results of discovery, preclinical development and clinical trials for our current and future product candidates;

 

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the number of clinical trials required for regulatory approval of our current and future product candidates;

 

   

the costs, timing and outcome of regulatory review of any of our current and future product candidates;

 

   

the cost of manufacturing clinical and commercial supplies of our current and future product candidates;

 

   

the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

 

   

further investment to build additional manufacturing facilities or expand the capacity of our existing ones;

 

   

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

 

   

our ability to maintain existing, and establish new, collaborations, licenses, product acquisitions or other strategic transactions and the fulfillment of our financial obligations under any such agreements, including the timing and amount of any success payment, future contingent, milestone, royalty, or other payments due under any such agreement;

 

   

the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

 

   

expenses to attract, hire and retain, skilled personnel;

 

   

the costs of operating as a public company;

 

   

addressing any potential interruptions or delays resulting from factors related to the COVID-19 pandemic;

 

   

addressing or responding to any potential disputes or litigation; and

 

   

the extent to which we acquire or invest in businesses, products and technology platforms.

Until such time as we complete preclinical and clinical development and receive regulatory approval of our product candidates and can generate significant revenue from product sales, if ever, we expect to finance our operations from the sale of additional equity or debt financings, or other capital which come in the form of strategic collaborations, licensing, or other arrangements. In the event that additional capital is required, we may not be able to raise it on terms acceptable to us, or at all. If we raise additional funds through the issuance of equity or convertible debt securities, it may result in dilution to our existing stockholders. Debt financing or preferred equity financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations. If we raise funds through strategic collaboration, licensing, or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected.

 

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Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2019     2020     2020     2021  

Net cash provided by (used in):

        

Operating activities

   $ 39,474     $ (160,874   $ (23,592   $ (33,597

Investing activities

     (422,433     (273,516     (116,079     136,677  

Financing activities

     351,156       476,790       476,419       884  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash, cash equivalents and restricted cash

   $ (31,803   $ 42,400     $ 336,748     $ 103,964  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Activities

During the three months ended March 31, 2020, net cash used in operating activities was $23.6 million, consisting primarily of our net loss of $29.2 million, partially offset by non-cash adjustments to reconcile net loss to net cash used in operating activities of $6.2 million. These adjustments consisted primarily of stock-based compensation expense of $3.3 million, $2.1 million for revaluation of our success payment liabilities to Fred Hutch and $1.6 million in non-cash lease expense, partially offset by a non-cash income of $1.4 million associated with the equity warrant investment. Additionally, net operating assets decreased $0.5 million, which included $1.3 million of non-cash revenue recognized for the three months ended March 31, 2020.

During the three months ended March 31, 2021, net cash used in operating activities was $33.6 million, consisting primarily of our net loss of $55.0 million, partially offset by non-cash adjustments to reconcile net loss to net cash used in operating activities of $26.2 million. These adjustments consisted primarily of stock-based compensation expense of $12.7 million, $10.0 million for revaluation of our success payment liabilities to Fred Hutch and Stanford, depreciation and amortization of $2.0 million and $1.0 million in non-cash lease expense. Additionally, net operating assets decreased $4.8 million, which included $2.4 million of non-cash revenue recognized for the three months ended March 31, 2021.

During the year ended December 31, 2019, net cash provided by operating activities was $39.5 million, consisting primarily of the upfront payment received in connection with the GSK Agreement of $103.6 million. This was partially offset by our net loss of $129.4 million reduced by non-cash adjustments to reconcile net loss to net cash provided by operating activities of $58.0 million. The non-cash adjustments to reconcile net loss to net cash provided by operating activities consisted primarily of a loss of $35.4 million associated with the remeasurement of our convertible preferred stock tranche liabilities from our Series A convertible preferred stock financing, stock-based compensation expense of $15.7 million, $3.6 million for the issuance of stock in connection with license agreements and $3.1 million in non-cash lease expense.

During the year ended December 31, 2020, net cash used in operating activities was $160.9 million, consisting primarily of our net loss of $204.5 million, partially offset by non-cash adjustments to reconcile net loss to net cash used in operating activities of $43.9 million. These adjustments consisted primarily of stock-based compensation expense of $33.3 million, $5.3 million for revaluation of our success payment liabilities to Fred Hutch and Stanford, depreciation and amortization of $4.3 million, $3.5 million in non-cash acquired in-process research and development expense related to the asset acquisition of Immulus, and non-cash lease expense, net of gain on lease

 

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remeasurement, of $3.2 million, partially offset by a non-cash gain of $4.9 million recorded on the sale of assets to Outpace Bio, Inc. (Outpace). Additionally, we recognized $7.8 million of non-cash revenue for the year ended December 31, 2020.

Investing Activities

During the three months ended March 31, 2020, cash used in investing activities was $116.1 million, consisting of net purchases of marketable securities of $109.2 million and purchases of property and equipment of $6.9 million.

During the three months ended March 31, 2021, cash provided by investing activities was $136.7 million, consisting of net sales and maturities of marketable securities of $155.9 million, partially offset by purchases of property and equipment of $19.2 million.

During the year ended December 31, 2019, cash used in investing activities was $422.4 million, consisting of net purchases, sales and maturities of marketable securities of $372.4 million, purchases of other investments of $34.0 million and purchases of property and equipment of $16.0 million.

During the year ended December 31, 2020, cash used in investing activities was $273.5 million, consisting of net purchases, sales and maturities of marketable securities of $178.6 million, purchases of other investments of $43.4 million and purchases of property and equipment of $51.5 million.

Financing Activities

During the three months ended March 31, 2020, cash provided by financing activities was $476.4 million, consisting of $492.5 million in net proceeds from the sale of our convertible preferred stock, partially offset by the repurchase of preferred and common stock of $16.1 million.

During the three months ended March 31, 2021, cash provided by financing activities was $0.9 million, consisting of proceeds from the exercise of stock options.

During the year ended December 31, 2019, cash provided by financing activities was $351.2 million, consisting primarily of net proceeds from the sale of our convertible preferred stock.

During the year ended December 31, 2020, cash provided by financing activities was $476.8 million, consisting primarily of $492.5 million in net proceeds from the sale of our convertible preferred stock, partially offset by the repurchase of preferred and common stock of $16.1 million.

Contractual Obligations and Commitments

The following table summarizes our significant contractual obligations and commitments as of December 31, 2020 (in thousands):

 

     Payments Due by Period  
     Less than
1 Year
     1 to 3 Years      3 to 5 Years      More than
5 Years
     Total  

Operating lease obligations(1)

   $ 10,096      $ 21,788      $ 23,283      $ 58,962      $ 114,129  

Collaboration minimum funding(2)

     7,362        6,857        1,714               15,933  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 17,458      $ 28,645      $ 24,997      $ 58,962      $ 130,062  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Represents future minimum lease payments under our operating leases as of December 31, 2020, excluding expected tenant incentives to be received. The minimum lease payments above do not include any related common area maintenance charges, real estate taxes and other executory costs.

(2)

Represents non-cancellable minimum funding requirements related to certain collaboration agreements.

 

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Other than disclosed in the table above, payment obligations under our license, collaboration and acquisition agreements as of December 31, 2020 are contingent upon future events such as our achievement of pre-defined development, regulatory and commercial milestones, or royalties on net product sales. See the section titled “Business—Collaboration, License and Success Payment Agreements” for more information about these payment obligations. As described under the subsection titled “Critical Accounting Policies and Significant Judgments and Estimates—Success Payments” below, we are also obligated to make up to $200.0 million in success payments to Fred Hutch and up to $200.0 million in success payments to Stanford based on increases in the per share fair value of our Series A convertible preferred stock, or any security into which such stock has been converted or for which it has been exchanged. The success payments are payable in cash or cash equivalents or, at our discretion, publicly-tradeable shares of our common stock. As of December 31, 2020, the timing and likelihood of achieving the milestones and success payments and generating future product sales are uncertain and therefore, any related payments are not included in the table above.

Off-Balance Sheet Arrangements

Since our inception, we did not have, and we do not currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

JOBS Act Accounting Election

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, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statement, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In particular, in this prospectus, we have provided only two years of audited consolidated financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. In addition, 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. We have elected to use the extended transition period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

Critical Accounting Policies and Significant Judgments and Estimates

Our audited consolidated financial statements and unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the audited consolidated financial statements and the unaudited condensed consolidated financial statements, as well as the reported revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are

 

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described in more detail in the notes to our audited consolidated financial statements and unaudited condensed consolidated financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods and services. To determine revenue recognition for arrangements within the scope of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, (ASC 606), we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied.

In applying the ASC 606 framework, we must apply judgment to determine the nature of the promises within a revenue contract and whether those promises represent distinct performance obligations. In determining the transaction price, we do not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of cumulative revenue when the uncertainty is resolved. Milestone and other forms of variable consideration that we may earn are subject to significant uncertainties of research and development related achievements, which generally are deemed to be not probable until such milestones are actually achieved. Additionally, we develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract. We then allocate the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation, for which we recognize revenue as or when the performance obligations are satisfied. At the end of each subsequent reporting period, we re-evaluate the variable consideration and any related constraint and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis.

Revenue allocated to performance obligations is recognized using an estimate of the percentage of completion of the project based on the costs incurred on the project as a percentage of the total expected costs. The determination of the percentage of completion requires management to estimate the costs to complete the project. A detailed estimate of the costs to complete is reassessed every reporting period based on the latest project plan and discussions with project teams. If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate. The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs. Determining the estimate of the cost-to-complete requires significant judgment and may have a significant impact on the amount and timing of revenue recognition.

Research and Development Expenses

We record research and development costs in the periods in which they are incurred. We accrue for research and development costs based on the estimated services performed, but not yet invoiced, pursuant to contracts with research institutions or other service providers that conduct and manage preclinical studies and other research services on our behalf and record these costs in accrued liabilities and other current liabilities. We make judgments and estimates in determining the accrued liabilities balance at each reporting period. Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received.

 

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Research and development costs also include the estimated fair value of the potential liabilities associated with the rights to success payments granted to Fred Hutch and Stanford.

To date, we have not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our results of operations.

Success Payments

We granted rights to success payments to Fred Hutch and Stanford pursuant to the terms of our collaboration agreements with each of those entities. Pursuant to the terms of these agreements, on each contractually prescribed measurement date, we may be required to make success payments based on increases in the estimated per share fair value of our Series A convertible preferred stock, or any security into which such stock has been converted or for which it has been exchanged, payable in cash or cash equivalents or, at our discretion, publicly-tradeable shares of our common stock. The success payments are accounted for under ASC 718, Compensation – Stock Compensation, with the expense being recorded in research and development expenses. Once the service period is complete, the instrument will be accounted for under ASC 815, Derivatives and Hedging, and continue to be remeasured each reporting period with all changes in value recognized immediately in other income or expense.

The success payment liability is estimated at fair value at inception and at each reporting period, and the expense is accreted over the remaining service period of the collaboration agreement. To determine the estimated fair value of the success payments, we use a Monte Carlo simulation methodology which models the future movement of stock prices based on several key variables combined with empirical knowledge of the process governing the behavior of the stock price. The following variables were incorporated in the estimated fair value of the success payment liability: estimated fair value of the Series A convertible preferred stock, expected volatility, risk-free interest rate and the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered. The computation of expected volatility was estimated based on available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption.

The assumptions used to estimate the fair value of the success payment liability are subject to a significant amount of judgment including the estimated fair value of the Series A convertible preferred stock, expected volatility of our common stock, estimated term and estimated number of valuation measurement dates. A small change in the assumptions, or a change in our stock price, may have a relatively large change in the estimated fair value of the success payment liability.

Stock-Based Compensation

We recognize compensation costs related to restricted stock awards and stock options granted to employees and nonemployees based on the estimated fair value of the awards on the date of grant, and we recognize forfeitures as they occur. For restricted stock awards the fair value of our common stock is used to determine the resulting stock-based compensation expense. For stock options we estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model. The fair value of the stock-based awards is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The Black-Scholes option pricing model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. These assumptions include:

 

   

Fair Value of Common Stock—See the subsection titled “—Common Stock Valuations” below.

 

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Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. We use the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the options.

 

   

Expected Volatility—Since we are not yet a public company and do not have any trading history for our common stock, the expected volatility is estimated based on the average historical volatilities of common stock of comparable publicly traded entities over a time period equal to the expected term of the stock option grants. The comparable companies are chosen based on their size, stage in the product development cycle and area of specialty. We will continue to apply this process until sufficient historical information regarding the volatility of our own stock price becomes available.

 

   

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the awards.

 

   

Expected Dividend—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

See Note 12 to our audited consolidated financial statements and Note 10 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2019 and 2020, and the three months ended March 31, 2020 and 2021. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

The intrinsic value of all outstanding options as of                , 2021 was approximately $                 million, based on the assumed initial public offering price of $         per share, of which approximately $                million is related to vested options and approximately $                million is related to unvested options.

Common Stock Valuations

Prior to this offering, we were a privately-held company with no active public market for our common stock. Therefore, our board of directors, with the assistance and upon the recommendation of management, has for financial reporting purposes periodically determined the estimated per share fair value of our common stock on the date of grant in part using contemporaneous independent third-party valuations consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation (Practice Aid). Within the contemporaneous valuations performed by our board of directors, a range of factors, assumptions and methodologies were used. The significant objective and subjective factors included, but are not limited to:

 

   

our most recently available valuations of our common stock performed by an independent third-party valuation firm;

 

   

the prices of shares of our convertible preferred stock sold to investors in arm’s length transactions, and the rights, preferences, and privileges of our convertible preferred stock relative to our common stock;

 

   

committed future rounds of funding;

 

   

our stage of development and material risks related to our business;

 

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our results of operations and financial position, including our levels of available capital resources;

 

   

progress of our research and development activities;

 

   

the lack of marketability of our common stock as a private company;

 

   

the hiring of key personnel and the experience of management;

 

   

the likelihood of achieving a liquidity event of an initial public offering for our stockholders, given prevailing market conditions;

 

   

the valuation of publicly traded companies in the life sciences and biotechnology sectors;

 

   

the status of strategic transactions, including the acquisition of intellectual property and technology;

 

   

trends and developments in our industry; and

 

   

external market conditions affecting the life sciences and biotechnology industry sectors.

Our board of directors exercises significant judgment in estimating the fair value of our common stock. Such estimates involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different. Changes in judgments could have a material impact on our results of operations.

For our valuations performed in 2019 and prior to September 2020, in accordance with the Practice Aid, we determined the option pricing model (OPM) method was the most appropriate method for determining the fair value of our common stock based on our stage of development and other relevant factors. In an OPM framework, the backsolve method for inferring the equity value implied by a recent financing transaction involves making assumptions for the expected time to liquidity, volatility, discount for lack of marketability and risk-free rate and then solving for the value of equity such that value for the most recent financing equals the amount paid.

For our valuations performed in or subsequent to September 2020, in accordance with the Practice Aid, we determined the hybrid method of the OPM method and an initial public offering scenario was the most appropriate method for determining the fair value of our common stock based on our stage of development and other relevant factors. The initial public offering scenario reflected the value of our common shares assuming we complete a near-term initial public offering. Under the hybrid OPM and initial public offering scenario method, the per share value calculated under the OPM and the initial public offering scenario are weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share value of the common stock before a discount for lack of marketability is applied.

Following the closing of this offering, our board of directors will determine the fair market value of our common stock based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Internal Control over Financial Reporting

In connection with the audit of our 2019 consolidated financial statements, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting relating to the review of the technical accounting for settlement of tranche liabilities. While we believe that we have remediated this material weakness by hiring additional

 

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accounting and financial reporting personnel and have not identified any material weaknesses in connection with the finalization of our 2020 consolidated financial statements, we cannot assure you that we will not identify other material weaknesses in the future. See the section titled “Risk Factors— We have in the past identified a material weakness in our internal control over financial reporting. If we identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may significantly harm our business and the value of our common stock.” Pursuant to Section 404, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ending December 31, 2022. When we lose our status as an “emerging growth company” and become an “accelerated filer” or a “large accelerated filer,” our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting.

Recently Adopted and Recent Accounting Pronouncements

See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition or results of operations.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. Our primary risks include interest rate sensitivities.

Interest Rate Risk

We had cash, cash equivalents and restricted cash of $244.8 million as of March 31, 2021, which consisted of bank deposits, money market funds and highly liquid investments purchased with original maturities of three months or less from the purchase date. We also had marketable securities of $395.8 million as of March 31, 2021. The primary objective of our investment activities is to preserve capital to fund our operations while earning a low-risk return. Because our marketable securities are primarily short-term in duration, we believe that our exposure to interest rate risk is not significant, and a hypothetical 1% change in market interest rates during any of the periods presented would not have had a material effect on our audited consolidated financial statements and unaudited condensed consolidated financial statements included elsewhere in this prospectus. We had no debt outstanding as of March 31, 2021.

Foreign Currency Exchange Risk

All of our employees and our operations are currently located in the United States and our expenses are generally denominated in U.S. dollars. We therefore are not currently exposed to significant market risk related to changes in foreign currency exchange rates. However, we have contracted with and may continue to contract with non-U.S. vendors who we may pay in local currency. Our operations may be subject to fluctuations in foreign currency exchange rates in the future. To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not had a formal hedging program with respect to foreign currency. We believe a hypothetical 1% chance in exchange rates during any of the periods presented would not have a material effect on our consolidated financial statements included elsewhere in this prospectus.

 

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Effects of Inflation

Inflation generally affects us by increasing our cost of labor and in the future our clinical trial costs. We believe that inflation has not had a material effect on our audited consolidated financial statements and unaudited condensed consolidated financial statements included elsewhere in this prospectus.

JOBS Act

As an emerging growth company under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date 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 consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We also intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of this offering, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, 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.

 

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LOGO

FOUNDER’S VISION

One of the most dramatic advances in medicine over the past decade has been the emergence of immunotherapy for cancer. The development of checkpoint blockade therapy by Jim Allison, the development of TIL therapy by Steve Rosenberg and the development of CAR-T therapy by Carl June and others have taught us that autologous T cells are capable of treating and sometimes eradicating cancer. Lyell is a next generation autologous T cell therapy company whose goal is to bring to patients—simply stated—curative therapy for any solid tumor.

While our goal is ambitious, it is actually grounded in the abundant evidence that autologous T cells can eradicate even advanced and refractory cancer, but only occasionally and only in a few cancers. Our goal is therefore not to prove this possibility, but to make it reliably and predictably effective, widely applicable and practicable for any cancer in any patient!

Our approach has been to examine currently available human data to understand the underlying reasons and correlates of why and when autologous T cell therapy against solid tumors is sometimes successful and more often fails.

Through this, we have identified what we believe are the two most important barriers to successful therapy:

 

   

Exhaustion of T cells

 

   

Ability to create the effective and self-renewing—properties which we term durable stemness—therapeutic product in each dose we give to patients

The primacy of these barriers and the solutions for them that we have developed come from the labs of our three scientific founders, Nick Restifo, Stan Riddell and Crystal Mackall. We are striving to overcome these two barriers with our ability to reprogram T cells to adopt those qualities correlated with, and thus necessary for, successful solid tumor eradication. The pursuit to elucidate and overcome these barriers is our foundation and ethos.

We have created T Cell Reprogramming Platforms that we believe can be directed at almost any cancer. While many are exploring new ways to manufacture T cell therapies, we are asking not “how” to manufacture cell preparations, but “what” T cells and their properties we need to manufacture. Our goal is to fundamentally redefine the very composition of adoptive cell therapy preparations, and therefore their reliable efficacy. We believe that these platforms are applicable to any modality for targeting tumors, be they CARs, TILs or cloned TCRs and our clinical programs will incorporate each of these targeting modalities.

Our story is the story of our science. The execution of that science has been the product of one of the most remarkable teams that I have ever worked with. We are committed to continued scientific innovation, and so while our first two T cell reprogramming platforms are ready to be tested in the clinic, we continue to develop next generation reprogramming platforms, including one based on our ability to rejuvenate, or turn back the age of, T cells.

 

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We have built an end-to-end company capable of discovering new science, designed to translate that science into products, manufacture those products and clinically test our science and products.

We believe that the use of living cells as therapies will be a big part of the future of medicine, representing the third evolution in therapeutics, the first being the use of small molecules which defined the pharmaceutical industry, the second, the use of biologic macromolecules which defined the biotech industry and finally, cell therapy—living, dynamic therapy to confront an always-evolving disease. It will be our ability to define and control the identity, fate and function of these cells that will enable us to create cell-based curative therapies and it is within this new paradigm of medicine that we have built Lyell.

For me personally, Lyell represents the culmination of a long journey—from the work in my own lab in the 1980’s that helped define how T cells are turned on, and the discovery of the molecular engine that underlies CAR T cells and the activity of all T cells when they see their target antigens; to overseeing the nation’s cancer program as NCI Director in the 1990s; to my co-founding of Juno Therapeutics.

The dream of creating curative therapies for cancer for the many patients and families confronting this disease has inspired and motivated me to stay on that journey. It is the privilege of building companies that can take science into the clinic, with aspirations to change the lives of those patients, that I hope will be the beginning of the end of that journey.

Richard D. Klausner, M.D.

Founder and Executive Chairman

 

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BUSINESS

Overview

We are a T cell reprogramming company dedicated to the mastery of T cells to cure patients with solid tumors. We have assembled a world-class team, comprising some of the foremost scientific leaders in the fields of oncology and ACT, including Drs. Rick Klausner, Nick Restifo, Stan Riddell and Crystal Mackall, who have each interrogated and elucidated the mechanisms of T cell biology and its interactions with cancer for decades. We believe the key to effective cell therapy is the mastery of the identity, fate and function of cells to create living medicines. We take a systematic, interrogative, cell biology-driven approach to overcome what we view as the two major barriers to successful ACT – (1) T cell exhaustion and (2) lack of durable stemness – through the application of our proprietary epigenetic and genetic reprogramming technologies, Gen-R and Epi-R. Our technologies are designed to be applied in a target and modality agnostic manner to CAR, TIL and TCR therapies to fundamentally improve the properties of T cells needed to eradicate solid tumors. We believe our autologous T cell therapies will generate improved, durable clinical outcomes that are potentially curative for patients with solid tumors. We are building a multi-modality product pipeline across several solid tumor indications with high unmet needs and anticipate making four IND submissions by the end of 2022.

Our Technology Platforms

ACT has demonstrated profound results in some patients suffering from hematologic tumors, but solid tumors are more complex and have evolved multiple mechanisms to evade and ultimately overcome the immune system. This has limited the use of ACTs in non-hematologic settings. We believe T cell exhaustion and lack of durable stemness – the T cell’s loss of continual proliferative capacity, and abilities of self-renewal and differentiation to effector states to eliminate solid tumors – are two major barriers limiting the efficacy of ACT in solid tumors.

We endeavor to overcome these two major barriers to ACT in solid tumors through our proprietary Gen-R and Epi-R technology platforms.

 

   

Gen-R – our proprietary ex vivo genetic reprogramming technology to overcome T cell exhaustion, which results from transcriptional and epigenetic changes that occur as T cells differentiate into a dysfunctional state. Our scientific co-founders discovered T cell exhaustion occurs more frequently in solid tumors than in hematologic cancers where CAR T cells have demonstrated efficacy. The discovery of Gen-R came from the realization that chronic antigen stimulation, or when the T cell is always “on,” combined with an immunosuppressive solid TME, likely promotes the development of T cell exhaustion. In preclinical solid tumor models, Gen-R overcame T cell exhaustion and restored antitumor activity through the optimized overexpression of c-JUN, a protein which, when dysregulated, has been shown to play a crucial role in T cell exhaustion.

 

   

Epi-R – our proprietary ex vivo epigenetic reprogramming technology to create a novel population of T cells with durable stemness. Stemness, the quality of T cells capable of self-renewal, expansion, persistence and anti-tumor response has been reported in the literature to correlate with clinical responses to immunotherapy. However, we believe durable stemness is required for long-term efficacy against solid tumors. Durable stemness relates to the ability of T cells to maintain their stemness until the tumor is eradicated, that is, they have the ability to self-renew despite continued persistent signals from the tumor driving activation, proliferation and differentiation. We believe that as these cells proliferate, they generate progeny cells that can both differentiate to polyfunctional effector cells, and/or re-populate the population of less differentiated T cell states as they continue to divide, thereby maintaining stemness. Epi-R is

 

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designed to intentionally and reproducibly generate populations of T cells which have this property of durable stemness. Furthermore, relating specifically to TIL, application of Epi-R has generated T cell preparations that exhibit increased polyclonality, i.e. the retention of a broad repertoire of TCR clonotypes.

Our Pipeline

We are utilizing our Gen-R and Epi-R technology platforms to develop a multi-modality product pipeline with four IND submissions expected by the end of 2022. Each of our programs provide opportunities to expand into additional indications beyond the patient populations we are initially targeting. Our product candidates are summarized in the table below:

 

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LYL797: ROR1 + Gen-R + Epi-R

We are applying our Gen-R and Epi-R technology platforms to our lead CAR program, LYL797, which is expected to be an IV administered CAR T cell product candidate targeting ROR1 with a single-chain variable fragment derived from rabbit anti-R12 antibody that recognizes and binds to ROR1 and a proprietary optimized EGFRopt safety switch. We are initially developing LYL797 for the treatment of ROR1+ NSCLC and TNBC. ROR1 expression is associated with poor prognosis. Significant subsets of patients with common cancers express ROR1, including TNBC (~60%) and NSCLC (~40%), two of the highest ROR1 expressing indications. If successful, we anticipate expanding into other ROR1+ cancers with a lower incidence of ROR1 expression, including potentially HR+ breast cancer, ovarian and other solid tumors. We expect to submit an IND for LYL797 in the first quarter of 2022.

LYL845: TIL + Epi-R

We are applying our Epi-R technology to develop our product candidate, LYL845, which is expected to be an IV administered autologous TIL therapy in multiple solid tumors. TIL have previously shown clinical benefit in patients with melanoma as well as other solid tumors with high mutation burdens including advanced cervical, lung, breast and gastrointestinal cancers. TILs target a variety of tumor antigens, but it is thought that the clinical efficacy of TILs is largely driven by specific recognition of mutated tumor neoantigens. Further, broad TIL efficacy has been limited by poor enrichment of tumor-reactive T cells, poor quality and growth potential of expanded T cells, and failure to maintain polyclonality of TILs during production. We have designed LYL845 to incorporate our Epi-R technology to result in enhanced T cell potency, antitumor activity and polyclonality of TILs. If successful, we

 

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expect to expand development broadly to potentially include melanoma, cervical, head and neck, pancreatic, breast, colorectal and NSCLC. We expect to submit an IND for LYL845 in the second half of 2022.

NY-ESO-1

Our collaborator, GSK, is developing a NY-ESO-1 TCR T cell product candidate, NY-ESO-1 C239, currently in pivotal development. We are collaborating with them to potentially enhance this product candidate with Gen-R and Epi-R. Preclinical efforts and IND-enabling studies are underway. We anticipate GSK will conduct initial clinical trials with an enhanced product candidate in synovial sarcoma and multiple other solid tumor indications. We anticipate an IND submission in the first half of 2022.

Our Manufacturing Capabilities

We believe it is critically important to own, control and continuously monitor all aspects of the cell therapy manufacturing process in order to mitigate risks the field has seen, including challenges in managing production, supply chain, patient specimen chain of custody and quality control. We made a strategic decision to invest in building our own manufacturing facility to control our supply chain, maximize efficiencies in cell product production time, cost and quality, and have the ability to rapidly incorporate disruptive advancements and new innovations. Controlling manufacturing also enables us to protect proprietary aspects of our Gen-R and Epi-R technology platforms. We view our manufacturing team and capabilities as a significant competitive advantage.

Our LyFE manufacturing center is approximately 73,000 square feet and comprises laboratories, offices and manufacturing suites. LyFE has a flexible and modular design allowing us to produce plasmid, viral vector and T cell product to control and de-risk the sequence and timing of production of the major components of our supply chain related to our product candidates. At full staffing and capacity, we expect to be able to manufacture approximately 500 infusions per year depending on product candidate mix. We believe this capacity is sufficient to support our pipeline programs through pivotal trials and, if approved, early commercialization. We anticipate the facility to be cGMP qualified by the end of 2021.

Our Team

The scientific and leadership team we have assembled comprise some of the foremost leaders in the fields of oncology and ACT. These thought leaders have each interrogated and elucidated the mechanisms of T cell biology and its interactions with cancer for decades and have authored over 1,000 publications focused on the interaction between the immune system and cancer. Our management team are experienced executives who come from academia and industry-leading cell and gene therapy companies including Atara, Juno Therapeutics and Sangamo; oncology therapeutic development companies including Amgen, AstraZeneca, Genentech, Incyte and Seagen; and cancer diagnostic companies including Genomic Health, GRAIL and Illumina. The core members of our scientific and leadership team include:

 

   

Dr. Rick Klausner.     We were founded in 2018 by Dr. Rick Klausner, former Director of the NCI, co-founder of Juno and GRAIL and whose lab in the 1980s isolated the critical components of the TCR that enabled the creation of CAR T cells. Dr. Klausner is our Executive Chairman. He is well known for his work in cell and molecular biology, immunology and human genetics, and has been the author of more than 300 scientific articles and several books, in addition to receiving numerous awards, honorary degrees and other honors. He oversaw the writing of The National Science Education Standards, the first such standards for U.S. Science

 

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Education, and served as Liaison to the White House Office of Science & Technology Policy. He is a member of the National Academy of Sciences, the Institute of Medicine and the American Academy of Arts and Sciences.

 

   

Liz Homans.     Our CEO, Ms. Homans, brings over 30 years of strategy, product development and commercialization experience. She spent over a decade at Genentech in multiple divisions including global product development, regulatory operations and U.S. sales and marketing. She spent most of her Genentech career leading large complex oncology development programs from Phase 2 through completion of pivotal trials submission, approval and launch. She is also an experienced commercial leader having led the U.S. Xolair franchise through two years of double-digit growth. She completed her tenure at Genentech by managing the U.S. HER2+ breast cancer franchise. Ms. Homans also led global regulatory operations for Roche. Prior to Genentech she spent four years at Jazz Pharmaceuticals where she built the project leadership and portfolio strategy team, and she also has just under a decade of business strategy consulting experience.

 

   

Dr. Nick Restifo.     Prior to joining Lyell as our Executive Vice President of Research, Dr. Restifo spent 31 years at the NCI with a sole focus on the development of immunotherapeutic treatments for patients with cancer. His contributions to the field include the molecular definition of the qualities of highly effective antitumor T cells; identification of the gene expression within tumors that is required for successful immunotherapy; and understanding the impact of host factors in cancer immunotherapy. His basic and clinical findings of how immune cells can destroy tumors have become mainstays of cell-based immunotherapies being used worldwide, documented in more than 340 publications and numerous book chapters on cancer immunotherapy.

 

   

Dr. Stan Riddell.     Dr. Riddell is a Founder of Lyell and Head of our R&D Executive Committee. He is also a Professor, Program in Immunology and the Immunotherapy Integrated Research Center at the Fred Hutchinson Cancer Research, Professor of Medicine at the University of Washington, Distinguished Affiliate Professor at the Technical University of Munich, and a cofounder of Juno Therapeutics. Dr. Riddell has designed multiple clinical trials of adoptive T cell therapy using unmodified and genetically modified T cells including the first trial of CD19 CAR modified T cells of defined subset composition, which formed the foundation for Liso-Cel, which is FDA approved for treatment of diffuse large B cell lymphoma. He has more than 225 publications and his research has contributed to understanding the role of human T cell subsets in protective immunity to pathogens and tumors.

 

   

Dr. Crystal Mackall.     Dr. Mackall, a Founder of Lyell, is the Ernest and Amelia Gallo Family Professor of Pediatrics and Medicine at Stanford University. She serves as Founding Director of the Stanford Center for Cancer Cell Therapy, Associate Director of Stanford Cancer Institute, Leader of the Cancer Immunology and Immunotherapy Program and Director of the Parker Institute for Cancer Immunotherapy at Stanford. During a 27-year tenure culminating as Chief of the Pediatric Oncology Branch, NCI, and now at Stanford, she has led an internationally recognized translational research program focused on immune-oncology.

Our Strategy

Our goal is to utilize our proprietary technology platforms to develop curative ACT for patients with solid tumors. Key components of our business strategy to achieve this goal include:

 

   

Leverage our two proprietary, cell reprogramming technology platforms to fundamentally improve T cell efficacy and eradicate solid tumors.     We seek to produce T cell therapies that eradicate solid tumors by addressing the major barriers to ACT efficacy, including overcoming exhaustion of T cells, establishing durable stemness and targeting cancer cells safely

 

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and with high specificity. We are advancing two primary technology platforms for reprogramming T cells to be effective in eradicating tumors: Gen-R and Epi-R.

 

   

Rapidly advance our deep multi-modality pipeline of product candidates.     Our proprietary technology platforms are designed to be applied in a target and modality agnostic manner to CAR, TIL and TCR cell therapies. We believe our autologous T cell therapies will generate improved, durable clinical outcomes that are potentially curative for patients with solid tumors. We expect four IND submissions by the end of 2022 from our multi-modality product pipeline.

 

   

Continually innovate to develop and advance disruptive, next generation platform technologies for cell-based therapy.    We are committed to continuing to discover, develop and advance disruptive technologies that have the potential to revolutionize ACT and its promise to cure patients with solid tumors. For example, we believe our T cell rejuvenation platform technology may represent the next frontier of epigenetic reprogramming for cell-based therapy.

 

   

Establish proprietary state of the art manufacturing infrastructure and capabilities to control all aspects of cell product preparations.     We have and will continue to invest in manufacturing to mitigate the risks the field has seen, including challenges in managing production, supply chain, patient specimen chain of custody and quality control. Controlling manufacturing also enables us to protect proprietary aspects of Gen-R and Epi-R, and rapidly incorporate new innovations. We expect our multi-product manufacturing facility, which can produce plasmid, lentivirus and cells, to be GMP-qualified by             .

 

   

Implement digital technologies and cloud solutions to accelerate and enhance our science and operations.     High-performance cloud computing, scalable cloud storage, robotic and artificial intelligence, coupled with our collaboration with Amazon Web Services (AWS), enable real time monitoring of our manufacturing process and deep insights from our research, manufacturing and future clinical development efforts. This approach is being leveraged to inform our next generation cell therapies.

 

   

Aggressively generate, secure and defend intellectual property on our differentiated technology platforms and product candidates.     We have developed and secured intellectual property, including know-how, through our internal research efforts, licensing agreements and collaborations. We rigorously analyze, file and protect our intellectual property.

Background

The Third Wave of Medicine: Cells as Therapeutics

We are at the beginning of the third wave of modern therapeutic innovation where researchers are exploring approaches to harness the power of living immune cells to treat disease. The first wave of therapeutic innovation started with the mastery of small molecule chemistry which created the pharmaceutical industry. The second wave of modern medicine began in the 1980s with the birth of biotechnology and was based on the ability to master the design and production of protein-based macromolecules.

With some notable exceptions, the first and second wave approaches have not been able to cure patients with late stage, metastatic cancer. We believe the third wave of innovation, one utilizing living immune cells, has the potential to deliver the promise of curative therapies for cancer patients with late-stage solid tumors. The recent development and approvals of T cells engineered with CARs targeting CD19 in B-cell hematologic cancers demonstrated that complete responses could be achieved in a significant percentage of late-stage patients with large treatment-refractory tumor burdens. That said, the promise of cell therapy has not proven to be reliable in solid tumors broadly, which represent over 90% of cancers.

 

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We are pioneering the reprogramming of living cells to become therapeutic agents for solid tumors. We believe the key to the development of cell therapy is the mastery of the identity, fate and function of cells to create living medicines. Our goal is to create curative therapies for solid tumor patients, and we believe the utilization of living immune cells has the potential to deliver, consistently and reliably, on the promise of ACT.

Targeting Cancer Cells: ACT Modalities and Their Limited Efficacy Against Solid Tumors to Date

Most of the activity in ACT for cancer has focused on ways to provide the requisite specificity of the T cells to cancer: identifying appropriate tumor-specific targets, evaluating their frequency on cancers versus healthy tissues, and evaluating the best ways to traffic immune cells to them and attack the cancer. There are three main modalities to achieve target specificity in ACT today: CARs, TCRs, and TILs, and unfortunately, with very few exceptions, they have not meaningfully improved clinical outcomes in patients suffering from solid tumor cancers.

 

   

CARs:     Chimeric antigen receptors are artificial cell surface receptors that are genetically engineered onto T cells and comprise an extracellular binding domain specific to a surface molecule on tumor cells. CARs are linked to an intracellular activation domain that turns the T cells “on” to kill target tumor cells when the antibody portion binds to the tumor cell target.

CAR-based ACT has shown efficacy in some cancers, including durable complete remissions. The greatest clinical benefit has been demonstrated in B cell malignancies where the adoptive transfer of autologous T cells engineered with a CAR targeting CD19 has been shown to induce complete remission in 40 – 90% of patients resulting in the approval of four CD19 CAR T cell therapies. However, CAR T cells have thus far demonstrated limited efficacy in solid tumors. Furthermore, the identification of targets with sufficient differential expression between tumor and normal tissues has limited the broader development of CAR T cell therapies in solid tumors.

 

   

TCRs:     T cell receptors are directed against fragments of intracellular proteins that are presented by the human leukocyte antigen (HLA) complex on the surface of target cells. T cells can be engineered with a cloned TCR that mono-specifically directs the T cell to recognize a neoantigen that arises from the tumor’s mutated proteins or to recognize an aberrant or overexpressed self-protein. TCRs specific for neoantigens have the advantage of being tumor specific, meaning that normal tissues do not express these neoantigens thereby reducing the risk of normal tissue toxicity.

TCR-based ACT has been utilized clinically to treat a limited number of cancers. Although there has been some clinical success in treating cancer patients with TCR-engineered T cell products, most patients infused with these cells do not experience durable, complete responses to therapy.

 

   

TILs:     Tumor infiltrating lymphocytes are T cells which have entered and reside within the tumor. They are polyclonal in nature, i.e. they are able to recognize multiple tumor neoantigens. A TIL-based ACT approach isolates and expands TILs from tumor masses and reinfuses the expanded cells into the patient. The polyclonality of TILs is a major advantage to address the heterogeneity and antigen loss challenges of solid tumors. As with TCRs, the risk of normal tissue toxicity is mitigated because the targets for these T cells are directed against neoantigens which arise from the accumulation of mutations in genes unique to the cancer.

While a handful of clinical trials, primarily academic, have demonstrated TILs may generate durable responses in certain tumor types such as melanoma, they have shown limited efficacy in patients with other prevalent solid tumor cancers. Regardless, most patients treated with TIL therapy do not respond to treatment, and most patients who do respond will eventually relapse.

 

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Barriers to ACT Efficacy in Solid Tumors

T Cell Exhaustion

T cell exhaustion is a state of cell differentiation characterized by impairment of effector function, elevated expression of inhibitory receptors such as PD-1 (also an activation marker), LAG3, TIM-3 and TIGIT. T cells that recognize cancer cells or that respond to chronic infections such as those caused by human immunodeficiency virus and hepatitis viruses in humans and certain strains of lymphocytic choriomeningitis virus in mice frequently enter this state of exhaustion. Because T cell exhaustion is observed in tumor-specific T cells in most solid tumors, we believe this is a primary mechanism preventing T cells from eliminating cancer cells and presents a barrier for the effectiveness of ACT in solid tumors. Solid tumors have a more organized, immunosuppressive TME than hematologic cancers, which when combined with chronic antigen stimulation, drives tumor-reactive T cells to lose function and renders them incapable of tumor destruction. Animal model and clinical data demonstrate that adoptively transferring tumor-specific T cells, including CAR T cells, to treat solid tumors can result in the development of characteristic features of exhaustion in transferred T cells, including upregulation of inhibitory receptors, loss of effector function and the inability to proliferate, persist and eliminate the tumor.

It is now well established that CAR T cells can be effective in hematologic tumors, including ALL, NHL and MM. In a revealing clinical experiment performed by Fred Hutch in collaboration with our founder, Dr. Riddell, it was demonstrated that CAR T cells specific for ROR1 expressed on both solid tumors (NSCLC, TNBC) and a hematologic tumor, chronic lymphocytic leukemia (CLL), exhaust after administration to patients with these solid tumors but remain functional after administration to patients with CLL. Data from this clinical experiment with ROR1 CAR T cells in NSCLC, TNBC and CLL were reported. This experiment found that in two refractory CLL patients, the ROR1 positive tumor cells were eliminated, including one complete response. The elimination of ROR1 positive tumor cells was associated with the expansion of CAR T cells in the blood and accumulation of CAR T cells in the bone marrow. There was limited upregulation of inhibitory receptors associated with exhaustion on the CAR T cells expanding in the patient compared to the infusion product in the CLL patients. On the other hand, in the solid tumor patients, ROR1 CAR T cells only expanded in some patients. Isolation of these expanded T cells from the blood, showed that they had upregulated multiple inhibitory receptors, including PD-1, LAG3, TIM-3 and TIGIT, and lost the ability to produce cytokines such as IFNg, TNFa and GM-CSF upon restimulation ex vivo compared with CAR T cells in the infusion product and that they exhibited a transcriptional profile consistent with exhausted T cells. These findings are consistent with the development of T cell exhaustion, and antitumor activity was limited (one partial remission in 14 treated patients). At the CAR T cell doses administered, no toxicity to normal tissues was observed in patients with solid tumors or CLL (despite the high levels of active circulating ROR1 CAR T cells) in this experiment.

 

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Figure 1: The same ROR1 CAR T cells exhaust in solid tumor patients but not in CLL patients. In both CLL and NSCLC/TNBC patients the CD4+ and CD8+ CAR T cells expand. The exhaustion markers TIGIT and LAG3 are greatly increased only in the solid tumor patients, suggest demonstrated loss of function of these exhausted cells.

 

LOGO

These findings indicated that whereas in a hematologic tumor CAR T cells differentiate along an effector pathway capable of eradicating cancer cells, in solid tumors the same CAR T cells differentiate along a distinct pathway leading to exhaustion, loss of function and lack of antitumor efficacy. By clinically testing the same CAR T cell, we conclude that the nature of the tumor (solid versus hematologic) is a major determinant of the fate of ACT T cells.

Figure 2: In hematologic tumors, CAR T cells differentiate along the upper path towards functional effector cells, whereas in solid tumors, CAR T cells differentiate down the lower path into an exhausted state.

 

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Lack of Stemness

Patients with solid tumors can experience profound clinical responses to immunotherapy, albeit in a minority of cases. ACT and immune checkpoint blockade (ICB) both depend on the activities of T

 

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cells that react with neoantigens expressed by tumors. Until recently, the characteristics of clinically successful neoantigen-reactive T cells were unclear. However, researchers have recently identified T cell stemness – especially as driven by the hallmark transcription factor TCF7 – as a meaningful correlate of successful cancer immunotherapy in both ICB and ACT settings. Dr. Hacohen et. al. at the Broad Institute have correlated the presence of CD8+ T cells expressing TCF7 predicted positive clinical outcomes to ICB. More recently, a study conducted by Drs. Steven Rosenberg and Sri Krishna at the NCI concluded that TIL-ACT responders exhibited a population of stem-like TILs positive for TCF7 in the infusion product. These data and others suggest that stem-like T cells capable of self-renewal, expansion and persistence are required for profound antitumor responses in vivo. Furthermore, they indicate an “active ingredient”: a component of the cell preparation that is responsible for the activity but only present in some preparations.

These clinical findings are consistent with our view of T cell development. Stem-like T cells are capable of self-renewal, expansion, persistence and superior antitumor response. These stem-like T cells also are capable of differentiation into effector states that are short-lived but required to kill cancer cells. However, effective, curative ACT must deliver a population of T cells with durable stemness, capable of continual self-renewal – generating more of themselves – while also generating progeny cells that can differentiate to polyfunctional effector cells.

Therefore, we seek to go beyond the clinical correlates of highly effective T cells to intentionally create cells with durable stemness, meaning that the living T cells have a quality which allows them to “durably” self-renew in the face of continued persistent signals from the tumor driving activation, proliferation and differentiation, and continue to do so in vivo until the cancer is eradicated. What durable stemness enables is that even with these persistent signals, the T cells do not lose their stem-like properties. We believe that a major barrier to effective solid tumor ACT is that most cell preparations lack this level of stemness. It is durable stemness which we believe will be required to address the burden of cancer in patients with solid tumors, and we aim to reliably and intentionally achieve durable stemness with our Epi-R technology.

Our Technology Platforms

We have developed two technology platforms to address two major barriers to effective solid tumor ACT. Gen-R overcomes loss of T cell function attributable to an exhausted state, and Epi-R creates T cell populations with properties of durable stemness, while also maintaining polyclonality, an advantage of TIL ACT.

 

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Gen-R for Overcoming T Cell Exhaustion

T cell exhaustion is an important mechanism of ACT failure, illustrated by the inability of CAR T cells to treat solid tumors, as opposed to hematologic tumors. T cell exhaustion results from transcriptional and epigenetic changes that occur as T cells differentiate into a dysfunctional state. A strategy to prevent T cells from becoming exhausted would be ideal for improving the effectiveness of ACT against solid tumors. Our scientific co-founder Dr. Mackall identified such a strategy to utilize ex vivo genetic reprogramming to overcome the problem of T cell exhaustion.

Dr. Mackall demonstrated that genetically modifying T cells to overexpress the c-JUN protein prevented them from losing function. c-JUN combines with another protein, FOS, to form an AP1 protein complex. This protein complex works in cooperation with NFAT to direct the transcription of genes required for T cell effector function. Overexpression of c-JUN in CAR T cells restores their antitumor activity in preclinical solid tumor models where the same CAR T cells that do not overexpress c-JUN exhaust and fail to eliminate the tumor. We have further advanced the optimization, construct design, models and data related to Dr. Mackall’s work, and as applied in our product candidates, we term the optimized overexpression of c-JUN our Gen-R technology.

The discovery of Gen-R came from the realization that chronic stimulation of a T cell by an antigen (the T cell is always turned “on”) combined with an immunosuppressive solid tumor TME likely promotes the development of T cell exhaustion. Dr. Mackall developed a GD2-targeted CAR T cell that is always turned on and quickly develops exhaustion. This model system drove the CAR T cells to have the hallmark phenotypic, functional, transcriptomic and epigenetic abnormalities described in cancer and chronic viral infections where T cells become exhausted. Compared to normal CD19-targeted CAR T cells that are not always “on,” the GD2 CAR T cells demonstrated elevated expression of cell surface exhaustion-associated markers such as PD-1, TIM-3, LAG3 and CD39 (Panel A in Figure 3), and these T cells had decreased function as measured by secretion of IL-2 compared with T cells expressing the CD19 CAR (Panel B in Figure 3).

Figure 3: The GD2 CAR T cell is a model for exhaustion. These T cells exhibit elevated expression of cell surface exhaustion-associated markers, including PD-1, TIM-3, LAG3 and CD39 (left). When compared to CD19 CAR T cells, which are not exhausted, the GD2 CAR T cells fail to produce IL-2, which is a characteristic of exhausted cells (right).

 

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All T cell differentiation states, including exhaustion, are characterized by distinct chromatin structure (open versus closed). Generally, open chromatin structures allow for transcription factor binding while closed structures inhibit transcription factor binding. To determine if the GD2 model could enable the understanding of the biology of exhaustion, the GD2 and CD19 CAR T cells were examined for their chromatin structure to evaluate which transcription factor binding sites were accessible in the functional versus the exhausted states. The exhausted GD2 CAR T cells had a genome-wide restructuring of chromatin accessibility compared to the CD19 CAR T cells, and the greatest change was the increased availability of binding sites to the AP-1/ bZIP family and IRF4 transcription factors. These transcription factors include JUNB, JUND, BATF, BATF3, FOSL1, FOSL2 and IRF4.

 

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Figure 4: Chromatin structure access of GD2 versus CD19 CAR T cells revealed increased access to AP-1 transcription factor binding sites, represented by red. This illustrated that the binding sites are more accessible to their transcription factors.

 

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It is notable that c-JUN can bind directly to inhibitory bZIP members, potentially limiting its availability for binding to FOS, which is the necessary AP-1 complex for T cell effector function. Dr. Mackall then evaluated the levels of each these transcription factors to see whether there were differences between CD19 and GD2 CAR T cells. What was seen was an increase in the level of several of these proteins including JUNB, BATF3 and IRF4 in GD2 CAR T cells compared to CD19 CAR T cells (Figure 5; Left panel). Furthermore, in the GD2 CAR T cells c-JUN was shown to be complexed with inhibitory factors such as JUNB, IRF4, BATF and BATF3 (Figure 5: Right panel). We believe these data are suggestive of reduced availability of c-JUN to bind to FOS (its activating partner) which is required for T cell activation.

Figure 5: Left panel: inhibitory proteins that associate with c-JUN, including BATF, JUNB and IRF4 are increased in the exhausted GD2 versus CD19 CAR T cells. Right panel: in the exhausted GD2 cells, immunoprecipitation with c-JUN pulled down its inhibitory partners, demonstrating greater association of c-JUN with JUNB, IRF4, BATF and BATF3 in exhausted GD2 CAR T cells.

 

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Dr. Mackall then hypothesized that overexpression of c-JUN in the GD2 CAR T cell, would enable the reconstitution of activating c-JUN/FOS heterodimers and shift the balance to activating versus suppressive protein complexes, and prevent the T cells from becoming exhausted. Indeed, overexpression of c-JUN in the GD2 CAR T cells led to tumor eradication in vivo in preclinical models as compared to the mice treated with GD2 CAR T cells that did not overexpress c-JUN. (Figure 6).

Figure 6: Left scale – in exhausted T cells, there is insufficient c-JUN to bind with FOS, because c-JUN is bound in overexpressed inhibitory complexes. Right scale – overexpression of c-JUN provides sufficient JUN protein to form activating c-JUN/FOS pairs, required for maintaining active T cell function. On the far right, in vivo models demonstrated only GD2 CAR T cells overexpressing c-JUN eradicated GD2+ tumors, the GD2 CAR T cells lacking c-JUN failed to eliminate the tumors.

 

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Dr. Mackall then investigated if the hypothesis would prove generalizable and be effective in solid tumor models where it was observed that the tumors caused the CAR T cells to exhaust. In a highly resistant human solid tumor model of osteogenic sarcoma in NSG mice, c-JUN overexpression augmented the antitumor activity of T cells engineered with a human epidermal growth factor receptor 2 (HER2) CAR whereas the control HER2 CAR T cells that function normally in vitro exhibited features of exhaustion in vivo and were ineffective in eradicating the tumor (Figure 7). Thus, the counter-exhaustion effect of c-JUN resulted in complete tumor eradication in contrast to the absence of efficacy in the mice treated with unmodified CAR T cells which exhausted. Importantly, this model recapitulates what is observed in human solid tumors, which demonstrates that T cells enter the tumors, exhaust and do not accumulate at the tumor site.

 

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Figure 7: HER2 CAR T cells overexpressing c-JUN infiltrated into tumors, demonstrated higher T cell function and cured osteogenic sarcoma tumors in mice.

 

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Dr. Riddell tested the hypothesis in another, even more rigorous solid tumor model of NSCLC. He utilized a mouse model which recapitulates the oncogenic driver mutations and immunosuppressive TME of human NSCLC. It has been difficult if not impossible to treat the tumors in these mice with chemotherapy or immunotherapy and this “model” is in all respects representative of murine NSCLC. This model was further designed so that the tumors express ROR1 and, perhaps not surprisingly proved to be resistant to therapy with ROR1 CAR T cells, just as was observed in treating human NSCLC with ROR1 CAR T cells. In contrast, tumor-bearing mice treated with ROR1 CAR T cells that overexpressed c-JUN demonstrated greater infiltration by the T cells into the tumor, enhanced function of those T cells and tumor regression in 50% of the mice, further confirming the results obtained by Dr. Mackall in HER2 and other cancer models. These results are in contrast to the 100% tumor progression observed in mice treated with ROR1 CAR without overexpression of c-JUN. (Figure 8). Once again, this model illustrated that when T cells enter solid tumors, they exhaust and become ineffective unless the T cells resist exhaustion with Gen-R.

Figure 8: ROR1 CAR T cell overexpressing c-JUN demonstrated efficacy in mice with NSCLC

 

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In summary, Gen-R demonstrated improved CAR T cell function and antitumor efficacy in multiple models of T cell therapy for solid tumors using human and murine T cells. These data show that

 

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preventing exhaustion with Gen-R can result in improved and sustained infiltration of functional T cells at the tumor site and supports the clinical translation of Gen-R for CAR T cell therapy of human solid tumors. We are poised to test Gen-R in our ROR1 (LYL797) and NY-ESO-1 clinical ACT programs in a number of solid tumor indications.

Epi-R: Reprogramming Cells to Create Durable Stemness

Emerging research has made clear that a key requirement of effective cellular immunotherapy is the presence of a population of T cells with specific characteristics of stemness as well as activation of effector functions to produce clinical responses. The frequency of this T cell population correlates with responses to cancer immunotherapy, including TIL ACT and ICB therapy.

Epi-R is our ex vivo epigenetic reprogramming technology designed to generate populations of T cells which have the properties of durable stemness. Durable stemness describes the ability of a population of T cells to maintain the sustained ability to self-renew and proliferate, even after being subjected to demands of activation and proliferation upon encountering target antigens expressed by tumor cells. In other words, we believe that a population of T cells with durable stemness are continually replenished, allowing them to generate all memory and effector T cell differentiation states that are required for meaningful long-term clinical responses.

We believe our scientists have been able to intentionally and reproducibly produce T cell populations with durable stemness using Epi-R. The resulting Epi-R T cell populations have in vitro and preclinical in vivo properties which suggest that they are significantly more potent than those generated by standard approaches to manufacturing T cells for ACT. Standard approaches likely generate ill-defined mixes of cells in various states of differentiation, most of which lack the properties to be effective against solid tumors. To be curative, we believe T cells with durable stemness properties are needed.

Our work has built upon the groundbreaking science of Dr. Restifo spanning over thirty years at the NCI, and then actuated by him and his colleagues at Lyell. We believe that we can reliably produce a population of T cells that have the requisite properties to be effective against tumor cells, that can be characterized by genomic, proteomic and transcriptomic features, and that may ultimately be responsible for clinical effectiveness in ACT. These T cells have enhanced proliferative capacities, as well as ability to engraft, persist and destroy tumor masses. Our ultimate goal is to characterize, identify, optimize and consistently produce these cells through our proprietary Epi-R technology, which comprises a protocol involving proprietary media, and well-defined cell activation and expansion protocols. We expect to develop other versions of the protocol in the future to further advance this technology.

Epi-R triggers metabolic pathways that cause T cells to have properties of durable stemness. The origins of Epi-R came from Dr. Restifo’s work at the NCI, where he demonstrated that T cells grown in media with high concentrations of potassium were more stem-like and functional. These were the first clues that it might be possible to reprogram cells to be more stem-like and functional. In fact, Dr. Restifo and his team were able to demonstrate that cells grown with high potassium in the media were 40-100x more potent in vivo against established tumors compared with controls. They also demonstrated significantly enhanced abilities to infiltrate tumors, with tumor-infiltrating T cells exhibiting enhanced resistance to exhaustion as measured by markers such as TIM3. This work demonstrated that the high potassium resulted in changes in the epigenome of the T cells and that this epigenetic reprogramming was likely responsible for the persistence of functional changes in the T cell population, even after return to standard media or infusion in vivo.

At Lyell, Dr. Restifo and his team have continued the work and have further advanced and optimized these epigenetic reprogramming strategies to produce the Epi-R T cell populations with the

 

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properties we seek, measured both phenotypically and functionally. We have expanded beyond Dr. Restifo’s work at the NCI on hyperkalemia to execute multivariate, high dimensional experiments that improve upon what was previously published to create Epi-R protocols. Most importantly, in addition to elevated potassium, we have extensively reformulated the media, and optimized cytokines, growth factors, activation methods and other components related to cell culture, activation and expansion. These modifications were required to optimize phenotypic and in vitro and in vivo functions of the resulting T cell populations. In addition, we have advanced these research scale efforts and developed clinical scale production capabilities for Epi-R.

Creating Epi-R T cell populations

Epi-R creates populations of cells with phenotypic and in vitro and in vivo functional properties that we believe are needed for effective ACT. In single cell genome-wide RNA-Seq gene expression analysis, unsupervised clustering of single cells similar to each other reveal that Epi-R T cell populations have a distinct transcriptional profile when compared to the T cells found in a Standard Preparation (Figure 9). Standard Preparation, as used throughout this document refers to a typical cell preparation that includes TransAct beads, OpTmizer media and IL-2, IL-7 and IL-15 cytokines.

Figure 9:

Epi-R treatment generated T cells with a unique transcriptional profile. Each dot represents a single cell whose complex gene expression profile has been compressed to two dimensions; the teal population are cells treated with Epi-R and they exhibit a distinct gene expression profile from Standard Preparation, plotted in salmon color. Note that there is minimal intermingling of teal and salmon cell populations. UMAP=Uniform Manifold Approximation and Projection for Dimension Reduction.

 

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The transcriptomic changes are associated with alterations of chromatin structures and the quantitative changes in transcription can be correlated with similar fold-change alterations in gene-specific chromatin accessibility as determined by ATAC-seq (Assay for Transposase-Accessible Chromatin using sequencing). Increased chromatin accessibility can be correlated with increased gene expression; conversely decreased chromatin accessibility can be associated with decreased gene expression. We observed that there was increased chromatin accessibility and gene transcription of stemness-associated genes including TCF7 and KLF2. Conversely, there was decreased accessibility and gene expression of hallmark effector genes such as IFNg and GZMB for effector-function priming. The increases and decreases in chromatin accessibility and gene expression are consistent with observations that Epi-R programs cells for stemness rather than immediate effector function (Figure 10).

Figure 10: Epi-R treatment promoted chromatin accessibility and expression of genes associated with T cell stemness (for example, TCF7 and KLF2) and reduced expression of genes associated with effector differentiation (for example, GZMB and IFNg). The impact of Epi-R treatment on chromatin accessibility (as profiled by ATAC-Seq) and gene expression (as measured by RNA-sequencing) as compared with Standard Preparation was measured. Individual genes with positive x-axis values have increased expression after Epi-R treatment, while genes with negative x-axis values have decreased expression. Genes with positive y-axis values have increased chromatin accessibility after Epi-R treatment compared with Standard Preparation, while genes with negative y-axis values have reduced chromatin accessibility after Epi-R. These changes are in accordance with the T cell properties that we seek.

 

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When we analyzed the gene expression of the Epi-R T cells together as a population, we showed that their epigenetic reprogramming resulted in an enrichment of the Wnt signaling pathway genes which functionalize stemness, as well as effector memory gene expression. This approach results in populations of cells that have the stemness we are looking for and cells that have a strong signature of tissue resident effector memory cells, in contrast to the populations produced by Standard Preparation. As stated above, recent literature supports the presence of such stem-like cells correlating with responsiveness to immune therapies, including ICB and ACT, which noted that patients who respond

 

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to ICB have a unique signature of endogenous TIL. The single cell RNAseq data showed a unique CD8+ gene signature associated with memory, activation and cell survival in patients who respond to ICB. In addition, the literature supports the notion that stem-like CD8+ T cells correlate with efficacy of ACT in human melanoma. Specifically, the expression levels of the genes encoding CD27, KLF2, TCF7, LEF1, IL7R and SELL predict effectiveness of ACT in solid tumors.

The T cell molecular signatures and genes reported in these correlative studies closely resemble the gene signatures seen in our Epi-R T cell populations and are selectively highlighted by red arrows in the volcano plots below. Each volcano plot illustrates the ratio of gene expression of Epi-R T cells versus those expanded in the Standard Preparation, plotted on a log scale which means that the difference in distance between data points are much smaller than if they were plotted on a linear scale. What is illustrated by the fact that all of the genes of interest are on one side of each respective volcano plot, the Epi-R side, showing that the genes of interest are uniformly expressed at greater levels in Epi-R T cells. These similarities suggest that with Epi-R, we are able to intentionally produce cell populations with the qualities predicted to be the “active ingredient” cells in immunotherapy that drive efficacy.

Figure 11: Enhanced expression of T cell stemness and effector memory related genes in Epi-R treated T cells. Gene transcriptional profiling demonstrated that Epi-R T cells had increased expression of genes in the Wnt signaling pathway (a key promoter of T cell stemness, left panel) and of effector memory associated genes (key drivers of antitumor function, right panel). These findings are consistent with the recent literature and our own data indicating that T cell populations of stem-like T cells are responsible for ACT response.

 

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When Epi-R T cells are activated, they secrete cytokines required for tumor reactivity in significantly higher amounts versus Standard Preparation. IFNg and IL-2 cytokine secretion by Epi-R T cells indicate greater effector activity and polyfunctionality, required for antitumor activity (Figure 12).

 

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Figure 12: Epi-R produced T cell populations exhibited greater effector activity and polyfunctionality, as measured by increased production and secretion of cytokines required for effective antitumor activity. T cells were co-cultured with target antigen-expressing tumor cell lines and T cell production of IFNg and IL-2 was measured in co-culture media.

 

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Epi-R T cell populations resist the exhaustion of repetitive signaling which otherwise limits efficacy against solid tumors. We observed that Epi-R T cell populations maintain significantly greater ability to eliminate target tumor cells in vitro after multiple sequential exposures to tumor cells. They appear to “remember” their reprogramming and ability to kill tumor cells. In this experiment, cells were initially reprogrammed and expanded in Epi-R, and then transferred to Standard Preparation for the re-stimulation assay, which was repeated four times with consistent cell numbers. A low number on the y-axis indicates that the tumor cells are being killed. Epi-R T cells continued to kill tumor cells with sustained efficacy while by the third restimulation mock and Standard Preparation cells had exhausted and lost their ability to kill cells.

 

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Figure 13: Epi-R produced T cells with enhanced long-term tumor killing potency. In a sequential restimulation assay, where T cells were repeatedly exposed to new tumors cells in vitro, Epi-R increased the ability of T cells to kill fresh additions of tumor cells over time (the dark blue dots show that tumor cells (the H1975 cell line) were killed even as the control and T cells grown in Standard Preparation conditions lost their ability after the second and third stimulations).

 

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In addition to the sequential restimulation assay described above, which tested for a given population of T cells’ continued ability to kill cancer cells on multiple exposures without controlling the T cell to tumor ratio, we also performed experiments where we serially restimulated T cells by adding new cancer cells while resetting the ratio of T cells to cancer cells to 1:1 at each stimulation. This latter assay tested for each individual T cells’ potency against cancer cells over multiple rounds of exposure. These cells must also resist exhaustion and maintain their stemness in order to be effective. We performed a serial restimulation assay on cloned TCR T cells in Epi-R conditions, and then utilized trajectory analyses in order to illustrate the “durable stemness” of the T cell populations. In our definition of durable stemness, we posit that a T cell population can continue to both re-populate the stem cell population and differentiate to produce effector cells, even after prolonged and repetitive challenges with tumor cells. Based on the changes that we have observed between Epi-R T cells and T cells generated using Standard Preparation, we sought to understand what have become known as ‘cell trajectories.’ We know that T cells transition from one epigenetic state to another in response to stimuli, including recognition of tumor cells. Single cell RNA-Seq can enable the visualization of T cell transition states but to do so we must utilize machine learning algorithms to determine gene expression changes that occur in ‘pseudotime,’ a measure of how much progress an individual cell has made during its differentiation.

Pseudotime cell trajectories revealed an abundance of less-differentiated stem-like CD8+ T cells even after repetitive stimulation with tumor cells under Standard Preparation using T cells previously expanded in Epi-R, whereas the growth of T cells previously expanded in Standard Preparation were predominantly more differentiated. The characteristics of resultant effector cells were also different, with Epi-R T cells generating effector cells resembling highly cytotoxic cells best able to engage in effector function.

 

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Figure 14: To understand the maturational differences in the reactions of T cells to tumor after having been programmed in Epi-R or Standard Preparation. T cells were placed in Standard Preparation and serially re-exposed to tumor cells every 3-4 days (x4) for 14 days (336 hours). We then used machine learning to create unsupervised cell trajectories using cells derived from both Epi-R T cells and T cells expanded in Standard Preparation then plotted the cell trajectories. The resulting Epi-R T cells were less differentiated and more functional than T cells generated from the Standard Preparation.

 

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The greater functional activity of Epi-R T cell populations translated to enhanced activity in in vivo mouse antitumor experiments. The Epi-R T cell populations had superior expansion in vivo mouse models. We measured the number of T cells in the mice at various time points and observed as many as 50-fold more Epi-R T cells in the mice as compared to Standard Preparation T cells. Furthermore, in this experiment, treating mice with established tumors, the Epi-R T cells eradicated tumors in 8 out of 9 mice versus eradication in only 4 out of 10 mice treated with standard T cell preparations after 40 days. It is important to note that these Epi-R T cells were taken out of Epi-R conditions and injected in vivo, and by expanding and killing tumors over time, they are “remembering” their new properties after the in vitro epigenetic reprogramming.

 

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Figure 15: Epi-R T cells had improved expansion in vivo as shown in the left panel and had greatly improved antitumor function in mouse models of cancer, as shown on the right. Epi-R T cells eliminated tumors in 8 out of 9 treated mice (note overlapping red lines in Epi-R tumor killing along the x-axis), compared to 4 out of 10 mice treated with Standard Preparation T cells.

 

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Epi-R and Addressing the Expansion/Quality Paradox

To treat patients, ACT needs to be produced at clinical scale, which means that the cells can be expanded to hundreds of millions of cells in the case of CAR, and billions of cells in the case of TCR and TIL based on current approaches. Typically, the more the cells expand during manufacturing, the worse the properties of the resulting cells, particularly their stem-like phenotype. We refer to this as the Expansion/Quality Paradox, and the ability solve this paradox could greatly improve the quality and reduce the time and expense of manufacturing ACT.

With Epi-R, we believe that we can generate engineered TCR cells to clinical scale with the desired phenotype and function. We show below that we expanded TCR cells up to 18 billion by day 10, which exceeds currently administered clinical doses; in addition, these cells are >94% viable. Furthermore, these cells maintained their stem-like qualities. (Figure 16)

Figure 16: representative data shows that engineered TCRs expanded to the billions and maintained their stemness in Epi-R.

 

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Epi-R applied to TILs

TIL ACT has been shown to be curative in a minority of cases of melanoma and occasionally in other cancers, demonstrating their potential in the treatment of solid tumors. We believe TILs have the potential to be more broadly and reliably effective against many tumor histologies, and that we can address the following requirements for TIL to achieve its potential as highly effective therapy against solid tumors.

 

   

First, the infused TIL cells must have the property of durable stemness and be able to differentiate into effector cells for function, which we believe we achieve with Epi-R and have demonstrated with autologous in vitro experiments.

 

   

Second, TIL must maintain their polyclonality during expansion, and preserve their ability to target a diversity of tumor neoantigens. Current standard TIL expansion causes a significant loss of TCR diversity, leading to skewed preparations with reduced clonotype representation. We have demonstrated that Epi-R can preserve the polyclonality of TIL preparations; for example, Epi-R T cells have ~30x more representation of the top dominant tumor TCRs in an autologous TIL experiment from a colon tumor.

 

   

Third, stem-like and highly diverse TIL must be reliably extracted and expanded from multiple histologies. Specialized skills are required for this; while many have been able to consistently extract and expand TIL from melanoma specimens, other tissue histologies have proven more challenging. Our scientists are highly experienced in this art, and we have successfully extracted and expanded Epi-R TIL from melanoma, colorectal, NSCLC, pancreatic, renal cell, breast, prostate and liver cancers with a 95% success rate. This capability facilitates clinical trial designs that test our TIL product candidates in multiple solid tumor histologies.

 

   

Finally, we must be able to expand TIL cell preparations to clinical scale, while maintaining their stem-like and clonally diverse properties. We have been able to expand, at clinical scale in the lab, TIL cell preparations to 13 billion cells (a clinically relevant dose) while maintaining their stem-like properties.

Epi-R TIL cell preparations reacted to autologous tumors and eradicated them

We performed experiments to evaluate Epi-R expanded TIL recognition of autologous melanoma cancer cells. We took a patient melanoma tumor excision, and both extracted and expanded TIL from that specimen in either Standard Preparation or Epi-R, as well as created a cancer cell line from the cancer cells from the tumor. By doing so, we could evaluate whether the expanded TIL from that tumor recognized and reacted to that patient’s own tumor. We were able to demonstrate that Epi-R TIL exhibited enhanced activation, the response was mediated by activated killer CD8+ cells, and they had significantly enhanced tumor cell killing capacity when compared to Standard Preparation. The higher secretion of IL-2, the critical T cell growth factor, is notable.

 

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Figure 17: Epi-R TIL had enhanced recognition and activity against autologous melanoma tumor cell line. Asterisks denote significant p-values between groups. The red bars in the graph on the left show that Epi-R T cells from TIL secreted increased levels of IFNg and IL-2 cytokines as compared to Standard Preparation after co-culture with autologous melanoma tumor cells, indicating greater activation and cytotoxicity potential. As a control, when TIL alone were measured without the presence of autologous tumor cells, they did not activate and did not secrete the cytokines. In the bar chart on the right, we demonstrate that production of IFNg secretion dropped significantly when target cells were coated with an antibody to HLA Class I, indicating that the tumor cell recognition was mediated by CD8+ T cells.

 

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These cells were also shown to be more effective at tumor cell killing. In the graph below on the left, we show that Epi-R TIL T cells killed autologous tumor cells at approximately a 50% rate, whereas those TIL grown in Standard Preparation only killed at approximately a 20% rate. When we then performed an experiment to titrate different levels of Epi-R effector T cells against tumor cells, we showed, on the right graph below, that a 4:1 effector T cell to tumor cell ratio resulted in complete tumor eradication.

 

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Figure 18: Epi-R TIL had improved ability to kill autologous tumor cells. Standard and Epi-R TIL were co-cultured with autologous melanoma tumor cells and their ability to kill tumor was measured after 24 hours (left panel). Altering the ratio of TIL:tumor cells (E/T ratio) can impact TIL ability to kill tumor. Epi-R TIL exhibited increased tumor killing at all E/T ratios, and at a 4:1 ratio Epi-R TIL successfully killed all tumor cells.

 

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Epi-R and retention of polyclonality

Epi-R has also demonstrated the ability to preserve the polyclonality of TIL preparations, one of the key advantages of this ACT modality. The figure below depicts a conceptual representation of what happens during typical TIL expansion in standard preparations: the expansion protocols result in loss of tumor-specific clones and significantly reduces the polyclonality of the cell preparations. We have shown with Epi-R that we can maintain the clonal diversity in TIL preparations with respect to the original repertoire of the TIL when first extracted out of the tumor.

 

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Figure 19: Standard TIL expansion preparations result in progressive loss of T cell polyclonality, resulting in reduced ability to recognize and respond to many tumor antigens. Epi-R preserves TIL polyclonality, increasing the ability of cell products to recognize and destroy tumor cells.

 

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Quantitatively, we can measure polyclonality by the Simpson Diversity Index (or, in our use, the Simpson Clonality Index), shown below on the left (Figure 20). The Simpson Clonality Index is a quantitative tool that reflects diversity within a dataset; a low number represents high diversity, while a high number represents low diversity. An index value of 1 would represent a monoclonal population. The Simpson Clonality Index of TIL in the tumor is very low, demonstrating high clonal diversity of the original TILs. In standard TIL preparations, the majority of clones giving rise to the desired clonal diversity are lost upon stimulation and expansion as shown by the high Simpson Clonality Index. In contrast, most of the original tumor clonal diversity is maintained in TIL expanded with Epi-R, as shown with a low index score.

It is known that T cells migrating through tissues experience arrested migration upon recognition of their target tumor antigen, resulting in their activation and expansion, which is followed by their exhaustion. We quantified the TCRs from TILs and ranked them by the frequency of the clonotypes found. We compared the frequencies of individual TCRs after expansion in Standard Preparation or Epi-R conditions. On the right in the graph below, we show that Epi-R preserved both dominant and rare TIL clonotypes found amplified in the tumor; 57% of the TCR Vß sequences corresponded to the top 50 TCRs represented in the original TIL. By sharp contrast, only 2% of the TCR clonotypes expanded in the Standard Preparation were represented in the top 50 TCRs found in TIL.

 

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Figure 20: Epi-R TIL exhibited increased T cell polyclonality and retention of original T cell clones. TCR sequencing was performed on Standard Preparation and Epi-R TIL and Simpson Clonality Index (a measure of polyclonality, with high Simpson values indicating low polyclonality) was measured. Epi-R TIL exhibited a low Simpson Clonality Index (left panel) that reflects increased diversity of T cell TCR repertoire. The relative abundance of TCRs that were observed in starting tumor T cell population was compared with standard and Epi-R expanded TILs. Epi-R TILs retained greater proportions of starting TCR repertoire after expansion.

 

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We can further demonstrate that preserved polyclonality of the Epi-R preparations are specific to tumor neoantigens by counting the numbers of productive TCR rearrangements. In one study of TIL from a pancreatic cancer, we modeled predicted KRAS mutant-reactive T cells and evaluated the ability of Standard Preparation versus Epi-R expanded TILs to preserve KRAS mutant reactivity. KRAS is one of the most common and important mutations in human cancer, present in NSCLC, pancreatic, colorectal and other cancers. We observed that only Epi-R expanded TILs had all predicted KRAS mutant reactive clones present, indicating that those TILs preserved a broader TCR repertoire that is more reflective of the clonal diversity of T cells found in tumor; in other words, the more varied clonotypes of the TIL preparations were specific to predicted cancer neoantigens. In contrast, TILs expanded in Standard Preparation led to the loss of the tumor specific TCR clonotypes; in fact, the zeroes in the Standard Preparation column indicate that there are no T cells which can detect these predicted KRAS neoantigens (Figure 21).

 

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Figure 21: Epi-R expanded T cells contained increased proportions of TCRs predicted to recognize hotspot KRAS tumor driver mutations. In contrast, Standard Preparation TILs did not retain these tumor target-reactive TCRs.

 

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Epi-R Summary

Our Epi-R technology allows us to generate T cell therapy products that retain increased characteristics of stemness that have been clinically linked with effective antitumor immunotherapies. These qualities preserve stemness while also enhancing the functional ability of our cells to recognize and destroy tumor cells, what we term durable stemness. Epi-R fine-tunes the chromatin structure of the T cells which results in a new transcriptional profiles of T cells to yield a novel cell population that is distinct from those produced by standard expansion processes, with increased expression of a distinct population of cells expressing key genes linked with T cell engraftment, expansion, in vivo persistence and function. Trajectory analyses of Epi-R T cell populations demonstrate that both stem-like and effector populations are maintained in the face of persistent activation, proliferation and multiple cycles of tumor killing, supporting a durable ability to self-renew. As predicted, clinical scale production of Epi-R cells show that they maintain all of these properties, thus addressing one of the challenges in ACT product production – how to maintain functionality of T cells during expansion. Our Epi-R T cell populations have increased durable functionality against tumors in vitro and in vivo, with increased ability to eradicate established tumors in realistic animal models of human cancer. Applying Epi-R to TIL expansion, we have been able to generate TIL products that exhibit increased polyclonality and retention of key TCR clonotypes in cells grown to clinically meaningful numbers. Our Epi-R TIL are able to effectively recognize and respond to autologous tumor cell lines by secreting key inflammatory cytokines and displaying increased ability to kill cancer on a per-cell basis. In utilizing Epi-R to create T cells with the qualities associated with clinical antitumor effectiveness, we believe that we have generated an opportunity to eradicate solid cancers.

The Next Frontier: Epigenetic Rejuvenation of T Cells

We believe that Epi-R – the epigenetic reprogramming of T cells to create Epi-R cell populations with durable stemness – holds great potential. However, new science is emerging that provides insight into additional opportunities to capture the potential of T cells enhanced with the required properties to cure cancer. We can think of two cellular parameters as cells develop and differentiate over the life of an organism: cellular identity and age. The decline in function with aging is stereotypical in many cells; it has been well characterized in T cells. Aging of adult stem cells is thought to play a central role in determining the effect of aging on organismal function. Each T cell clonotype can be renewed from a stem cell-like state, but self-renewal, proliferation, function, persistence and antitumor activity are thought to be impacted by aging. We and others have documented the impact of aging on T cell function, which begins to decline after puberty, and at an increasingly accelerated rate after age 65. Morbidity and mortality from cancer also increases with age.

 

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We therefore sought to rejuvenate antitumor T cells. The most transformative examples of cell reprogramming have been demonstrated by Shinya Yamanaka, who proved through his Nobel Prize-winning work the ability to reprogram and dedifferentiate somatic cells into induced pluripotent stem cells utilizing four transcription factors (OCT3/4, SOX2, KLF4 and c-MYC; or OSKM), termed the Yamanaka factors. These factors regulate the developmental signaling network necessary for embryonic cell pluripotency. These iPSCs are remarkable in two ways: they are fully de-differentiated and they are rejuvenated to age zero, the age of cells immediately post-fertilization.

Recently, numerous labs have made a leap in cellular reprogramming, called partial reprogramming. By carefully controlling cell exposure to OSKM, scientists have been able to retain the functionality of cells while avoiding the impacts of aging. Rejuvenation can be measured by the reacquisition of youthful properties like enhanced stem cell proliferation and by newly discovered molecular clocks, which measure the intrinsic cellular epigenetic changes associated with aging. These intrinsic ‘clocks’ can be measured by DNA methylation patterns. We have early data for the first time with T cells illustrating the ability to “turn back” the epigenetic clock in a process called cell rejuvenation, without changing the cell’s identity as would occur in de-differentiation. This cell rejuvenation process utilizes transient expression of OSKM, and/or other reprogramming factors.

Our data illustrates that when we express the reprogramming factors in a T cell population for a prolonged amount of time, T cells lose their identity and start to acquire markers associated with mesenchymal and embryonic stem cells. During this process, cells acquire the expression of stage-specific embryonic antigen-4 (SSEA-4) and begin to attach to the cell culture substrate. We are developing a method to revert the initial changes caused by reprogramming to regenerate T cell identity while reducing the epigenetic age of the cells.

Figure 22: CD8+ T cells were isolated from a normal donor and transiently exposed to reprogramming factors. Transient exposure to reprogramming factors enabled a change of behavior of cells – which included attachment to the cell culture substrate and the expression of SSEA-4. Cells retained expression of T cell lineage markers if the redirection step is started before approximately 9 days; longer exposure to classical iPSC reprogramming resulted in loss of cell identity as measured by the inability to recover hallmark cell identity markers CD8 and CD3.

 

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When the age of these cells were measured with the epigenetic clock, we observed that treating donor cells from individuals aged 21 and 43 (and the epigenetic clock measurement is consistent with

 

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the donor information) with transient expression of reprogramming factors, resulted in rejuvenated cell populations with clock measurements of 9-16 year-olds. These treated cells exhibit markedly enhanced and sustained proliferation in vitro and recognize tumor antigen. They retain their T cell identity and are not transformed; specifically, they are not proliferating uncontrollably as cancer cells do, and they require typical T cell activating signals such as IL-2 and TCR stimulation. Upon such stimulation, they behave as T cells and produce the expected cytokines in response to cancer antigen or antigen-expressing tumor cells.

Figure 23: Partially reprogrammed T cells were rejuvenated, showing marked proliferation while retaining T cell identity and exhibiting enhanced function

 

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We have also performed experiments involving the rejuvenation of TILs. Rejuvenation on TILs extracted from solid tumors shows dramatic improvements in cell growth and increases in the populations of T cells expressing stemness-associated markers such as CD62L, CCR7 and TCF7, which are closely associated with better and prolonged antitumor activity.

 

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Figure 24: Rejuvenation of lung TILs of a 66-year-old patient. When compared to control conditions, cells exposed to reprogramming factors showed enhanced proliferative capacity and expression of cell phenotypes expressing CCR7, CD62L and TCF7, hallmarks of T cell populations with stem-like properties.

 

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We believe T cell rejuvenation has the potential to be the next disruptive technology in cell-based therapy. Rejuvenated cells would be epigenetically younger and have higher proliferative potential and stemness properties. In the setting of tumor treatment using CAR, TCR-transduced, or naturally occurring TILs, T cells may have the ability to engraft and destroy solid tumors long term. Although T cell rejuvenation offers a revolutionary path to new treatments in the area of cancer, we believe that in the longer-term, this technology has potential application in non-oncology indications such as autoimmune and infectious diseases.

Building upon our work with Epi-R cell populations, we expect that the future production for next generation TIL could involve a partial reprogramming step, as illustrated in Figure 25.

 

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Figure 25: potential next generation ACT including cell rejuvenation

 

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Summary: Our Technology Platforms

 

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We are a T cell reprogramming company focused on the goal of curing solid tumors. We are poised to advance four programs to the clinic across multiple modalities, targets and indications with both our Gen-R and Epi-R technology platforms beginning in 2022, and have next generation efforts ongoing in cell rejuvenation.

Our Programs

The application of our platform has generated several promising living cell product candidates across multiple ACT modalities in a wide range of solid tumor settings. We are utilizing our Gen-R and Epi-R technology platforms to develop a multi-modality product pipeline with four IND submissions expected by the end of 2022. Each of our programs provide opportunities to expand into additional

 

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indications beyond the patient populations we are initially targeting. Our product candidates are summarized in the table below:

 

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LYL797: Our CAR T Cell Program Targeting ROR1 in Multiple Solid Tumors

We are applying our Gen-R and Epi-R technology platforms to our lead CAR program, LYL797, which is expected to be an IV administered CAR T cell product candidate targeting ROR1 with a single-chain variable fragment derived from rabbit anti-R12 antibody that recognizes and binds to ROR1 and a proprietary optimized EGFRopt safety switch. We are initially developing LYL797 for the treatment of ROR1+ NSCLC and TNBC. ROR1 expression is associated with poor prognosis and significant subsets of patients with common cancers express ROR1, including TNBC (~60%) and NSCLC (~40%), two of the highest ROR1 expressing indications. If successful, we anticipate expanding into other ROR1+ cancers with a lower incidence of ROR1 expression, including HR+ breast cancer, ovarian cancer and other solid tumors. We expect to submit an IND for LYL797 in the first quarter of 2022.

Rationale for ROR1

We have selected ROR1 as our initial target because it is highly expressed in certain solid tumor types and clinical data has been generated using ROR1 CAR T cells that demonstrate exhaustion and thus serve as a good vehicle to test our Gen-R technology. Data from multiple third-party clinical trials of ROR1 targeted therapies in hematologic and solid tumor cancers suggest that targeting ROR1 at currently evaluated dose levels was well tolerated with no on-target, off-tumor toxicity observed despite ROR1 expression in a number of normal tissues.

Figure 26 below shows pathological immunohistochemistry (IHC) staining of ROR1 in TNBC, NSCLC, ovarian cancer and CLL against control, and the approximate epidemiological frequencies of ROR1 overexpression. This pattern of ROR1 overexpression provided an opportunity to test a ROR1 CAR in both solid and hematological cancers to observe the impact of these different tumors on the T cells.

 

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Figure 26: IHC staining of ROR1

 

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Background on Target Indications

Patients with solid tumors, including TNBC, NSCLC, ovarian cancer or HR+ breast cancer often face a poor prognosis and low rates of long-term survival. Although patients may benefit initially from radiation therapy, chemotherapy, surgery and more advanced alternatives such as ICB, immunotherapies or targeted therapies, most patients eventually relapse. After becoming resistant to initial lines of therapy, patients are limited to palliative care, experimental therapies in clinical trials, or chemotherapy regimens that often highly toxic and largely ineffective. Patients are further challenged by high rates of late-stage diagnosis, when tumors have metastasized. Despite recent advances in therapeutic development, for most patients diagnosed with solid tumors, a significant unmet medical need exists and long-term survival rates remain low.

Triple Negative Breast Cancer

Breast cancer is the second most common cancer in American women. Currently, the average risk for a woman in the United States to develop breast cancer is approximately 13%. The American Cancer Society estimates that about 43,600 women will die from breast cancer in the United States in 2021. Breast cancers that demonstrate the absence of estrogen receptor and progesterone receptor and no overexpression of HER2 are referred to as TNBC. Approximately 10-15% of patients with breast cancer have TNBC and TN status tends to be more common in women younger than age 40, who are African-American, or who have a BRCA1 mutation. In the United States, approximately 135,000 women suffered from TNBC in 2017 and the incidence rate was estimated to be 13.2 per 100,000 women. TNBCs present a high tendency to metastasize and patients are at a higher risk to relapse compared to other molecular types. TNBC differs from other types of invasive breast cancer in that they grow and spread faster, have limited treatment options, and a worse prognosis. Once TNBC has spread to distant parts of the body, the 5-year survival rate is only 11.5%. ROR1 is overexpressed in approximately 57% of patients with TNBC and ROR1 expression is correlated with poorer outcomes.

Non-Small Cell Lung Carcinoma

Lung cancer is the second most common cancer and is the leading cause of cancer mortality worldwide. It is estimated that 135,720 (72,500 men and 63,220 women) deaths from this disease occurred in 2020. NSCLC, defined as any type of epithelial lung cancer other than small-cell lung carcinoma (SCLC), accounts for about 84% of all lung cancers. In 2016, the incidence of NSCLC varied widely, ranging from 3 to 57 per 100,000 in Africa and North America respectively, with ~2 million cases diagnosed globally. For people with localized NSCLC, the overall 5-year survival rate is ~61%. For regional NSCLC, the 5-year survival rate is ~35%. Based on current data, when cancer metastasizes, the 5-year survival rate is 6%. ROR1 is overexpressed in approximately 42% of patients with NSCLC adenocarcinomas.

 

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Ovarian Cancer

Ovarian cancer is one of the most common gynecologic malignancies in women worldwide. Although ovarian cancer accounts for only ~4% of cancers in women worldwide, it is the eighth most common cause of cancer death, resulting in greater than 150,000 deaths per year, or ~4% of all cancer deaths., In the United States, approximately 235,000 women suffered from ovarian cancer in 2017 and the incidence rate was estimated to be 11.2 per 100,000 women. Only 30% of advanced stage ovarian cancer patients survive for five years after initial diagnosis and the majority of cases are detected in later stages. Late stage diagnosis is due in part to the largely asymptomatic nature of early stage disease and a lack of effective screening methods, coupled with the tumor’s inherent aggressive biology. ROR1 is overexpressed in approximately 50% of patients with ovarian cancer.

HR+ Breast Cancer

Breast cancer is categorized into subtypes based on the presence or absence of molecular markers for estrogen or progesterone receptors and HER2. Breast cancers that test positive for estrogen receptors, progesterone receptors, or both are HR+ breast cancers, with most cases testing positive for estrogen receptors. HR+ breast cancers account for the most common molecular subtypes of breast cancer, including Luminal A (HR+/HER2-) and Luminal B (HR+/HER2+), which together represent ~78% of all breast cancers. Luminal A is the most common type of breast cancer, representing ~68% of all breast cancer cases and tends to be slower-growing and less aggressive than other subtypes. In the United States, HR+ breast Cancer has an incidence rate of 100.3 per 100,000 women and it was estimated in 2017 that approximately 1,030,243 and 145,805 women had Luminal A and Luminal B breast cancer, respectively. Although prognosis for early stages is favorable, 5-year survival rates fall significantly in later stages. Once HR+ breast Cancer has spread to distant parts of the body, the 5-year survival rate is only 30.4% and 43.5% for Luminal A and Luminal B breast cancer, respectively. ROR1 is overexpressed in approximately 12% of patients with HR+ breast cancer.

Additional Indications

ROR1 has been reported to be expressed in many other solid tumors beyond breast, lung and ovarian, including prostate, stomach, endometrial and pancreatic, providing multiple opportunities for indication expansion. Many of these indications are unaddressed or under-addressed with currently approved therapeutics; further, patients with ROR1 expression tend to experience poorer outcomes on these treatments and poorer prognosis. These indications represent a significant unmet need and a substantial opportunity.

Preclinical Data

We have conducted a number of preclinical in vitro and in vivo experiments of LYL797 against ROR1+ solid tumors. These studies have demonstrated that LYL797, which incorporates Gen-R and Epi-R, maintains stem-like phenotypes and can resist exhaustion while inhibiting tumor growth in models of tumor cells expressing ROR1.

Gen-R and Epi-R, in combination with ROR1-targeted CAR T cells, have been evaluated preclinically in in vitro and in vivo models. In the studies depicted below, we exposed ROR1 + Gen-R CAR T cells (ROR-1 + Gen-R) and other ROR1 CAR T cells without Gen-R (the Control) to chronic stimulation by repeated exposure to ROR1+ NSCLC tumor cells, with fresh tumor cells introduced every two days. After seven days of chronic stimulation, we assessed cytolytic ability and cytokine release from the T cells. In all donors, the ROR1 + Gen-R T cells demonstrated improved maintenance of cytotoxicity against ROR1+ tumor cells while producing increased levels of cytotoxic cytokines, such as IFNg. This suggests persistence of activity and thus lack of exhaustion in ROR1 + Gen-R versus the Control T cells (Figure 27).

 

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Figure 27: In vitro experiment demonstrated superior ability of ROR1 + Gen-R T cells to resist T cell exhaustion. In this experiment we repeatedly stimulated T cells from three different donors with ROR1+ lung cancer cells (cell lines A549 and H1975). After four rounds of stimulation over seven days, we tracked tumor killing kinetics by measuring reduction of tumor cells over time. Shown here are results comparing ROR1 + Gen-R T cells (Gen-R, in green), to the Control T cells (the Control, in red), and to T cells without a ROR1 CAR (Mock, in black). In both the left and middle columns (against two lung tumor cancer cell lines—A549 and H1795), the green line is below the red and black lines, indicating that more tumor killing occurred with ROR1 + Gen-R T cells. In addition, as shown in the right panel, at 24 hours after the fourth round of stimulation, the ROR1 + Gen-R T cells produced more of the killing-associated cytokines IFNg and IL-2.

 

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In in vivo experiments the ROR1 + Gen-R T cells achieved superior tumor growth inhibition relative to the Control in murine models of ROR1+ lung cancer. Importantly, as shown in the figure below, the Control T cells were administered at a sub-therapeutic dose and did not result in complete tumor eradication, while the ROR1 + Gen-R T cells, when administered intravenously at the same dose, demonstrated near complete inhibition of tumor growth.

 

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Figure 28: In vivo study demonstrated inhibition of tumor using ROR1 + Gen-R T cells. In this study, tumor cells from a human ROR1+ lung cancer cell line were implanted into NSG mice. When tumors reached 100mm3, the mice were intravenously injected with ROR1 + Gen-R T cells (Gen-R, in green), the Control T cells (the Control, in red) or T cells without a ROR1 CAR (Mock, in black). The left panel shows results from tracking tumor growth. The black and red lines, Mock and the Control, go up over time, while the green line at the bottom, ROR1 + Gen-R, is nearly flat. At the end of the study (60 days post T cell injection) all of the mice treated with ROR1 + Gen-R T cells were alive and had no meaningful change in body weight.

 

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Additional in vitro experiments demonstrate synergistic improvement of CAR T cells by implementing Epi-R in addition to Gen-R (LYL797). When repeatedly exposed to ROR1+ NSCLC tumor cells, with fresh tumor cells introduced every three days, LYL797 showed increases in cytotoxicity, proliferation and secretion of cytokines compared to ROR1 + Gen-R, across all donors.

Figure 29: In vitro, application of Epi-R technology resulted in better functional activity of ROR1 + Gen-R T cells. LYL797 T cells (LYL797, in green) and ROR1 + Gen-R T cells (the Control, in red) were repeatedly stimulated every three days with tumor cells from a ROR1+ lung cancer cell line (A549). During the final stimulation, we measured the percent enhancement in tumor cell clearance (cytotoxicity) or the fold increase in proliferation and 24 hour cytokine production of LYL797 T cells compared to ROR1 + Gen-R T cells. Data from four donors is shown. LYL797 T cells showed increases in cytotoxicity, proliferation and secretion of cytokines compared to ROR1 + Gen-R T cells.

 

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Our Planned Phase 1 Trial

We plan to submit an IND for LYL797 to the FDA in the first quarter of 2022. We are planning our Phase 1 clinical trial as a dose escalation and expansion study of LYL797 in approximately 40 patients with relapsed/refractory TNBC or NSCLC who have failed at least two lines of therapy. The primary endpoint of our Phase 1 trial is expected to be the safety and tolerability of LYL797. Additionally, we will investigate whether LYL797 T cells resist exhaustion. Patients will be monitored for cytokine release syndrome (CRS) and immune effector cell-associated neurotoxicity syndrome (ICANS), as well as tissue specific toxicities in ROR1-expressing organs. As a safety measure, we have included our EGFRopt safety switch in our construct. Thus, cetuximab may be used as a safety intervention. Secondary endpoints are clinical activity based on the evaluation of antitumor activity as evaluated by Response Evaluation Criteria in Solid Tumors (RECIST) criteria and characterization of the pharmacokinetic profile of LYL797. We plan to include exploratory biomarkers of T cell stemness and function to explore the impact of Gen-R and Epi-R in this trial. Once a safe dose is identified during dose escalation in TNBC, we plan to enroll a total of 15 patients with TNBC and 15 patients with NSCLC at the recommended Phase 2 dose (RP2D) of LYL797. We expect to submit an IND for LYL797 in the first quarter of 2022.

Figure 30: LYL797 Phase 1 study design

 

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LYL845: Our TIL Program Targeting Multiple Solid Tumor Indications

We are applying our Epi-R technology to develop our product candidate, LYL845, which is expected to be an IV administered autologous TIL therapy in multiple solid tumors. TILs have previously shown clinical benefit in patients with melanoma and other solid tumors with high mutation burdens. Published data from third-party TIL trials show that treating metastatic melanoma patients with TILs results in a 50% or greater response rate, with up to half of those responses complete and durable. TIL therapy has also been shown to result in responses in patients with advanced cervical, lung, breast and gastrointestinal cancers, although response rates in these tumor histologies are much lower than that observed in the melanoma setting. TILs target a variety of tumor antigens, but it is thought that the clinical efficacy of TILs is largely driven by specific recognition of mutated tumor

 

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neoantigens. Further, broad TIL efficacy has been limited by poor enrichment of tumor-reactive T cells, poor quality and growth potential of expanded T cells, and failure to maintain polyclonality of TILs during production. We have designed LYL845 to incorporate our Epi-R technology that has shown promising improvements in enhancing T cell potency, antitumor activity and increased polyclonality of TILs. We expect to submit an IND to test LYL845 in multiple solid tumor indications in the second half of 2022.

Background on Target Indications

We are targeting cervical, pancreatic, non-small cell lung, breast and colorectal cancer as well as melanoma initially, which all have a high unmet need based on the current treatment landscapes. Although patients may benefit initially from radiation therapy, chemotherapy, surgery and more advanced alternatives such as checkpoint therapies, immunotherapies or targeted therapies, most patients with these types of cancers eventually relapse. After becoming resistant to initial lines of therapy, patients are limited to palliative care, experimental therapies in clinical trials, or chemotherapy regimens that often highly toxic and largely ineffective. Overall, despite recent advances in therapeutic development, for most patients diagnosed with solid tumors, a significant unmet medical need exists and long-term survival rates remain low.

Melanoma

Melanoma arises due to genetic mutations in melanocytes, the pigment producing cells, which can be found in the skin, eye, inner ear and leptomeninges, and represents the most aggressive and the deadliest form of skin cancer. Although melanoma accounts for only ~1% of all dermatologic cancers, it is responsible for ~80% of deaths from skin cancer and only ~14% of patients with metastatic melanoma survive for five years. It is estimated that there are over 105,000 new cases of melanoma diagnosed in the United States per year, and over 7,000 deaths per year.

Cervical Cancer

While increased use of Pap tests has improved the death rates from cervical cancer in recent years, it is still a common cancer diagnosed in women in the United States. It is estimated that there are approximately 15,000 new cases of cervical cancer a year, resulting in about 4,000 deaths. Patients diagnosed with metastatic disease generally have significantly poorer prognosis and fewer treatment options. For patients with localized cervical cancer, the overall 5-year survival rate is ~92%. For regional cervical cancer, the 5-year survival rate is ~58%. When the cancer has metastasized, the 5-year survival rate is 17%.

Head and Neck Cancer

Cancers that are known collectively as head and neck cancers usually begin in the squamous cells that line the moist, mucosal surfaces inside the head and neck, otherwise known as squamous cell carcinomas. Cancers of the head and neck are further categorized by the area of the head or neck in which they begin: oral cavity, pharynx, larynx, paranasal sinuses and nasal cavity and salivary glands. Head and neck cancers account for approximately 4% of all cancers in the United States and are more than twice as common among men as they are among women. In 2021, an estimated 67,000 people will develop head and neck cancer. Additionally, it is estimated that nearly 15,000 deaths from head and neck cancer will occur in 2021. Approximately one out of five head and neck cancer cases will be metastatic, with tumors spreading past the squamous cells into deeper layers of tissue, past the epithelium layer into the mucosa. Five-year survival rates for head and neck vary based on the subtype of cancer. For people with oral cavity and pharynx cancer, a common type of head and neck cancer, that is local, the overall 5-year survival rate is 85%. When cancer has metastasized, the 5-year survival rate is 40%. For another prevalent type of head and neck tumors, laryngeal cancer, localized cancers

 

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have a 78% 5-year survival rate. For regional laryngeal cancer, the 5-year survival rate is 45%. When cancer has metastasized, the 5-year survival rate is 34%. Across other head and neck cancers, 5-year survival rates fall in a similar range.

Pancreatic Cancer

Pancreatic cancer is an aggressive form of cancer that develops largely in the exocrine cells of the pancreas. Pancreatic cancer represents roughly 3% of all cancers, but due to poor prognosis associated with pancreatic cancer, it represents 7% of all cancer deaths. It is estimated that there are approximately 60,000 new cases of pancreatic cancer in the United States per year, and 50,000 deaths from this disease a year, making it the fourth leading cause of cancer death. For patients diagnosed with localized pancreatic cancer, the overall 5-year survival rate is ~39%, but 5-year survival rates drop to as low as 3% when patients are diagnosed with metastatic disease. At the time of diagnosis, a majority, or 52%, of pancreatic cancer cases have progressed to metastatic disease.

Non-Small Cell Lung Cancer

Lung cancer is the second most common cancer and is the leading cause of cancer mortality worldwide. It is estimated that 135,720 (72,500 men and 63,220 women) deaths from this disease occurred in 2020. NSCLC accounts for about 84% of all lung cancers. In 2016, the incidence of NSCLC varied widely, ranging from 3 to 57 per 100,000 in Africa and North America respectively, with ~2 million cases diagnosed globally. For people with localized NSCLC, the overall 5-year survival rate is ~61%. For regional NSCLC, the 5-year survival rate is ~35%. Based on current data, when cancer metastasizes, the 5-year survival rate is 6%.

Breast Cancer

Breast cancer is the most common cancer in American women, except for skin cancers. Approximately, 13% of women will be diagnosed with breast cancer at some point during their lifetime, with a current estimated 3.5 million women living with breast cancer in the United States as of 2017. It is estimated that there are approximately 282,000 new cases of breast cancer diagnosed in the United States per year, representing about 15% of all new cancer cases in the United States with a 90% 5-year relative survival. When cancer has metastasized, the 5-year survival rate drops to 6%. Over 40,000 deaths in the United States are expected to occur annually from breast cancer.

Colorectal Cancer

Colorectal cancer is the fourth most common cancer diagnosed in the United States. Most colorectal cancers are a type of tumor called adenocarcinoma, which is cancer of the cells that line the inside tissue of the colon and rectum, but other types of less frequently arising colorectal tumors include neuroendocrine tumor of the gastrointestinal tract, gastrointestinal stromal tumor, small cell carcinoma and lymphoma. It is estimated that there are approximately 100,000 new cases of colon cancer and 45,000 new cases of rectal cancer in the United States per year. Further, it is the second most common cause of cancer deaths in the United States, estimated to cause over 50,000 deaths a year. For patients with localized colorectal cancer, the overall 5-year survival rate is ~90%. For regional colorectal cancer, the 5-year survival rate is ~72%. For patients diagnosed with metastatic disease, the 5-year survival rate is 14%. Approximately 25% of patients have metastatic disease at diagnosis, and about 50% of patients with colorectal cancer will eventually develop metastases. Over 35% of the patients with a new diagnosis of CRC will die within five years.

Our Preclinical Data

We have conducted a number of preclinical in vitro and in vivo studies of LYL845 which suggest TILs enhanced with Epi-R maintain properties of durable stemness, including superior expansion and tumor eradication in both animal studies and autologous experiments, as well as polyclonality.

 

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Our Epi-R T cell populations have demonstrated superior expansion in in vivo mouse models. We measured the number of T cells in the mice at various time points and observed as many as 50-fold more T cells in mice injected with Epi-R T cells, as compared to mice injected with T cells expanded in Standard Preparation. We also observed, after 40 days, tumor eradication in 4 out of 10 mice treated with Epi-R T cells versus eradication in only 1 out of 9 mice treated with Standard Preparation. These observations may not be repeated in clinical trials and the safety of our product candidates is a determination solely within the authority of the FDA and comparable foreign regulators.

Figure 31: Epi-R T cells had improved expansion in vivo as shown in the left panel and had greatly improved antitumor function in mouse models of cancer, as shown on the right. Epi-R T cells eliminated tumors in 8 out of 9 treated mice (note overlapping red lines in Epi-R tumor killing along the x-axis), compared to 4 out of 10 mice treated with Standard Preparation T cells.

 

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In in vitro studies we evaluated Epi-R expanded TIL recognition of autologous melanoma cancer cells. Utilizing a patient melanoma tumor excision, we both extracted and expanded TIL from that specimen in either Standard Preparation or Epi-R, and created a cancer cell line in order to evaluate whether the expanded TIL from that tumor recognize and react to that patient’s own cancer cells. We were able to demonstrate that Epi-R TIL do exhibit enhanced activation, the response is mediated by activated killer CD8+ cells, and they have significantly enhanced tumor cell killing capacity when compared to Standard Preparation. The higher secretion of IL-2, the critical T cell growth factor, is notable.

 

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Figure 32: Epi-R TIL had enhanced recognition and activity against autologous melanoma tumor cell line. Asterisks denote significant p-values between groups. The red bars in the graph on the left show that Epi-R T cells from TIL secreted increased levels of IFNg and IL-2 cytokines as compared to Standard Preparation after co-culture with autologous melanoma tumor cells, indicating greater activation and cytotoxicity potential. As a control, when TIL alone were measured without the presence of autologous tumor cells, they did not activate and did not secrete the cytokines. In the bar chart on the right, we demonstrate that production of IFNg secretion dropped significantly when target cells were coated with an antibody to HLA Class I, indicating that the tumor cell recognition was mediated by CD8+ T cells.

 

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These cells were also shown to be more effective at tumor cell killing. In the graph below on the left, we show that Epi-R TIL T cells killed autologous tumor cells at a rate of approximately 50% whereas those TIL grown in Standard Preparation killed at a rate of approximately 20%. We also observed, in an experiment to titrate different levels of Epi-R TIL T cells against tumor cells, that a 4:1 effector T cell to tumor cell ratio resulted in complete tumor eradication.

 

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Figure 33: Epi-R TIL had improved ability to kill autologous tumor cells. Standard and Epi-R TIL were co-cultured with autologous melanoma tumor cells and their ability to kill tumor was measured after 24 hours (left panel). Altering the ratio of TIL:tumor cells (E/T ratio) can impact TIL ability to kill tumor. Epi-R TIL exhibited increased tumor killing at all E/T ratios, and at a 4:1 ratio Epi-R TIL successfully killed all tumor cells.

 

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Epi-R has also demonstrated the ability to preserve the polyclonality of TIL preparations, one of the key advantages of this ACT modality.

Quantitatively, polyclonality can be measured by the Simpson Clonality index, shown below on the left (Figure 34). The Simpson Clonality Index is a quantitative tool that reflects diversity within a dataset; a low number represents high diversity, while a high number represents low diversity. An index value of 1 would represent a monoclonal population. The Simpson Clonality Index of TIL in the tumor is very low, demonstrating high clonal diversity of the original TILs. In Standard Preparation, the majority of clones giving rise to the desired clonal diversity are lost upon stimulation and expansion as shown by the high Simpson Clonality Index. In contrast, most of the original tumor clonal diversity is maintained in TIL expanded with Epi-R, as shown with a low index score.

It is known that T cells migrating through tissues experience arrested migration upon recognition of their target tumor antigen, resulting in their activation and expansion, which is followed by their exhaustion. We quantified the TCRs from TILs and ranked them by the frequency of the clonotypes found. We compared the frequencies of individual TCRs after expansion in Standard Preparation or Epi-R conditions. On the right in the graph below, we show that Epi-R preserved both dominant and rare TIL clonotypes found amplified in the tumor; 57% of the TCR Vß sequences corresponded to the top 50 TCRs represented in the original TIL. By sharp contrast, only 2% of the TCR clonotypes expanded in Standard Preparation were represented in the top 50 TCRs found in TIL.

Figure 34: Epi-R TIL exhibited increased T cell polyclonality and retention of original T cell clones. TCR sequencing was performed on Standard Preparation and Epi-R TIL and Simpson Clonality Index (a measure of polyclonality, with high Simpson values indicating low polyclonality) was measured. Epi-R TIL exhibited a low Simpson Clonality Index (left panel) that reflects increased diversity of T cell TCR repertoire. The relative abundance of TCRs that were observed in starting tumor T cell population was compared with Standard Preparation and Epi-R expanded TILs. Epi-R TILs retained greater proportions of starting TCR repertoire after expansion.

 

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Our Planned Phase 1 Trial

We plan to submit an IND for LYL845 to the FDA in the second half of 2022. We are planning our Phase 1 clinical trial as a dose escalation and expansion study of LYL845, in                  patients in multiple solid tumor indications. The primary endpoint of our Phase 1 trial is expected to be the safety and tolerability of LYL854 in melanoma and other solid tumor indications. Eventually we hope to expand our development program to pancreatic, head and neck SCC, breast, colorectal and other solid tumors. We plan to monitor patients for CRS and auto-immunity. We plan to monitor clinical efficacy based on antitumor activity as evaluated by RECIST criteria and characterization of the pharmacokinetic profile of LYL845. We expect to submit an IND for LYL845 in the second half of 2022.

NY-ESO-1 TCR: Our Lead Program with GSK

Our collaborator, GSK, is developing an NY-ESO-1 TCR T cell product candidate, NY-ESO-1c259, currently in pivotal development. Our collaboration explores the potential enhancement of that product candidate though the application of our Gen-R and Epi-R platform technologies, with a goal to improve the depth and durability of clinical responses. While we are currently evaluating Gen-R and Epi-R in separate preclinical programs, together these programs could represent a single future product opportunity for GSK utilizing one or both of our platform technologies.

We are responsible for preclinical activities for both programs and, for NY-ESO-1 with Epi-R, we intend to conduct manufacturing and hold the product IND. GSK is responsible for executing the clinical trials and commercialization of the future product. We anticipate that initial clinical trials will be conducted in synovial sarcoma and multiple other solid tumors. Positive results from these trials could support additional combinations and expansions into additional tumor types, including those with lower levels of target antigen, such as NSCLC. We anticipate an IND submission in the first half of 2022.

Rationale for NY-ESO-1

NY-ESO-1 is a known cancer testis antigen target that has been previously validated in clinical trials. It is expressed in a wide range of solid tumors, including at high levels in some indications; however, it has low or no expression in healthy adult tissues. It is expressed in approximately 80% of synovial sarcomas, neuroblastomas and myxoid and round cell liposarcomas, more than 40% of

 

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melanomas and ovarian cancers, and between 20% to 40% of multiple other cancers including bladder, esophageal, hepatocellular, head and neck, ovarian, prostate, myeloma, breast and NSCLC. Patients who could benefit from treatment with NY-ESO-1-targeted therapies are further limited because the NY-ESO-1-antigen is HLA A2-restricted and the therapeutic T cells recognize only certain protein sequences.

Background on Target Indications

We are initially targeting synovial sarcoma, NSCLC and myxoid round cell liposarcoma (MRCLS), which all have a high unmet need based on the current treatment landscapes. Synovial sarcoma and MRCLS, in particular, have limited treatment alternatives, and are largely treated with a combination of surgery and chemotherapy, but with significant rates of metastases and low 5-year survival rates in metastatic cases. While NSCLC has more treatment alternatives, it still has low five-year survival rates and due to its prevalence causes upwards of 130,000 deaths in the United States per year. In addition to the unmet need in these cancers, NY-ESO-1 expression is high in all three, 80+% in MRCLRS and synovial sarcoma as well as up to 25% in NSCLC, further supporting our development plans.

Synovial Sarcoma

Synovial sarcoma is a rare, yet highly malignant tumor occurring in soft tissue and accounts for approximately 5–10% of all soft tissue sarcomas. It is estimated that there are over 13,000 new cases of soft tissue sarcomas diagnosed in the United States per year, and over 5,000 deaths per year. This would translate to approximately 650-1,300 cases of synovial sarcoma per year. Synovial sarcoma is more common in adolescents and young adults than in older individuals, and it typically affects the extremities. Patients often develop metastases, particularly to the lungs, resulting in 10-year survival rates of <50%.

Non-Small Cell Lung Cancer

Lung cancer is the second most common cancer and is the leading cause of cancer mortality worldwide. It is estimated that 135,720 (72,500 men and 63,220 women) deaths from this disease occurred in 2020. NSCLC accounts for about 84% of all lung cancers. In 2016, the incidence of NSCLC varied widely, ranging from 3 to 57 per 100,000 in Africa and North America respectively, with ~2 million cases diagnosed globally. For people with localized NSCLC, the overall 5-year survival rate is ~61%. For regional NSCLC, the 5-year survival rate is ~35%. Based on current data, when cancer metastasizes, the 5-year survival rate is 6%.

Myxoid Round Cell Liposarcoma

MRCLS is a type of rare soft, connective tissue tumor that grows in cells that store fat in the body, typically in the arms and legs. While liposarcomas are rare, MRCLS is one of the most common types of liposarcoma and makes up approximately 30% of all cases, with 2,000 diagnosed occurrences in the United States each year. Other categories of liposarcomas include well-differentiated (~50%) and pleomorphic (10%) liposarcomas. MRCLS is specifically characterized by tumors in the extremities with prevalence in a younger population than other liposarcoma subtypes, as well as high risk of recurrence in other soft tissue sites or bones. One third of MRCLS cases will become metastatic with tumors spreading to unusual bone and soft tissue locations with multifocal synchronous or metachronous spread to fat pad areas in the retroperitoneum, trunk, pericardium and axilla. For people with localized soft tissue tumors, the overall 5-year survival rate is ~93%. When cancer has metastasized, the 5-year survival rate is 41%. Additionally, outcomes for patients with significant (5% or greater) round cell component is associated with a poorer prognosis, 74% 5-year survival rate vs. 92% in low grade myxoid liposarcomas.

 

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Preclinical Data

We have separately tested both platform technologies with GSK’s NY-ESO-1 TCR. We are currently conducting preclinical studies for NY-ESO-1 TCR with Gen-R (NY-ESO-1 + Gen-R) and NY-ESO-1 TCR with Epi-R (NY-ESO-1 + Epi-R), compared to GSK’s baseline NY-ESO-1 TCR (the Control). NY-ESO-1 + Gen-R data is discussed below; data is pending for NY-ESO-1 + Epi-R.

We have conducted a series of in vitro and in vivo experiments that show NY-ESO-1 + Gen-R T cells resisted exhaustion and had increased production of cytokines associated with tumor killing, improved sensitivity to lower levels of NY-ESO-1 surface expression and improved tumor cell killing compared to the Control, both initially and after persistent exposure to NY-ESO-1+ tumor cells. We believe these findings could translate into improved outcomes in the clinical setting.

We exposed NY-ESO-1 + Gen-R T cells to NY-ESO-1+ solid tumor cell lines and measured IFNg and IL-2, cytokines associated with tumor killing. We observed a more than two-fold increase in secretion of those cytokines with NY-ESO-1 + Gen-R compared to the Control in two of three donors. We also exposed T cells to increasing concentrations of NY-ESO-1 on solid tumor cells and showed that NY-ESO-1 + Gen-R were significantly more sensitive than the Control to low levels of NY-ESO-1 (Figure 35).

Figure 35: In vitro experiments showed that NY-ESO-1 + Gen-R had increased antitumor cytokines (left panel) and increased antigen sensitivity (right panel) compared to the Control. In the experiment on the left, T cells were exposed to NY-ESO-1+ tumor cells and IFNg and IL-2 production were measured. The figure shows that NY- ESO- 1 + Gen-R (TCR + Gen-R, green curves) produced higher and increasing amounts of those cytokines compared to the Control (red curves). In the experiment on the right, T cells were exposed to increasing concentrations of NY-ESO-1 peptide presented by T2 cells, where EC50 and EC90 are measures of maximal antigen concentration needed for response. The right panel shows that NY-ESO-1 + Gen-R (green dots) were more sensitive to low levels of NY-ESO-1 compared to the Control (red dots). Mock T cells, without NY-ESO-1 TCR or Gen-R, are shown in the black curves. Results for EC50 were significant, with p values between groups shown.

 

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Additionally, NY-ESO-1 + Gen-R T cells demonstrated a stronger, faster and sustained durability to kill solid tumor cells versus the Control (Figure 36). This result was observed across five donors and two NY-ESO-1+ solid tumor cell lines.

 

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Figure 36: NY-ESO-1 + Gen-R T cells (TCR + Gen-R, green curves) demonstrated superior ability to kill NY-ESO-1+ solid tumor cells compared to the Control. The figure shows T cell killing efficiency against two different NY-ESO-1+ cell lines, measured by tracking kinetics of tumor cell clearance over time. The green curves illustrate the clearance of tumor cells by the NY-ESO-1 + Gen-R; the red curves illustrate the same for the Control. Mock T cells, without NY-ESO-1 TCR or Gen-R, are shown in the black curves. In the right panel, the red curve goes upward over time as the TCR T cells without Gen-R lost their antitumor activity, while the green curve goes downward, showing that NY-ESO-1 + Gen-R T cells maintained their antitumor activity. Experiment performed with five donors; representative donor shown.

 

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To test for T cell exhaustion, we exposed NY-ESO-1 + Gen-R to NY-ESO-1+ solid tumor cells repetitively. After persistent antigen exposure, NY-ESO-1 + Gen-R continued to kill NY-ESO-1+ tumor cells and secrete cytokines associated with tumor killing, while the Control T cells lost this ability (Figure 37). In addition, a significantly lower proportion of NY-ESO-1 + Gen-R expressed markers of exhaustion. These results suggest that NY-ESO-1 + Gen-R T cells resisted exhaustion after persistent antigen exposure compared to the Control.

Figure 37: NY-ESO-1 + Gen-R T cells (TCR + Gen-R, green line) showed enhanced long-term tumor killing activity. In a serial re-stimulation assay, where the T cells were exposed to fresh NY-ESO-1+ tumor cells four times, NY-ESO-1 + Gen-R T cells maintained the ability to kill NY-ESO-1+ tumor cells and to secrete cytokines over time, whereas the Control cells (red line) exhibited signs of exhaustion, as illustrated by loss of killing activity and cytokine secretion. The green curves in the left panel and the green dots in the right panel show that the NY-ESO-1 + Gen-R T cells were able to kill NY-ESO-1+ tumor cells and secrete high amounts of cytokines before (Day 0) and after (Day 14) four rounds of NY-ESO-1 antigen exposure, whereas the Control T cells showed signs of exhaustion, as illustrated by loss of ability to kill and secrete cytokines (red curves and red dots). Mock T cells, without NY-ESO-1 TCR or Gen-R, are shown in the black curves. Significant p values between groups are shown.

 

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Planned Phase 1 Trial

The initial clinical trial for our NY-ESO-1 TCR program, conducted by GSK, is expected to test this product candidate in patients with synovial sarcoma and multiple other solid tumors for tolerability and preliminary efficacy. Positive results from such a trial could support additional combinations and

 

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expansions, including expansion to additional patient populations with lower levels of target antigen, such as NSCLC.

Manufacturing and Digital Infrastructure

We believe it is critically important to own, control and continuously monitor all aspects of the cell therapy manufacturing process in order to mitigate risks the field has seen, including challenges in managing production, supply chain, patient specimen chain of custody and quality control. We made a strategic decision to invest in building our own manufacturing facility to control our supply chain, maximize efficiencies in cell product production time, cost and quality, and have the ability to rapidly incorporate disruptive advancements and new innovations. Controlling manufacturing also enables us to protect proprietary aspects of our Gen-R and Epi-R technology platforms. We view our manufacturing team and capabilities as a significant competitive advantage.

Our LyFE manufacturing center is approximately 73,000 square feet and comprises laboratories, offices and manufacturing suites. LyFE has a flexible and modular design allowing us to produce plasmid, viral vector and T cell product to control and de-risk the sequence and timing of production of the major components of our supply chain related to our product candidates. At full staffing and capacity, we expect to be able to manufacture approximately 500 infusions per year depending on product candidate mix. We believe this capacity is sufficient to support our pipeline programs through pivotal trials and, if approved, early commercialization. We anticipate the facility to be cGMP qualified by the end of 2021.

LyFE is a paperless facility that integrates advanced data and analytics approaches to enable a completely digital manufacturing process. Our adaptive manufacturing capabilities allow us to track every step of the process and instantly manage any deviations or alerts. We believe the ability to capture and analyze data in real time will ultimately lead to more effective and safe cell therapy products for patients. Upon receipt of a patient specimen, the subsequent application of Gen-R and Epi-R is conducted within our integrated manufacturing center to generate reprogrammed T cells to be infused back into the patient. This integrated manufacturing capability, further enhanced with our sophisticated information science and real-time monitoring capabilities, should enable us to improve yield and success rates, which could result in a more favorable cost structure, while at the same time expanding our knowledge base for each product candidate from each manufacturing run.

To support our digital manufacturing capabilities, we worked with AWS. Our LyFE manufacturing center is one of the first cell therapy manufacturing facilities to benefit from AWS’s extensive experience with cloud computing, Internet of Things (IoT) and advanced analytics. Our digital strategy is spearheaded by our Information Sciences team, comprising experts in cloud computing, security, software development, automation, robotics and advanced analytics, including artificial intelligence. Our digital analytics platform is designed to allow us to rapidly and continuously acquire, manage and analyze data to accelerate and enhance our science and operations and inform our next generation cell therapies. The key benefits of our digital manufacturing strategy include:

 

   

Real-time data acquisition: allows for monitoring, alerting, rapid decision making;

 

   

Workflow automation: reduces variability, manual oversight, data entry and calculations;

 

   

Cloud computing: unlimited compute and storage, accelerated innovation, security, compliance;

 

   

Agility: rapidly adapts to changing needs while ensuring compliance; and

 

   

Analytics and insights: enables trending, process optimization, data-driven decision making.

Our Information Sciences infrastructure is built on a “data lake and control tower” approach to managing data arising from our scientific and manufacturing operations. A data lake is a platform which

 

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stores and allows access to integrated data from many sources, eventually to rapidly interconnect research, clinical and manufacturing data sources with patient outcomes. The control tower creates dashboards and real-time business metrics to allow us to understand, prioritize and resolve critical issues as they happen, end-to-end across our processes. Our goal is to learn and maximize the insights from each experiment, patient and manufacturing run, and apply those to continuous learning and process improvements to our product candidates.

Competition

The pharmaceutical industry is highly competitive and dynamic, owing to rapidly advancing technologies. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, government agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing treatments and new treatments that may become available in the future.

We are aware of a number of companies using ex vivo cell therapy approaches to treat solid tumors. Some of these companies may have substantially greater financial and other resources than we have, such as larger research and development staff and well-established marketing and sales forces, or may operate in jurisdictions where lower standards of evidence are required to bring products to market. There are a number of companies developing CAR T cells, TCR T cells or TIL-based immune-oncology therapies for the treatment of solid tumors including Achilles Therapeutics plc, Allogene Inc., BioNTech SE., bluebird bio Inc., Bristol Myers Squibb Co., Gilead Sciences Inc., GlaxoSmithKline Plc., Instil Bio Inc., Iovance Biotherapeutics Inc., Nanjing Legend Biotech and Tmunity Therapeutics Inc. Among companies developing cell therapies for solid tumors, we believe we are substantially differentiated by our technology platforms, knowledge, experience, scientific personnel and robust intellectual property portfolio. We believe the key competitive factors affecting the success of any of our product candidates will include efficacy, safety, accessibility, price and cost of manufacturing.

Collaboration, License and Success Payment Agreements

Fred Hutch License Agreement and Success Payment Agreement

In December 2018, we entered into a license agreement with Fred Hutch that grants us an exclusive, worldwide, sublicensable license under certain patent rights, and a non-exclusive, worldwide, sublicensable license under certain technology, to research, develop, manufacture, improve, and commercialize products and processes covered by such patent rights or incorporating such technology for all fields of use utilizing CARs and/or TCRs. This agreement was amended in June 2019, September 2019, January 2020, and August 2020. We paid to Fred Hutch an upfront payment of $150,000. In connection with the license agreement, we entered into a letter agreement with Fred Hutch pursuant to which we issued to Fred Hutch 1,075,000 shares of our common stock.

We