UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

__________________________

FORM 10-Q

__________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to    

Commission File Number: 001-40502

__________________________

Lyell Immunopharma, Inc.

(Exact Name of Registrant as Specified in its Charter)

__________________________

Delaware	83-1300510
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
201 Haskins Way South San Francisco, California	94080
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 695-0677

__________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	LYEL	The Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 28, 2023, the registrant had 249,609,247 shares of common stock, $0.0001 par value per share, outstanding.

Lyell Immunopharma, Inc.

Table of Contents

		Page
Special Note Regarding Forward-Looking Statements		1
	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68
Signature		69

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, 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 and clinical trials, research and development costs, planned regulatory submissions, regulatory approval and the 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 Quarterly Report on Form 10-Q 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 and timing of our estimates regarding expenses, revenue opportunities, capital requirements and needs for additional financing;

•the scope, progress, results and costs of developing LYL797, LYL845, LYL119 or any other product candidates we may develop, and conducting nonclinical studies and clinical trials, including for LYL797, LYL845 and LYL119;

•the timing and costs involved in obtaining and maintaining regulatory approval of LYL797, LYL845, LYL119 or any other product candidates we may develop, and the timing or likelihood of regulatory filings and approvals, including any expectations regarding seeking special designations for our product candidates for various diseases;

•our plans relating to the commercialization of LYL797, LYL845, LYL119 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, LYL119 or any other product candidates we may develop in each of the diseases we may target;

•our reliance on third parties to conduct nonclinical research activities for LYL797, LYL845, LYL119 or any other product candidates we may develop;

•the characteristics, safety, efficacy and therapeutic effects of LYL797, LYL845, LYL119 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 planned clinical trials of our product candidates, 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, LYL119 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 any existing or future competing product candidates and therapies;

•our plans relating to the further development and manufacturing of LYL797, LYL845, LYL119 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, LYL119 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, LYL119 or any other product candidates we may develop, as well as the pricing and reimbursement of LYL797, LYL845, LYL119 or any other product candidates we may develop, if approved;

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•our continued reliance on third parties to conduct additional clinical trials of LYL797, LYL845, LYL119 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, LYL119 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 inflation, macroeconomic conditions and geopolitical conflicts on our business and operations, including on our manufacturing suppliers, collaborators, contract research organizations (CROs) and employees; and

•our anticipated use of our existing cash, cash equivalents and marketable securities.

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 Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described under “Risk Factors” in Part II, Item 1A, and elsewhere in this Quarterly Report on Form 10-Q. 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 these forward-looking statements. Except as required by applicable law, we undertake no obligation to update or supplement any forward-looking statements publicly, or to update or supplement the reasons that actual results could differ materially from those projected in these forward-looking statements, even if new information becomes available in the future.

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 Quarterly Report on Form 10-Q, 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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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

Lyell Immunopharma, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(unaudited)

	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	109,426	$	123,554
Marketable securities	503,343		516,598
Prepaid expenses and other current assets	11,629		11,143
Total current assets	624,398		651,295
Restricted cash	281		280
Marketable securities, non-current	55,255		70,117
Other investments	34,924		44,924
Property and equipment, net	118,600		123,023
Operating lease right-of-use assets	42,390		43,242
Other non-current assets	4,602		4,680
Total assets	$	880,450	$	937,561
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,733	$	3,917
Accrued liabilities and other current liabilities	22,416		28,755
Success payment liabilities	2,648		4,356
Total current liabilities	30,797		37,028
Operating lease liabilities, non-current	61,826		63,168
Other non-current liabilities	4,001		4,113
Total liabilities	96,624		104,309
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding at March 31, 2023 and December 31, 2022	—		—
Common stock, $0.0001 par value; 500,000 shares authorized at March 31, 2023 and December 31, 2022; 249,609 and 249,567 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	25		25
Additional paid-in capital	1,622,119		1,608,306
Accumulated other comprehensive loss	(3,879)		(7,599)
Accumulated deficit	(834,439)		(767,480)
Total stockholders’ equity	783,826		833,252
Total liabilities and stockholders’ equity	$	880,450	$	937,561

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

3

Lyell Immunopharma, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Revenue(1)	$	65	$	553
Operating expenses:
Research and development	44,630		35,830
General and administrative	19,279		34,421
Other operating income, net	(1,288)		(1,122)
Total operating expenses	62,621		69,129
Loss from operations	(62,556)		(68,576)
Interest income, net	4,497		397
Other income, net	1,100		35
Impairment of other investments	(10,000)		—
Total other (loss) income, net	(4,403)		432
Net loss	(66,959)		(68,144)
Comprehensive loss:
Net unrealized gain (loss) on marketable securities	3,720		(4,977)
Comprehensive loss	$	(63,239)	$	(73,121)
Net loss per common share, basic and diluted	$	(0.27)	$	(0.28)
Weighted-average shares used to compute net loss per common share, basic and diluted	249,591		244,178

(1)    None of the revenue for the three months ended March 31, 2023 was from a related-party. Substantially all of the revenue for the three months ended March 31, 2022 was from a related-party.

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

4

Lyell Immunopharma, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

	Three Months Ended March 31, 2023
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2022	249,567	$	25	$	1,608,306	$	(7,599)	$	(767,480)	$	833,252
Stock-based compensation	—	—		13,882		—		—		13,882
Issuance of common stock in connection with restricted stock units, net of tax	42	—		(69)		—		—		(69)
Other comprehensive income	—	—		—		3,720		—		3,720
Net loss	—	—		—		—		(66,959)		(66,959)
Balance as of March 31, 2023	249,609	$	25	$	1,622,119	$	(3,879)	$	(834,439)	$	783,826

	Three Months Ended March 31, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2021	242,738	$	24	$	1,515,748	$	(1,623)	$	(584,362)	$	929,787
Issuance of common stock upon exercise of stock options	1,710	1		2,554		—		—		2,555
Stock-based compensation	975	—		22,028		—		—		22,028
Other comprehensive loss	—	—		—		(4,977)		—		(4,977)
Net loss	—	—		—		—		(68,144)		(68,144)
Balance as of March 31, 2022	245,423	$	25	$	1,540,330	$	(6,600)	$	(652,506)	$	881,249

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

5

Lyell Immunopharma, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(66,959)	$	(68,144)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	13,882		22,028
Impairment of other investments	10,000		—
Depreciation and amortization expense	5,027		4,187
Net amortization and accretion on marketable securities	(1,850)		475
Change in fair value of success payment liabilities	(1,708)		(3,851)
Non-cash lease income	(293)		(214)
Loss on property and equipment disposals	—		84
Change in fair value of equity warrant	—		(28)
Changes in operating assets and liabilities:
Prepaid expenses, other current assets and other assets	(408)		(397)
Accounts payable	2,069		2,937
Accrued liabilities and other current liabilities	(5,860)		(6,393)
Deferred revenue	—		(558)
Operating lease liabilities, non-current	—		2,135
Other non-current liabilities	(112)		(113)
Net cash used in operating activities	(46,212)		(47,852)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(1,533)		(9,733)
Purchases of marketable securities	(108,560)		(96,196)
Sales and maturities of marketable securities	142,247		79,807
Net cash provided by (used in) investing activities	32,154		(26,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Taxes paid related to net share settlement of equity awards	(69)		—
Proceeds from exercise of stock options	—		2,555
Net cash (used in) provided by financing activities	(69)		2,555
Net decrease in cash, cash equivalents and restricted cash	(14,127)		(71,419)
Cash, cash equivalents and restricted cash at beginning of period	123,834		294,294
Cash, cash equivalents and restricted cash at end of period	$	109,707	$	222,875
Represented by:
Cash and cash equivalents	$	109,426	$	222,596
Restricted cash	281		279
Total	$	109,707	$	222,875
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for amounts included in the measurement of lease liabilities	$	2,406	$	2,672
Cash received for amounts related to tenant improvement allowances	$	—	$	2,042
Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities	$	395	$	107

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

6

Lyell Immunopharma, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization

Lyell Immunopharma, Inc. (the “Company”) was incorporated in Delaware in June 2018. The Company is a clinical-stage cell therapy company advancing a pipeline of product candidates for patients with solid tumors utilizing its proprietary ex vivo genetic and epigenetic T‑cell reprogramming technologies. The Company’s primary activities since incorporation have been to develop T‑cell therapies, perform research and development, enter into strategic collaboration and license arrangements, build manufacturing capabilities, enable manufacturing activities in support of its product candidate development efforts, acquire technology, organize and staff the Company, conduct business planning, establish its intellectual property portfolio, raise capital and provide general and administrative support for these activities.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

The Condensed Consolidated Balance Sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date. Certain information and footnote disclosures typically included in the Company’s audited consolidated financial statements have been condensed or omitted. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented, but are not necessarily indicative of results to be expected for any future annual or interim period.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Liquidity and Management’s Plan

The Company discovers and develops product candidates that involve experimental technologies. The product candidates may require several years and substantial expenditures to complete and ultimately may be unsuccessful. The Company plans to finance operations with available cash resources or from the issuance of equity or debt securities. The Company believes that its available cash, cash equivalents and marketable securities as of March 31, 2023 will be adequate to fund its operations at least through the next 12 months from the date these unaudited Condensed Consolidated Financial Statements are issued.

Use of Estimates

The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect reported amounts and related disclosures. Specific accounts that require management estimates include, but are not limited to, stock-based compensation, valuation of success payments, valuation of other investments, revenue recognition and accrued expenses. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Concentrations of Credit Risk and Off-balance Sheet Risk

The Company maintains its cash, cash equivalents and restricted cash with high quality, accredited financial institutions. These amounts, at times, may exceed federally insured limits. The Company also makes short-term investments in money market funds, U.S. Treasury securities, U.S. government agency securities and corporate debt securities, which can be subject to certain credit risk. However, the Company mitigates the risks by investing in high-grade instruments, limiting exposure to any one issuer or type of investment and monitoring the ongoing creditworthiness of the financial institutions and issuers. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to significant risk on these funds. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

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Significant Accounting Policies

There have been no material changes to the significant accounting policies from the Annual Report on Form 10-K for the year ended December 31, 2022.

Recently Adopted Accounting Pronouncements

None.

3. License, Collaboration and Success Payment Agreements

Fred Hutch

License Agreement - In 2018, the Company entered into a license agreement with Fred Hutchinson Cancer Center (“Fred Hutch”) that grants the Company a worldwide, sublicensable license under certain patent rights (exclusive) and certain technology (non-exclusive) to research, develop and commercialize products and processes for all fields of use utilizing chimeric antigen receptors and/or T-cell receptors, subject to certain exceptions.

The Company is also required to pay Fred Hutch annual license maintenance payments of $50,000 on the second anniversary of the effective date, and each anniversary of the effective date thereafter until the first commercial sale of a licensed product.

Collaboration - In 2018, the Company entered into a research and collaboration agreement with Fred Hutch (“Fred Hutch Collaboration Agreement”) focused on research and development of cancer immunotherapy products. The Company funded aggregate research performed by Fred Hutch of $12.0 million under the Fred Hutch Collaboration Agreement, with the research conducted in accordance with a research plan and budget approved by the parties. The Fred Hutch Collaboration Agreement has a six-year term. The Company incurred $0.3 million and $0.5 million in expense in connection with the Fred Hutch Collaboration Agreement for the three months ended March 31, 2023 and 2022, respectively.

Success Payments - In 2018, the Company granted Fred Hutch rights to certain success payments, pursuant to the terms of the Fred Hutch Collaboration Agreement. The potential payments for the Fred Hutch success payments are based on multiples of increased value ranging from 10x to 50x based on a comparison of the per share fair market value of the Company’s common stock relative to the original $1.83 per share issuance price of the Company’s Series A convertible preferred stock, which converted into an equal number of shares of the Company’s common stock in connection with the Company’s initial public offering (“IPO”). The aggregate success payments to Fred Hutch are not to exceed $200.0 million, which would only occur upon a 50 times increase in value. Each threshold is associated with a success payment, ascending from $10.0 million at $18.29 per share to $200.0 million at $91.44 per share, payable if such threshold is reached during the measurement period. Any previous success payments made are credited against the success payment owed as of any valuation date, such that Fred Hutch does not receive multiple success payments in connection with the same threshold. The term of the success payment agreement ends on the earlier to occur of (i) the nine-year anniversary of the date of the agreement and (ii) a change in control transaction.

The following table summarizes the aggregate potential success payments, which are payable to Fred Hutch in cash or cash equivalents, or at the Company’s discretion, publicly-tradeable shares of the Company’s common stock:

Multiple of initial equity value at issuance	10x		20x		30x		40x		50x
Per share common stock price required for payment	$	18.29	$	36.58	$	54.86	$	73.15	$	91.44
Aggregate success payment(s) (in millions)	$	10	$	40	$	90	$	140	$	200

The success payments will be owed if the per share fair value of the Company’s common stock on the contractually specified valuation measurement dates during the term of the success payment agreement equals or exceeds the above outlined multiples. The valuation measurement dates are triggered by the following events: the one-year anniversary of the Company’s IPO and each two-year anniversary of the Company’s IPO thereafter, the closing of a change in control transaction and the last day of the term of the success payment agreement, unless the term has ended due to the closing of a change of control transaction. As of March 31, 2023, no success payments have been incurred as the per share fair value of the Company’s common stock was below the price required for payment.

The success payment liability is estimated at fair value at inception and at each subsequent reporting period and the associated expense was accreted over the service period of the success payment obligations as research and development expense through 2022. As of December 31, 2022, the Company’s associated success payment liability was fully accreted to fair value as Fred Hutch had provided the requisite service obligation to earn the potential success payment consideration under the continued collaboration. For the three months ended March 31, 2023 and future periods,

8

the change in the Fred Hutch success payment liability fair value is recognized in other income, net, as the requisite service obligation had been met. The success payment liability was $1.4 million and $2.5 million as of March 31, 2023 and December 31, 2022, respectively. With respect to the Fred Hutch Collaboration Agreement success payment obligations, the Company recognized gains of $1.1 million and $2.8 million for the three months ended March 31, 2023 and 2022, respectively.

Stanford

License Agreement - In 2019, the Company entered into a license agreement with The Board of Trustees of the Leland Stanford Junior University (“Stanford”) to license specified patent rights. The Company is also required to pay Stanford annual license maintenance payments of $50,000 on the second anniversary of the effective date, and each anniversary of the effective date thereafter until the date of the first commercial sale of a licensed product.

Milestone payments to Stanford of up to a maximum of $3.7 million per target are payable upon achievement of certain specified clinical and regulatory milestones. The Company is also obligated to pay Stanford $2.5 million collectively for all licensed products upon the achievement of a certain commercial milestone. Additionally, low single‑digit tiered royalties based on annual net sales of the licensed products are payable to Stanford.

Collaboration Agreement - In October 2020, the Company entered into a research and collaboration agreement with Stanford (“Stanford Collaboration Agreement”), focused on research and development of cellular immunotherapy products. The Stanford Collaboration Agreement has a four-year term. The Company is committed to fund aggregate research performed by Stanford of $12.0 million under the Stanford Collaboration Agreement, and the research will be conducted in accordance with a research plan and budget approved by the parties. The Company incurred $0.8 million in expense in connection with the Stanford Collaboration Agreement for both the three months ended March 31, 2023 and 2022.

Success Payments - In October 2020, the Company granted Stanford rights to certain success payments, pursuant to the terms of the Stanford Collaboration Agreement. The potential payments for the Stanford Collaboration Agreement success payments are based on multiples of increased value ranging from 10x to 50x based on a comparison of the per share fair market value of the Company’s common stock relative to the original $1.83 issuance price of the Company’s Series A convertible preferred stock, which converted into an equal number of shares of the Company’s common stock in connection with the Company’s IPO. The aggregate success payments to Stanford are not to exceed $200.0 million, which would only occur upon a 50 times increase in value. Each threshold is associated with a success payment, ascending from $10.0 million at $18.29 per share to $200.0 million at $91.44 per share, payable if such threshold is reached during the measurement period. Any previous success payments made are credited against the success payment owed as of any valuation date, so that Stanford does not receive multiple success payments in connection with the same threshold. The term of each success payment agreement ends on the earlier to occur of (i) the nine-year anniversary of the date of the agreement and (ii) a change in control transaction.

The following table summarizes the aggregate potential success payments, which are payable to Stanford in cash or cash equivalents, or at the Company’s discretion, publicly-tradeable shares of the Company’s common stock:

Multiple of initial equity value at issuance	10x		20x		30x		40x		50x
Per share common stock price required for payment	$	18.29	$	36.58	$	54.86	$	73.15	$	91.44
Aggregate success payment(s) (in millions)	$	10	$	40	$	90	$	140	$	200

The success payments will be owed if the per share fair value of the Company’s common stock on the contractually specified valuation measurement dates during the term of the success payment agreement equals or exceeds the above outlined multiples. The valuation measurement dates are triggered by the following events: the one-year anniversary of the Company’s IPO and each two-year anniversary of the Company’s IPO thereafter, the closing of a change in control transaction and the last day of the term of the success payment agreement, unless the term has ended due to the closing of a change of control transaction. As of March 31, 2023, no success payments have been incurred as the per share fair value of the Company’s common stock was below the price required for payment.

The estimated fair values of the success payments to Stanford as of March 31, 2023 and December 31, 2022 were $2.0 million and $3.3 million, respectively. The success payment liability is estimated at the fair value at inception and at each subsequent reporting period and the expense is accreted over the service period of the Stanford Collaboration Agreement as research and development expense. The success payment liability was $1.2 million and $1.9 million as of March 31, 2023 and December 31, 2022, respectively. With respect to the Stanford Collaboration Agreement success payment obligations, the Company recognized gains of $0.6 million and $1.0 million for the three months ended March 31, 2023 and 2022, respectively.

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GSK

In 2019, the Company entered into a Collaboration and License Agreement (“GSK Agreement”) with GlaxoSmithKline Intellectual Property (No. 5) Limited and Glaxo Group Limited (together, “GSK”) for potential T‑cell therapies that apply the Company’s platform technologies and cell therapy innovations with T‑cell receptors (“TCRs”) or chimeric antigen receptors (“CARs”) under distinct collaboration programs. The GSK Agreement defined two initial collaboration targets, LYL331 and LYL132, and allowed GSK to nominate seven additional targets through July 2024, though no additional targets were nominated over the life of the GSK Agreement. The Company was expected to perform research and development services for each selected target up until a defined point (the “GSK Option Point”), at which time GSK would decide whether or not to exercise an option to obtain a license from the Company (“License Option”) and take over the future development and commercialization. In April 2021, GSK exercised the License Option on LYL331 (NY-ESO-1 TCR with c-Jun) and assumed sole responsibility for future development and commercialization of the program at its own cost and expense. The IND application for LYL132 was cleared in January 2022, though no patients were treated, and the IND for LYL331 was not submitted to the U.S. Food and Drug Administration. GSK terminated the GSK Agreement effective December 24, 2022, and Lyell has also discontinued any further work on these programs. There are no future performance obligations associated with the GSK Agreement.

The Company received a non-refundable upfront payment of $45.0 million under the GSK Agreement. In connection with the GSK Agreement, in May 2019, the Company also entered into a stock purchase agreement with GSK, pursuant to which the Company agreed to sell 30,253,189 shares of Series AA convertible preferred stock at a price of $6.78 per share, which was above the issuance date estimated fair value of $4.84 per share. The difference between the per share values resulted in $58.6 million additional deemed consideration, bringing the total upfront consideration of the GSK Agreement to $103.6 million.

The GSK Agreement was deemed to be within the scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, because GSK engaged the Company to initially provide research and development services, which were outputs of its ongoing activities, in exchange for consideration. The Company recognized revenue related to the research and development services related to the two initial targets of zero and $0.6 million for the three months ended March 31, 2023 and 2022, respectively. The Company had no deferred revenue related to the GSK Agreement as of both March 31, 2023 and December 31, 2022. As of March 31, 2023 and December 31, 2022, there were no contract assets or contract liabilities related to the license contract.

PACT

In June 2020, the Company entered into a commitment agreement (“PACT Commitment Agreement”) with PACT Pharma, Inc. (“PACT”) to jointly develop and test a next generation personalized anti-cancer T-cell therapy against solid tumors. The Company paid PACT an upfront non-refundable payment of $50.0 million upon execution of the PACT Commitment Agreement. In November 2020, the parties agreed to suspend research and development activity under the PACT Commitment Agreement, and neither party would be required to conduct any further work under the development plan (including manufacturing development) nor incur any financial obligations (including milestone payments) that might otherwise arise, for as long as the parties continued to negotiate in good faith to resolve the issues that have arisen between them relating to the PACT Commitment Agreement.

In June 2020 in connection with the entry into the PACT Commitment Agreement, the Company also entered into a stock purchase agreement with PACT (“PACT SPA”), pursuant to which the Company purchased 17,806,901 shares of PACT Series C-1 convertible preferred stock at a purchase price of $2.81 per share. As of the purchase date, the estimated fair value of the Series C-1 convertible preferred stock was $2.05 per share, and the difference between the estimated fair value of the preferred stock as of the purchase date and the purchase price of $13.6 million was deemed to be additional consideration for the PACT Commitment Agreement and recognized as research and development expense. As a result, the total upfront consideration paid in connection with the PACT Commitment Agreement was $63.6 million and was included in research and development expenses. The remaining $36.4 million associated with the PACT Series C-1 convertible preferred stock was recorded in other investments. In the fourth quarter of 2021, the Company fully impaired the remaining balance of $36.4 million. See Note 5, Other Investments, for additional details regarding the PACT investment impairment.

In February 2021, the Company filed a demand for arbitration seeking, among other things, rescission of the PACT Commitment Agreement and the PACT SPA and recovery of the consideration paid thereunder. Arbitration hearings occurred in March and April 2022.

On October 1, 2022, the Company entered into a settlement agreement with PACT, pursuant to which the parties agreed to resolve their outstanding legal dispute. In connection with the settlement agreement, the parties also entered into a stock purchase agreement, pursuant to which PACT issued shares of PACT’s Series D convertible preferred stock to the Company in exchange for the Company’s tender of its PACT Series C-1 convertible preferred stock and resolution of the

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arbitration. The issuance of PACT’s Series D convertible preferred stock, which are non-voting, have limited conversion rights and carry no right to appoint directors, resulted in the Company’s ownership increasing to approximately 80% of PACT’s fully diluted shares outstanding. The settlement agreement also included the termination of the PACT Commitment Agreement to jointly develop a next generation anti-cancer T‑cell therapy against solid tumors. The Company recorded a gain of $2.9 million in October 2022 for the estimated fair value of the PACT Series D convertible preferred stock received as part of the settlement agreement. The PACT Series D convertible preferred stock was recorded at its estimated fair value as of the settlement date and is included in other investments in the Company’s Condensed Consolidated Balance Sheets.

4. Cash Equivalents and Marketable Securities

The fair value and amortized cost of cash equivalents and marketable securities by major security type are as follows (in thousands):

	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Money market funds	$	54,337	$	—	$	—	$	54,337
U.S. Treasury securities	285,287		91		(2,849)		282,529
U.S. government agency securities	124,533		102		(749)		123,886
Corporate debt securities	182,196		36		(510)		181,722
Total cash equivalents and marketable securities	$	646,353	$	229	$	(4,108)	$	642,474

Classified as:	Fair Value
Cash equivalents	$	83,876
Marketable securities	503,343
Marketable securities, non-current	55,255
Total cash equivalents and marketable securities	$	642,474

	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Money market funds	$	67,970	$	—	$	—	$	67,970
U.S. Treasury securities	277,056		—		(5,257)		271,799
U.S. government agency securities	135,460		1		(1,416)		134,045
Corporate debt securities	221,608		3		(930)		220,681
Total cash equivalents and marketable securities	$	702,094	$	4	$	(7,603)	$	694,495

Classified as:	Fair Value
Cash equivalents	$	107,780
Marketable securities	516,598
Marketable securities, non-current	70,117
Total cash equivalents and marketable securities	$	694,495

The fair values of securities held by the Company in an unrealized loss position for less than 12 months were $230.4 million and $287.8 million as of March 31, 2023 and December 31, 2022, respectively. The fair values of securities held by the Company in an unrealized loss position for greater than 12 months were $225.3 million and $278.7 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, all of the Company’s marketable securities had a maturity date of two years or less, were available for use and were classified as available-for-sale. The Company does not intend to sell these securities nor does the Company believe that it will be required to sell these securities before recovery of their amortized cost basis. The Company determined that there was no material change in the credit risk of the above investments as of both March 31, 2023 and December 31, 2022. As such, an allowance for credit losses has not been recognized. Gross realized gains and losses were de minimis for the three months

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ended March 31, 2023 and 2022 and as a result, amounts reclassified out of accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022 were also de minimis. See Note 6, Fair Value Measurements, for additional information regarding cash equivalents and marketable securities.

5. Other Investments

From time to time, the Company makes minority ownership strategic investments. As of March 31, 2023 and December 31, 2022, the aggregate carrying amounts of the Company’s strategic investments in non-publicly traded companies were $34.9 million and $44.9 million, respectively. These investments are measured at initial cost, minus impairment, if any, and plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Cumulative impairments of strategic investments in equity investments without readily determinable fair values still held as of March 31, 2023 and December 31, 2022 were $15.0 million and $5.0 million, respectively.

In connection with the preparation of the financial statements for Q1 2023, the Company performed a qualitative assessment of potential indicators of impairment and determined that indicators existed for one of the Company’s other investments with a carrying amount of $10.0 million. While there was no single event or factor, the Company considered the underlying company’s operating cash flow requirements over the next year, liquid asset balances to fund those requirements and the underlying company’s inability to raise funds as indicators of impairment. Due to these indicators, the Company assessed the valuation of the investment and determined the fair value to be negligible and the impairment to be other-than-temporary in nature. As a result, the Company recorded a $10.0 million impairment expense for the investment for the three months ended March 31, 2023, which was recorded within impairment of other investments on the Condensed Consolidated Statement of Operations and Comprehensive Loss and as a reduction to the investment balance within other investments on the Condensed Consolidated Balance Sheet. No other investments were impaired for the three months ended March 31, 2023.

In October 2022, the Company received non-voting preferred stock pursuant to the settlement agreement with PACT (See Note 3, License, Collaboration and Success Payment Agreements). The Company determined that PACT is a variable interest entity as PACT does not have sufficient equity at risk. The Company evaluated whether it was the primary beneficiary of PACT, including the Company’s ongoing rights and responsibilities, to assess whether the Company has the power to direct the activities of PACT. The Company’s only involvement in PACT is its PACT Series D convertible preferred stock investment, which are non-voting, have limited conversion rights and carry no right to appoint directors. Based on the above noted factors, the Company determined that it is not the primary beneficiary and does not consolidate PACT since it does not have the power to direct the activities that most significantly impact PACT’s economic performance. The Company does not have the ability to exercise significant influence over PACT and accounts for its investment in PACT preferred stock under the measurement alternative. The Company recognized its investment in PACT preferred stock at its estimated fair value of $2.9 million on October 1, 2022, which is included in the Company’s Consolidated Balance Sheets within other investments. The Company’s maximum exposure to loss from PACT is limited to the carrying value of its investment in PACT preferred stock.

6. Fair Value Measurements

The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

	March 31, 2023
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds	$	54,337	$	—	$	—	$	54,337
U.S. Treasury securities	—		282,529		—		282,529
U.S. government agency securities	—		123,886		—		123,886
Corporate debt securities	—		181,722		—		181,722
Total financial assets	$	54,337	$	588,137	$	—	$	642,474
Financial liabilities:
Success payment liabilities	$	—	$	—	$	2,648	$	2,648
Total financial liabilities	$	—	$	—	$	2,648	$	2,648

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	December 31, 2022
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds	$	67,970	$	—	$	—	$	67,970
U.S. Treasury securities	—		271,799		—		271,799
U.S. government agency securities	—		134,045		—		134,045
Corporate debt securities	—		220,681		—		220,681
Total financial assets	$	67,970	$	626,525	$	—	$	694,495
Financial liabilities:
Success payment liabilities	$	—	$	—	$	4,356	$	4,356
Total financial liabilities	$	—	$	—	$	4,356	$	4,356

The Company measures the fair value of money market funds based on quoted prices in active markets for identical assets or liabilities. The Level 2 marketable securities include U.S. Treasury securities, U.S. government agency securities and corporate debt securities. The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services applied industry standard valuation models. Inputs utilized include market pricing based on real-time trade data for the same or similar securities and other significant inputs derived from or corroborated by observable market data.

The Company’s Level 3 financial instruments fair values are estimated using valuation models, including Monte Carlo simulations for the Company’s success payment liabilities. Monte Carlo simulations model the future movement of stock prices based on several key variables combined with empirical knowledge of the process governing the behavior of the stock price. The following variables were incorporated in the estimated fair value of the success payment liabilities: fair value of the Company’s common stock, expected volatility, the risk-free interest rate and the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered. The computation of expected volatility was estimated based on available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption.

The following assumptions were incorporated into the calculation of the estimated fair value of the Fred Hutch success payment liability:

	March 31, 2023			December 31, 2022
Fair value of common stock	$	2.36		$	3.47
Risk-free interest rate	3.18% - 4.74%			3.58% - 4.65%
Expected volatility	85.0		%	80.0		%
Expected term (in years)	0.21 - 4.72			0.46 - 4.97

The following assumptions were incorporated into the calculation of the estimated fair value of the Stanford success payment liability:

	March 31, 2023			December 31, 2022
Fair value of common stock	$	2.36		$	3.47
Risk-free interest rate	3.18% - 4.74%			3.58% - 4.65%
Expected volatility	85.0		%	80.0		%
Expected term (in years)	0.21 - 6.50			0.46 - 6.75

The Company utilizes estimates and assumptions in determining the estimated success payment liabilities and associated expense. A small change in the valuation of the Company’s common stock may have a relatively large change in the estimated fair value of the success payment liability and associated expense.

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The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 liabilities (in thousands):

	Success Payment Liabilities
Balance at December 31, 2022	$	4,356
Change in fair value (1)	(1,708)
Balance at March 31, 2023	$	2,648

(1)The changes in the fair value associated with the Fred Hutch success payment liabilities of approximately $1.1 million are recorded in other income, net (See Note 3, License, Collaboration and Success Payment Agreements). The changes in the fair value of approximately $0.6 million associated with the Stanford success payment liabilities are recorded as research and development expenses.

In October 2022, the Company received non-voting series D preferred stock pursuant to the settlement agreement with PACT (See Note 3, License, Collaboration and Success Payment Agreements). The Company determined the fair value of PACT was a fraction of the aggregate liquidation preference of the Company’s PACT Series D preferred stock. The Company determined that the fair value of its investment in PACT preferred stock is approximated by the fair value of the PACT business since the Company is the only party invested in PACT preferred stock series D as of October 1, 2022, the most senior class of stock issued by PACT. The fair value of PACT was estimated at $2.9 million as of October 1, 2022 using the cost approach. Under this approach, the fair value of an asset is measured by the cost to reconstruct or replace such asset with another one of like utility. The fair value of PACT was estimated by using significant unobservable inputs, including an estimate of insignificant fair value associated with PACT intangible assets. Accordingly, the Company classified the fair value measurement of PACT preferred stock on October 1, 2022 as Level 3 under the fair value hierarchy.

7. Leases

The Company’s lease portfolio is comprised of operating leases for laboratory, office and manufacturing facilities located in South San Francisco, California, and Seattle and Bothell, Washington with contractual periods expiring between December 2028 and March 2031. In addition to minimum rent, the leases require payment of real estate taxes, insurance, common area maintenance charges and other executory costs. These additional charges are considered variable lease costs and are recognized in the period in which the costs are incurred.

The following table summarizes the Company’s future minimum operating lease commitments, including expected lease incentives to be received, as of March 31, 2023 (in thousands):

Year Ending December 31:
2023 (remaining nine months)	$	7,600
2024	11,347
2025	11,859
2026	12,209
2027	12,569
Thereafter	35,525
Total undiscounted lease payments	91,109
Less: imputed interest	(24,473)
Total operating lease liabilities	$	66,636
Reported as of March 31, 2023:
Short-term portion of lease liabilities (included in accrued liabilities and other current liabilities)	$	4,810
Operating lease liabilities, non-current	61,826
Total	$	66,636

The operating lease costs for all operating leases were $2.1 million and $2.5 million for the three months ended March 31, 2023 and 2022, respectively. The operating lease costs and total commitments for short-term leases were de minimis for the three months ended March 31, 2023 and 2022. Variable lease costs for operating leases were $1.4 million and $1.3 million for the three months ended March 31, 2023 and 2022, respectively. The weighted-average remaining lease terms for operating leases were 7.5 and 7.8 years as of March 31, 2023 and December 31, 2022,

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respectively. The weighted-average discount rates for operating leases were 8.5% as of both March 31, 2023 and December 31, 2022.

In May 2021, the Company entered into a sublease, whereby the Company agreed to sublease approximately 11,000 square feet of its space in South San Francisco, California currently leased by the Company. The sublease is classified as an operating lease and will expire in March 2031. The Company recognized sublease income for this sublease of $0.2 million for both the three months ended March 31, 2023 and 2022, respectively.

In September 2021, the Company entered into a sublease with Sonoma Biotherapeutics, Inc. (“Sonoma”), a related party, whereby the Company agreed to sublease approximately 18,000 square feet of space in South San Francisco, California currently leased by the Company. See Note 12, Related-Party Transactions. As a part of the sublease, in September 2021, the Company received a $4.6 million tenant improvement contribution payment, which will be recognized over the term of the sublease. The sublease is classified as an operating lease and will expire in March 2031. The Company recognized Sonoma sublease income of $0.5 million for both the three months ended March 31, 2023 and 2022, respectively.

The Company's sublease income is recognized within other operating income, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

8. Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 10.0 million shares of preferred stock with a par value of $0.0001 per share. As of March 31, 2023 and December 31, 2022, no shares of preferred stock were outstanding.

Common Stock

The Company is authorized to issue 500.0 million shares of common stock with a par value of $0.0001 per share. As of March 31, 2023 and December 31, 2022, there were 249,609,247 shares and 249,567,343 shares of the Company’s common stock outstanding, respectively.

On August 4, 2022, the Company entered into an Equity Distribution Agreement with Goldman Sachs & Co. LLC (“Goldman Sachs”) and BofA Securities, Inc. (“BofA”, and together with Goldman Sachs, “the Agents”) with respect to an at-the-market offering program (the “Equity Distribution Agreement”). In accordance with the terms of the Equity Distribution Agreement, the Company may offer and sell from time to time through the Agents shares of the Company’s common stock having an aggregate offering amount of up to $200.0 million (“the Placement Shares”). Sales of the Placement Shares, if any, will be made at prevailing market prices on Nasdaq at the time of sale, or as otherwise agreed with the Agents, by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. The Company will pay commissions to the Agents of up to 3.0% of the gross proceeds of the sale of the Placement Shares sold under the Equity Distribution Agreement and reimburse the Agents for certain expenses. Neither the Company nor the Agents are obligated to sell any shares and, to date, the Company has not made any sales under the Equity Distribution Agreement.

9. Stock-based Compensation

2021 Equity Incentive Plan

In June 2021, the Company adopted the 2021 Equity Incentive Plan (“2021 Plan”), which on the date of the underwriting agreement related to the Company’s IPO became effective with an initial reserve of 26,662,087 shares, plus any shares subject to outstanding awards granted under the 2018 Equity Incentive Plan (“2018 Plan”) that, on or after the effectiveness of the 2021 Plan, terminate or expire before exercise or settlement, are not issued because the award is settled in cash, are forfeited because of the failure to vest, or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price. In addition, the number of shares reserved for issuance under the 2021 Plan automatically increases on January 1 of each year for a period of ten years, beginning on January 1, 2022 and continuing through January 1, 2031, in an amount equal to (1) 5% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Company’s board of directors no later than December 31 of the immediately preceding year. On January 1, 2023, the Company reserved an additional 12,478,367 shares of common stock for issuance under the 2021 Plan representing 5% of the total common shares outstanding as of December 31, 2022. Under the 2021 Plan, the Company may grant incentive stock options, non-statutory stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), stock appreciation rights, performance awards and other stock-based awards. Terms of stock awards, including vesting

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requirements, are determined by the Company’s board of directors or by a committee authorized by the Company’s board of directors, subject to provisions of the 2021 Plan. The term of any stock option granted under the 2021 Plan cannot exceed ten years. Generally, awards granted by the Company vest over four years but may be granted with different vesting terms. In conjunction with adopting the 2021 Plan, the Company discontinued the 2018 Plan with respect to new equity awards.

As of March 31, 2023, 24,056,755 shares were available for future issuance pursuant to the 2021 Plan.

2021 Employee Stock Purchase Plan

In June 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which became effective immediately prior to the execution of the underwriting agreement related to the Company’s IPO with an initial reserve of 2,470,000 shares. The 2021 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their earnings, subject to plan limitations. Unless otherwise determined by the Company’s board of directors, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first date of an offering or on the purchase date. The number of shares of the Company’s common stock reserved for issuance under the 2021 ESPP automatically increases on January 1 of each year for a period of ten years, beginning on January 1, 2022 and continuing through January 1, 2031, by the lesser of (1) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, and (2) 4,940,000 shares; provided, however, that the Company’s board of directors may act to provide a lesser increase in number of shares. The Company’s board of directors elected to reserve no additional shares under the 2021 ESPP for the year beginning January 1, 2023. The Company may specify offerings with durations not more than 27 months and may specify shorter purchase periods within each offering. Under the 2021 ESPP, no shares have been issued for the three months ended March 31, 2023 and 2022.

As of March 31, 2023, 4,448,020 shares were available for future issuance pursuant to the 2021 ESPP.

2018 Equity Incentive Plan

In 2018, the Company established the 2018 Plan that provided for the grant of incentive stock options, non-statutory stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards. Terms of stock awards, including vesting requirements, were determined by the board of directors or by a committee authorized by the Company’s board of directors, subject to provisions of the 2018 Plan. The term of any stock option granted under the 2018 Plan cannot exceed ten years. Generally, awards granted by the Company vest over four years, but could have been granted with different vesting terms. Pursuant to the terms of the 2021 Plan, any shares subject to outstanding options originally granted under the 2018 Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof become available for issuance pursuant to awards granted under the 2021 Plan. While no shares are available for future issuance under the 2018 Plan, it continues to govern outstanding equity awards granted thereunder.

Stock-based Compensation Expense

Stock-based compensation expense by classification included within the Condensed Consolidated Statements of Operations and Comprehensive Loss was as follows (in thousands):

	Three Months Ended March 31,
	2023		2022
Research and development	$	4,612	$	3,764
General and administrative	9,270		18,264
Total stock-based compensation expense	$	13,882	$	22,028

At March 31, 2023, total stock-based compensation cost related to unvested awards not yet recognized was $99.9 million, which is expected to be recognized over a remaining weighted-average period of 2.99 years.

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Restricted Stock Units

A summary of the Company’s RSU activity was as follows:

	Restricted Stock Units Outstanding	Weighted-Average Value at Grant Date Per Share
Unvested RSUs as of December 31, 2022	872,077	$	5.98
RSUs granted	1,877,177	$	2.13
RSUs vested	(65,510)	$	5.98
RSUs forfeited or canceled	(70,537)	$	5.18
Unvested RSUs as of March 31, 2023	2,613,207	$	3.24

Stock Options

A summary of the Company’s stock option activity was as follows:

	Number of Stock Options	Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Options outstanding as of December 31, 2022	53,849,045	$	5.09	7.84	$	24,887
Granted	7,713,313	$	2.15
Exercised	0	$	—
Canceled or forfeited	(810,212)	$	6.58
Options outstanding as of March 31, 2023	60,752,146	$	4.70	7.91	$	17,475
Options exercisable as of March 31, 2023	29,726,200	$	4.53	6.67	$	15,734

The fair value of stock options granted to employees, directors and consultants was estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions:

	Three Months Ended March 31,
	2023		2022
Risk-free interest rate	4.13	%	2.14	%
Expected volatility	91.9	%	85.2	%
Expected term (in years)	6.02		6.00
Expected dividend yield	0	%	0	%

The weighted-average grant date fair value of options granted for the three months ended March 31, 2023 and 2022 were $1.66 per share and $4.35 per share, respectively.

10. Net Loss Per Share

Basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include unvested RSAs, unvested RSUs and options to purchase common stock, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. Shares subject to options to purchase common stock, unvested RSAs and unvested RSUs were all excluded from consideration in the calculation of diluted net loss per share in all periods presented due to their anti-dilutive effects.

11. Commitments and Contingencies

License and Collaboration Agreements

The Company has entered into certain license and collaboration agreements, including those identified in Note 3, License, Collaboration and Success Payment Agreements above, with third parties that include the funding of certain development, manufacturing and commercialization efforts with the potential for future milestone and royalty payments upon the achievement of pre-established developmental, regulatory and/or commercial milestones. The Company’s

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obligation to fund these efforts is contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause the discontinuance of the programs, including termination of such agreements. Due to the nature of these agreements, the future potential payments are inherently uncertain, and accordingly no amounts had been recorded for the potential future achievement of these targets as of both March 31, 2023 and December 31, 2022.

12. Related-party Transactions

In September 2021, the Company entered into a sublease with Sonoma, with whom the Company has common stockholders with board seats, whereby the Company agreed to sublease approximately 18,000 square feet of space in South San Francisco, California currently leased by the Company. Dr. Klausner, the Chair of the Company’s board of directors, also serves as a member of the board of directors of Sonoma. As a part of the sublease, a $4.6 million tenant improvement contribution payment was made by Sonoma, which is recognized over the term of the sublease. As of both March 31, 2023 and December 31, 2022, there were accrued liabilities and other current liabilities of $0.5 million and as of March 31, 2023 and December 31, 2022, there were other non-current liabilities of $3.4 million and $3.5 million, respectively, in connection with the sublease with Sonoma. Income of $0.7 million was recognized in other operating income, net for both the three months ended March 31, 2023 and 2022, of which $0.5 million was attributed to sublease income for both the three months ended March 31, 2023 and 2022. See Note 7, Leases, for more detail on the Sonoma sublease.

The Company was party to the GSK Agreement with GSK, who is a holder of more than 10% of the Company’s outstanding common stock. See Note 3, License, Collaboration and Success Payment Agreements. GSK terminated the GSK Agreement effective December 24, 2022. The Company had no current or non-current deferred revenue in connection with the GSK Agreement as of both March 31, 2023 and December 31, 2022. Revenue recognized in connection with the GSK agreement was zero and $0.6 million for the three months ended March 31, 2023 and 2022, respectively.

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Item 2. 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 our unaudited Condensed Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis and other parts of this Quarterly Report on Form 10-Q 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” in Part II, Item 1A of this Quarterly Report on Form 10-Q. See also the section titled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a clinical-stage cell therapy company advancing a pipeline of product candidates for patients with solid tumors utilizing our proprietary ex vivo genetic and epigenetic T‑cell reprogramming technologies. Our investigational therapies use the patient’s own cells as the starting point to generate highly tumor-reactive, longer-lasting functional T cells with enhanced ability to defeat solid tumors. Our innovative reprogramming technologies address what we believe are the primary barriers that limit consistent and long-lasting responses to T‑cell therapy in solid tumors: T‑cell exhaustion and lack of durable stemness. Our technologies are designed to generate T cells with the ability to persist and self‑renew while driving durable tumor cytotoxicity, even in the setting of an immunosuppressive tumor microenvironment. The goal is for our technologies to provide patients with T cells that are potent and long-lasting to achieve durable antitumor responses. Furthermore, our technologies can be applied in a target agnostic manner to multiple T‑cell modalities, including chimeric antigen receptor (CAR), tumor-infiltrating lymphocytes (TIL) and T‑cell receptor (TCR) therapies.

We apply our technologies with the aim to develop T‑cell therapies with improved durable clinical outcomes. Our growing pipeline of promising cell product candidates targets solid tumor indications with large unmet needs that are collectively responsible for approximately 180,000 deaths in the US annually. Each of our programs provide opportunities to expand into additional indications beyond the patient populations we are initially targeting. Our lead product candidates are summarized in the table below:

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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 and executing manufacturing activities in support of our product candidate development efforts, organizing and staffing our company, business planning, establishing our intellectual property portfolio, regulatory submissions and other preparations to initiate clinical trials, raising capital and providing general and administrative support for these activities. We are early in our research and development efforts and are in Phase 1 clinical development of LYL797, our ROR-1 targeted CAR-T cell product candidate overexpressing c-Jun, and LYL845, an epigenetically reprogrammed TIL product candidate. Two additional product candidates are in preclinical development and include LYL119, a ROR-1 targeted CAR-T cell product candidate and a TIL product candidate, each incorporating novel genetic and epigenetic reprogramming technologies. We do not have any products approved for sale.

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 nonclinical studies;

•commence and continue clinical trials of our current and future product candidates;

•advance our genetic and epigenetic reprogramming technologies as well as other research and development efforts;

•expand our manufacturing and process development capabilities;

•seek regulatory approval of our current and future product candidates;

•expand our operational, financial and management systems;

•attract, hire and retain qualified personnel;

•acquire and license technology or 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.

Pipeline Programs and Operational Updates

Pipeline Programs

We are advancing four wholly-owned product candidates; two product candidates, LYL797 and LYL845, are in Phase 1 clinical development and two additional product candidates, LYL119 and a TIL product candidate incorporating novel genetic and epigenetic reprogramming technologies, are in preclinical development.

LYL797 - A genetically and epigenetically reprogrammed ROR1 CAR T-cell product candidate designed for differentiated potency and durability targeting multiple solid tumor indications.

We are applying our c-Jun and Epi‑R technologies to our lead CAR T‑cell product candidate, LYL797, which is expected to be an intravenously‑administered CAR T‑cell product targeting the receptor tyrosine kinase-like orphan receptor 1 (ROR1) protein. ROR1 is a fetal protein expressed during embryogenesis and is believed to be important in cell migration, polarity and survival. It is expressed in several cancer types, including triple-negative breast cancer (TNBC), non-small cell lung cancer (NSCLC), ovarian cancer and chronic lymphocytic leukemia, and is generally associated with a poor prognosis. LYL797 contains a CAR with a 4-1BB/CD3ζ intracellular domain, a transmembrane domain, an optimized spacer domain and a single-chain variable fragment (scFv) derived from an R12 rabbit monoclonal antibody that recognizes and binds with high specificity to human ROR1. LYL797 also incorporates c-Jun and a proprietary optimized truncated version of human EGFR (EGFRopt) used for tracking the CAR T cells in the peripheral blood post treatment and can also be used as a safety measure with the administration of cetuximab, if needed. LYL797 is manufactured utilizing our proprietary Epi‑R technology.

We are initially developing LYL797 for the treatment of ROR1-positive TNBC and NSCLC. Significant subsets of patients with common cancers express ROR1, including TNBC (~60%) and NSCLC (~40%), two of the highest ROR1‑expressing solid tumor indications. If successful, we may expand into other ROR1-positive cancers with a lower incidence of ROR1 expression, including potentially hormone-receptor positive breast cancer, ovarian and other solid tumors.

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•Enrollment in the Phase 1 clinical trial of LYL797 is ongoing at nine sites in the U.S. The study will enroll at least 15 patients each with relapsed or refractory triple-negative breast cancer or with non-small cell lung cancer. Initial clinical data from the Phase 1 trial of LYL797 are expected in the first half of 2024.

•The Phase 1 clinical trial is designed as an open label, dose escalation and expansion trial in patients with relapsed/refractory TNBC who have failed at least two lines of therapy and patients with relapsed/refractory NSCLC who have failed at least one line of therapy.

LYL845 - A novel epigenetically reprogrammed TIL product candidate designed for differentiated potency and durability targeting multiple solid tumor indications.

We are applying our epigenetic reprogramming technology, Epi‑R, to develop LYL845, which is expected to be an intravenously‑administered autologous TIL therapy for multiple solid tumors. Our Epi‑R protocol comprises proprietary media, optimized cytokine compositions and well-defined cell activation and expansion protocols used during our manufacturing process.

TIL have previously shown clinical benefit in patients with advanced melanoma and other solid tumors with high mutational burden. Published data from third-party TIL trials show that treating metastatic melanoma patients with TIL can result in complete and durable responses. Response rates to TIL therapy in patients with other advanced solid tumors such as lung, colorectal and breast are much lower than that observed in advanced melanoma. Broad TIL efficacy has been limited by poor enrichment of tumor-reactive T cells and the poor quality and limited growth potential of expanded T cells. Failure to maintain polyclonality of TIL during production may also limit their ability to eradicate cancer cells given the inherent heterogeneous nature of solid tumors. LYL845 incorporates our Epi‑R technology that has shown promising improvements in enhancing T-cell potency, antitumor activity and increased polyclonality of TIL in nonclinical experiments.

We are initially developing LYL845 for advanced melanoma, NSCLC and colorectal cancer (CRC). Based on our success with those, we may include patients with other solid tumors, potentially including head and neck, cervical, breast and pancreatic cancer.

•Enrollment in the Phase 1 clinical trial for LYL845 is ongoing at five sites in the U.S. The study will enroll at least 15 patients each with advanced melanoma, and relapsed or refractory non-small cell lung cancer or colorectal cancer. Initial clinical data from the Phase 1 trial of LYL845 are expected in 2024.

•The Phase 1 clinical trial is designed as an open label, dose escalation and expansion trial in patients with relapsed and/or refractory metastatic or locally advanced melanoma, NSCLC and CRC.

LYL119 - An innovative ROR1 CAR T-cell product designed for enhanced cytotoxicity.

A key pillar of our strategy is to continually innovate to develop and advance novel, breakthrough technologies that address key barriers to successful cell therapy for solid tumors. We have advanced a new genetic reprogramming technology, NR4A3 knockout, and a new epigenetic reprogramming technology, Stim‑R, that are being applied in our new CAR T-cell product candidate, LYL119. These technologies are stackable and complementary to c-Jun and Epi‑R and are designed to further improve the antitumor potency and durability of T cells. LYL119 is being advanced with the goal of potentially creating even greater benefit for patients with ROR1-positive solid tumors.

•An IND application is expected to be submitted for LYL119 in the first half of 2024.

•An abstract highlighting preclinical development of LYL119 has been selected for presentation at the American Society for Gene and Cell Therapy (ASGCT) 26th Annual Meeting taking place in Los Angeles, California on May 16-20, 2023.

T‑cell rejuvenation technologies: 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 increase with age. Thus, we are working to advance another novel reprogramming technology that focuses on rejuvenation of antitumor T cells. We are developing a method to maintain T‑cell identity while reducing the epigenetic age of the cells. This technology is currently in the research stage. We have generated data illustrating the ability to “turn back” the epigenetic clock in a process called cellular rejuvenation, without changing the T‑cell’s identity as would occur in the setting of induced pluripotent stem cell-derived T cells.

Our Manufacturing Capabilities

We believe it is critically important to own, control and continuously monitor all aspects of the cell therapy manufacturing process to mitigate risks, 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

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control our supply chain, maximize efficiencies in cell product production time, optimize 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 reprogramming technologies. We view our manufacturing team and capabilities as a significant competitive advantage.

Our LyFE™ manufacturing center located in Bothell, Washington is approximately 73,000 square feet and is comprised of manufacturing suites, laboratories and offices. LyFE is commissioned and designed to be in compliance with U.S. and European Union current Good Manufacturing Practices (cGMP) standards and has a flexible and modular design enabling CAR T cell, TIL, TCR T cell and GMP viral vector production to control and de-risk the manufacturing sequence and timing of the major components of our supply chain. Owning our own facility encourages seamless collaboration across research, process development and manufacturing for high-quality reproducibility at manufacturing scale.

We are currently producing clinical supply for our Phase 1 trials at LyFE. At full staffing and capacity, we expect to be able to manufacture approximately 500 infusions per year depending on product candidate mix. At this time, we believe this capacity is sufficient to support our pipeline programs into pivotal trials and, if approved, early commercialization.

Macroeconomic Environment

Our business and operations may be affected by worldwide economic conditions, which may continue to be impacted by global macroeconomic challenges such as the effects of the ongoing geopolitical conflicts in Ukraine, tensions in U.S.-China relations, the continuing effects of the COVID-19 pandemic, inflationary pressures, interest rate environment, instability in the banking industry and overall market volatility. Fiscal year 2022 and the first quarter of 2023 were marked by significant market uncertainty, increasing inflationary pressures, banking turmoil, supply constraints and ongoing effects from the COVID-19 pandemic. These market dynamics may continue in the rest of 2023, and these and similar adverse market conditions may negatively impact our business.

The effects of the global COVID-19 pandemic continue to evolve and, as a result, the ultimate impact of the COVID-19 pandemic or other similar health epidemic or pandemic on our business, operations and development timelines and plans remains uncertain and will continue to depend on certain developments, including virus transmission rates and duration of the pandemic, other next-level effects and the resulting impact on our CROs, contract manufacturing organizations, clinical sites and other third parties with whom we do business, as well as the impact on regulatory authorities and our key scientific and management personnel.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Components of Results of Operations

Revenue

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

We have generated revenue primarily from the recognition of the upfront payment under the Collaboration and License Agreement, entered into in 2019 and amended in June 2020 and December 2021 (GSK Agreement) with GlaxoSmithKline Intellectual Property (No. 5) Limited and Glaxo Group Limited (together, GSK). GSK terminated the GSK Agreement effective December 2022, and we do not expect further revenue from the collaboration. See Note 3, License, Collaboration and Success Payment Agreements, in the accompanying notes to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q, for additional details regarding termination of the GSK Agreement.

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 include costs incurred in connection with strategic collaborations, costs to license technology, personnel-related costs, including stock-based compensation expense, facility and technology related costs, research and laboratory expenses, as well as other expenses, which include consulting fees and other costs. Upfront payments and milestones paid to third parties in connection with technology platforms that have not reached technological feasibility and do not have an alternative future use are expensed as incurred.

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Research and development expenses also include non-cash expenses related to the change in the estimated fair value of the success payment obligations over their respective requisite service terms granted to Fred Hutchinson Cancer Center (Fred Hutch) and The Board of Trustees of the Leland Stanford Junior University (Stanford). As of December 31, 2022, Fred Hutch had provided the requisite service obligation to earn the potential success payment consideration under the continued collaboration. For the three months ended March 31, 2023 and future periods, the change in the Fred Hutch success payment liability fair value is recognized in other income, net, as the requisite service obligation had been met. See Note 3, License, Collaboration and Success Payment Agreements, in the accompanying notes to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10‑Q. 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.

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 nonclinical studies, commencing planned clinical trials, conducting and completing current and planned 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 we are early in our research and clinical development efforts of our product candidates, and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the nonclinical 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 nonclinical 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 nonclinical studies and 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, legal costs, transaction costs related to

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

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 Securities and Exchange Commission (SEC) requirements, director and officer insurance costs and investor and public relations costs.

Other Operating Income, Net

Other operating income, net consists primarily of service and occupancy fees received associated with subleases as well as losses on the retirement of property and equipment.

Interest Income, Net

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

Other Income, Net

Other income, net consists primarily of the change in fair value associated with our success payment liabilities to Fred Hutch for three months ended March 31, 2023 and primarily of changes in the fair value of an equity warrant investment held for the three months ended March 31, 2022.

Impairment of Other Investments

Impairment of other investments consists of a reduction in the value of certain other investments.

Results of Operations

Three Months Ended March 31, 2023 and 2022

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

	Three Months Ended March 31,
	2023		2022		Change
Revenue	$	65	$	553	$	(488)
Operating expenses:
Research and development	44,630		35,830		8,800
General and administrative	19,279		34,421		(15,142)
Other operating income, net	(1,288)		(1,122)		(166)
Total operating expenses	62,621		69,129		(6,508)
Loss from operations	(62,556)		(68,576)		6,020
Interest income, net	4,497		397		4,100
Other income, net	1,100		35		1,065
Impairment of other investments	(10,000)		—		(10,000)
Total other (loss) income, net	(4,403)		432		(4,835)
Net loss	$	(66,959)	$	(68,144)	$	1,185

Revenue

Revenue was $0.1 million and $0.6 million for the three months ended March 31, 2023 and 2022, respectively. The GSK Agreement was terminated in December 2022 and, therefore, no further research and development pursuant to the GSK Agreement was performed in the first quarter of 2023, which drove the decrease in revenue of $0.5 million. See Note 3, License, Collaboration and Success Payment Agreements – GSK, in the accompanying notes to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information about the termination of the GSK Agreement.

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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,
	2023		2022		Change
Personnel	$	19,644	$	16,541	$	3,103
Facilities and technology	13,138		12,830		308
Research activities, collaborations and outside services	12,456		10,310		2,146
Success payments	(608)		(3,851)		3,243
Total research and development expenses	$	44,630	$	35,830	$	8,800

Research and development expenses were $44.6 million and $35.8 million for the three months ended March 31, 2023 and 2022, respectively. The increase of $8.8 million was primarily due to a $3.2 million increase associated with our success payment liabilities, noting $2.8 million of the change was due to recognizing the Fred Hutch success payment liability fair value change in other income, net for the three months ended March 31, 2023 and the remaining $0.4 million was due to the change in the Stanford success payment liability; an increase of $3.1 million in personnel-related expenses primarily related to an increase in headcount to expand our research, development and manufacturing capabilities; an increase of $2.1 million in research activities, collaborations and outside services primarily driven by an increase in research and laboratory costs principally due to clinical trials, partially offset by a reduction in collaboration and license fees and expenses, including research and development expenses attributable to the termination of the GSK Agreement; and an increase of $0.3 million in facilities and technology costs.

General and Administrative Expenses

General and administrative expenses were $19.3 million and $34.4 million for the three months ended March 31, 2023 and 2022, respectively. The decrease of $15.1 million was primarily due to a decrease of $9.0 million in stock-based compensation expense, primarily related to significant awards being previously fully expensed. Additionally, outside services decreased by $5.6 million primarily due to a decrease in legal expenses.

Other Operating Income, Net

Other operating income, net was $1.3 million and $1.1 million for the three months ended March 31, 2023 and 2022, respectively.

Interest Income, Net

Interest income, net was $4.5 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively. The increase in interest income, net of $4.1 million was primarily driven by higher interest rates in 2023.

Other Income, Net

Other income, net was $1.1 million and $0.0 million for the three months ended March 31, 2023 and 2022, respectively. The increase of $1.1 million was primarily due to the change in fair value associated with our success payment liabilities to Fred Hutch for the three months ended March 31, 2023; the fair value change of Fred Hutch success payment liabilities is recognized in other income, net for the three months ended March 31, 2023 as Fred Hutch had provided the requisite service obligation to earn the potential success payment consideration under the continued collaboration as of December 2022.

Impairment of Other Investments

For the three months ended March 31, 2023, the $10.0 million impairment of other investments consisted of the full impairment of one of our other investments.

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, the sale of common stock in connection with our initial public offering (IPO) and business development activities. As of March 31, 2023, we had $668.0 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

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accumulated deficit of $834.4 million as of March 31, 2023. From June 29, 2018 (inception) through March 31, 2023, we raised an aggregate of $1,405.7 million in gross proceeds from the sales of our convertible preferred stock prior to the IPO and sales of our common stock in the IPO.

On August 4, 2022, we entered into an Equity Distribution Agreement (the Equity Distribution Agreement) with Goldman Sachs & Co. LLC (Goldman Sachs) and BofA Securities, Inc. (BofA, and together with Goldman Sachs, the Agents) with respect to an at-the-market offering program. In accordance with the terms of the Equity Distribution Agreement, we may offer and sell from time to time, through the Agents, shares of our common stock having an aggregate offering amount of up to $200.0 million (the Placement Shares). Sales of the Placement Shares, if any, will be made at prevailing market prices on Nasdaq at the time of sale, or as otherwise agreed with the Agents, by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415 of the Securities Act of 1933, as amended (the Securities Act). We will pay commissions to the Agents of up to 3.0% of the gross proceeds of the sale of the Placement Shares sold under the Equity Distribution Agreement and reimburse the Agents for certain expenses. Neither us nor the Agents are obligated to sell any shares and, to date, we have not made any sales under the Equity Distribution Agreement.

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 nonclinical 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 will be sufficient to meet our working capital and capital expenditure needs into 2026. However, we anticipate that we will need to raise additional capital in the future to fund our operations, including further development of our product candidates and the commercialization of any approved product candidates. In addition, we regularly consider fund-raising opportunities and may decide, from time to time, to raise additional capital, including pursuant to the Equity Distribution Agreement, based on various factors, including market conditions and our plans of operation. 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, nonclinical development and clinical trials for our current and future product candidates;

•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 payments, 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 effects of 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.

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Until such time as we complete nonclinical 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, including pursuant to the Equity Distribution Agreement, 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 effects of the COVID-19 pandemic, actual or perceived changes in interest rates and economic inflation and otherwise. If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be adversely affected.

Material Cash Requirements

We continually evaluate our liquidity and capital resources to ensure that we can adequately and efficiently finance our operations. As of March 31, 2023, our material cash requirements consisted primarily of paying salaries and benefits, administering clinical trials, conducting research, improving our manufacturing capabilities, providing the technology and facilities necessary to support our operations, funding operating lease obligations and other payments related to our collaborative agreements, including anticipated success payments and license fees. See Note 3, License, Collaboration and Success Payment Agreements, and Note 7, Leases, in the accompanying notes to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Cash Flows

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

	Three Months Ended March 31,
	2023		2022
Net cash (used in) provided by:
Operating activities	$	(46,212)	$	(47,852)
Investing activities	32,154		(26,122)
Financing activities	(69)		2,555
Net decrease in cash, cash equivalents and restricted cash	$	(14,127)	$	(71,419)

Operating Activities

During the three months ended March 31, 2023, net cash used in operating activities was $46.2 million, reflecting our net loss of $67.0 million, partially offset by $25.1 million of non-cash items primarily related to stock-based compensation of $13.9 million, impairment of other investments of $10.0 million and depreciation and amortization of $5.0 million, partially offset by net amortization and accretion on marketable securities of $1.9 million and the change in fair value of the success payment liabilities of $1.7 million. Additionally, net operating assets and liabilities decreased $4.3 million primarily driven by a $5.9 million decrease in accrued liabilities and other current liabilities partially offset by a $2.1 million increase in accounts payable.

During the three months ended March 31, 2022, net cash used in operating activities was $47.9 million, reflecting our net loss of $68.1 million, partially offset by non-cash items such as stock-based compensation expense of $22.0 million and depreciation and amortization expense of $4.2 million. Additionally, net operating assets and liabilities decreased $2.4 million, which included a $6.4 million decrease of accrued liabilities and other current liabilities due primarily to annual employee bonus payments, offset by a $2.9 million increase in accounts payable and a $2.1 million increase in operating lease liabilities primarily due to tenant improvement allowances received during the three months ended March 31, 2022.

Investing Activities

During the three months ended March 31, 2023, cash provided by investing activities was $32.2 million, consisting of net maturities, sales and purchases of marketable securities of $33.7 million offset by purchases of property and equipment of $1.5 million.

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During the three months ended March 31, 2022, cash used in investing activities was $26.1 million, consisting of net purchases of marketable securities of $16.4 million and purchases of property and equipment of $9.7 million.

Financing Activities

During the three months ended March 31, 2023, cash used in financing activities was $0.1 million, consisting of taxes paid related to the net share settlement of equity awards.

During the three months ended March 31, 2022, cash provided by financing activities was $2.6 million, consisting of proceeds from the exercise of stock options.

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 applicable rules and regulations of the SEC.

Critical Accounting Policies and Significant Judgments and Estimates

Our unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these unaudited Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the 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.

There have been no material changes to our critical accounting policies and estimates as compared to those described in our Annual Report on Form 10‑K for the year ended December 31, 2022 (Annual Report).

Item 3. 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 equivalents of $83.9 million as of March 31, 2023, which consisted of 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 $558.6 million as of March 31, 2023. The primary objective of our investment activities is to preserve capital to fund our operations, and we currently do not hedge our interest rate risk exposure. 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 10% relative change in interest rates during any of the periods presented would not have had a material effect on our unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We had no debt outstanding as of March 31, 2023.