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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended December 31, 2022.

OR

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

OR

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

Date of event requiring this shell company report

For the transition period from              to

Commission file number: 001-39838

Gracell Biotechnologies Inc.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Building 12, Block B, Phase II

Biobay Industrial Park

218 Sangtian St.

Suzhou Industrial Park, 215123

People’s Republic of China

(Address of principal executive offices)

Yili Kevin Xie, Chief Financial Officer

Telephone: +86-512-6262-6701

Email: ir@gracellbio.com

Building 12, Block B, Phase II

Biobay Industrial Park

218 Sangtian St.

Suzhou Industrial Park, 215123

People’s Republic of China

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

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

Title of each class

     

Trading
Symbol(s)

    

Name of each exchange
on which registered

American depositary shares (one American
depositary share representing five ordinary
shares, par value US$0.0001 per share)

GRCL

The Nasdaq Stock Market LLC
(The Nasdaq Global Select Market)

Ordinary shares, par value
US$0.0001 per share
*

The Nasdaq Stock Market LLC
(The Nasdaq Global Select Market)

*

Not for trading, but only in connection with the listing on The Nasdaq Global Select Market of American depositary shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Table of Contents

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2022, 338,498,819 ordinary shares (excluding 17,865,387 ordinary shares issued to the depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under our share incentive plans), par value of US$0.0001 per share, were issued and outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

  Yes              No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

  Yes              No

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

Accelerated filer

    

Non-accelerated filer

    

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.     Yes      No

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.     Yes      No

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.    Yes      No

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).    Yes      No

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP

    

International Financial Reporting Standards as issued
by the International Accounting Standards Board

    

Other

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

  Item 17      Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes              No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

  Yes              No

Table of Contents

TABLE OF CONTENTS

    

Page

INTRODUCTION

1

FORWARD-LOOKING INFORMATION

3

PART I

5

Item 1. Identity of Directors, Senior Management and Advisers

5

Item 2. Offer Statistics and Expected Timetable

5

Item 3. Key Information

5

Item 4.Information on the Company

108

Item 4A. Unresolved Staff Comments

171

Item 5. Operating and Financial Review and Prospects

172

Item 6. Directors, Senior Management and Employees

185

Item 7. Major Shareholders and Related Party Transactions

197

Item 8. Financial Information

199

Item 9. The Offer and Listing

200

Item 10. Additional Information

200

Item 11. Quantitative and Qualitative Disclosures about Market Risk

216

Item 12. Description of Securities Other than Equity Securities

217

PART II

218

Item 13. Defaults, Dividend Arrearages and Delinquencies

218

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

218

Item 15. Controls and Procedures

219

Item 16A. Audit Committee Financial Expert

220

Item 16B. Code of Ethics

220

Item 16C. Principal Accountant Fees and Services

220

Item 16D. Exemptions from the Listing Standards for Audit Committees

220

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

220

Item 16F. Change in Registrant’s Certifying Accountant

220

Item 16G. Corporate Governance

220

Item 16H. Mine Safety Disclosure

221

Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

221

PART III

222

Item 17. Financial Statements

222

Item 18. Financial Statements

222

Item 19. Exhibits

222

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INTRODUCTION

Unless otherwise indicated or the context otherwise requires, references in this annual report to:

“ADSs” are to the American depositary shares, each of which represents five of our ordinary shares;
“CAR” are to chimeric antigen receptor;
“ADRs” are to the American depositary receipts that evidence the ADSs;
“CDE” are to the Center for Drug Evaluation of the National Medical Products Administration in China;
“China” and “PRC” are to the People’s Republic of China, excluding, for the purpose of this annual report only, the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan; “Greater China” does not exclude Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan;
“CR” are to complete response, which generally means the disappearance of all signs of cancer in response to treatment, with the exact criteria varying from indication to indication;
“CRi” are to complete response with incomplete hematologic recovery;
“CRS” are to cytokine release syndrome, a symptom complex and an expected adverse event associated with CAR-T cell therapies and measured by Lee grading system or ASBMT grading system. Grade 1 CRS is generally associated with non-life threatening symptoms and requires symptomatic treatment only, Grade 2 or Grade 3 CRS requires moderate to more aggressive intervention, and Grade 4 or higher CRS is associated with life-threatening symptoms that require ventilation support, or death;
“FDA” are to U.S. Food and Drug Administration;
“Gracell,” “we,” “us,” “our company,” or “our” are to Gracell Biotechnologies Inc. and its subsidiaries and, in the context of describing our operations and consolidated financial information, also include the VIE and its subsidiary;
“GvHD” are to graft versus host disease, where donor cells recognize the patient’s normal tissues as foreign and cause potentially lethal tissue damage;
“HvG” are to host versus graft rejection, where a patient’s immune cells recognize infused non-HLA-matched donor cells as foreign and reject them;
“ICANS” are to immune effector cell-associated neurotoxicity syndrome, a common adverse event and treatment-related toxicity observed after CAR-T cell therapies and measured by ASBMT grading system. Grade 1 ICANS is generally associated with low depressed level of consciousness where patients awaken spontaneously, Grade 2 or Grade 3 ICANS is generally associated with moderate depressed level of consciousness where patients still awaken to voice or tactile stimulus, and clinical seizure that resolves rapidly, and Grade 4 ICANS is generally associated more serious symptoms such as stupor, coma, prolonged seizure and deep focal motor weakness;
“MRD” are to minimal residual disease, the small number of cancer cells in the body after cancer treatment. An MRD positive or MRD+ test result means that disease was still detected after treatment; an MRD negative or MRD- result means that no disease was detected after treatment;
“NMPA” are to the National Medical Products Administration in China;
“Onset” are to the first appearance of any sign or symptom of an illness;
“ordinary shares” are to ordinary shares of our company, par value US$0.0001 per share;

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“ORR” are to overall response rate, percentage of patients achieving a response to therapy;
“Renminbi” and “RMB” are to the legal currency of the PRC;
“PFS” are to progression-free survival, the length of time during and after the treatment of a disease, such as cancer, that a patient lives without the disease getting worse;
“PR” are to partial response;
“Preferred Shares” are to the series A, series B-1, series B-2 and series C preferred shares, par value $0.0001 per share;
“sCR” are to stringent complete response, a deeper response category than CR used in multiple myeloma;
“SOC” are to standard of care;
“TME” are to tumor microenvironment;
“US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States;
“we,” “us,” “our company” and “our” are to Gracell Biotechnologies Inc., a Cayman Islands exempted company and its subsidiaries and, in the context of describing our operations and consolidated financial information, also include its consolidated PRC affiliated entities; and
“VGPR” are to very good partial response.

Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB6.8972 to US$1.00, the exchange rate as of December 31, 2022 as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all.

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FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects.” Known and unknown risks, uncertainties and other factors, including those set forth in “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases, such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

the ability of our investigator-initiated trials and clinical trials to demonstrate acceptable safety and efficacy of our product candidates, and other positive results;
the timing, progress and results of preclinical studies, investigator-initiated trials and clinical trials for product candidates we may develop, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
the timing, scope and likelihood of regulatory filings and approvals, including final regulatory approval of our product candidates;
our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical trials;
our manufacturing, commercialization, and marketing capabilities and strategy;
our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;
the need to hire additional personnel and our ability to attract and retain such personnel;
the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting;
our expectations regarding the approval and use of our product candidates as first, second or subsequent lines of therapy or in combination with other drugs;
our ability to consistently maintain effective internal control over financial reporting;
our competitive position and the success of competing therapies that are or may become available;
our estimates of the number of patients that we will enroll in our clinical trials;
the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates;
our ability to obtain and maintain regulatory approval of our product candidates;
our plans relating to the further development of our product candidates, including additional indications we may pursue;

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our intellectual property position, including our ability to obtain, maintain, expand, protect and enforce our intellectual property rights covering product candidates we may develop, including the extensions of existing patent terms where available, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;
our continued reliance on third parties to conduct additional clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;
our ability to obtain, and negotiate favorable terms of, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates;
the pricing and reimbursement of our product candidates we may develop, if approved;
the rate and degree of market acceptance and clinical utility of our product candidates we may develop;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our financial performance;
the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements;
the impact of laws and regulations;
our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act;
the effect of epidemics and pandemics, such as the COVID-19 pandemic, or other business disruptions on our business; and
our anticipated use of our existing resources and the proceeds from our initial public offering.

These forward-looking statements involve various risks and uncertainties. You should read thoroughly this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects” and other sections in this annual report. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual report, completely and with the understanding that our actual future results may be materially different from what we expect.

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PART I

Item 1.

Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.

Offer Statistics and Expected Timetable

Not applicable.

Item 3.

Key Information

Investing in our securities involves a high degree of risk. Please carefully consider the risks discussed under “Item 3. Key Information—D. Risk Factors” in this annual report. We provide the following disclosure to help investors better understand our corporate structure, operations in China and the associated risks.

As used in this annual report, (i) “Shanghai Gracell Biotech” or the “ VIE” refers to Gracell Biotechnologies (Shanghai) Co., Ltd.; (ii) “Gracell Bioscience” or the “WFOE” refers to Gracell Bioscience (Shanghai) Co., Ltd., our wholly-owned subsidiary incorporated in the PRC; (iii) “Gracell HK” refers to Gracell Biotechnologies (HK) Limited, our wholly-owned subsidiary incorporated in Hong Kong; (iv) “Gracell Cayman” refers to Gracell Biotechnologies Inc., our Cayman Islands holding company; and (v) “Gracell,” “we,” “us,” “our company,” or “our” refer to Gracell Biotechnologies Inc. and its subsidiaries and, in the context of describing our operations and consolidated financial information, also include the VIE and its subsidiary.

Our Corporate Structure and Operation in China

Gracell Biotechnologies Inc., or Gracell Cayman, is a Cayman Islands holding company that conducts a significant portion of its operations through its wholly-owned subsidiaries in the United States, Hong Kong and China, as well as a variable interest entity, or VIE, and the VIE’s subsidiary. Neither Gracell Cayman nor its subsidiaries own any equity interest or direct foreign investment in the VIE, Gracell Biotechnologies (Shanghai) Co., Ltd., or Shanghai Gracell Biotech, and the VIE’s subsidiary, Suzhou Gracell Biotechnologies Co., Ltd., or Suzhou Gracell Biotech. Instead, Gracell Cayman relies on contractual arrangements among its PRC subsidiary, the VIE and the VIE’s nominee shareholders, which allow Gracell Cayman to (i) direct the activities of the VIE that most significantly impact the VIE’s economic performance; (ii) receive substantially all of the economic benefits of the VIE and the VIE’s subsidiary; and (iii) have an exclusive option to purchase all or part of the equity interests in the VIE when and to the extent permitted by PRC law. As a result of these contractual arrangements, Gracell Cayman is considered the primary beneficiary of the VIE and the VIE's subsidiaries for accounting purposes. Investors in the ADSs or our ordinary shares would not hold any ownership interest, directly or indirectly, in the VIE and its subsidiary in China and would merely have a contractual relationship with the operating entities in China.

For a detailed description about these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIE and Its Shareholders.”

As a result, holders of the ADSs are not holding equity interest in the VIE or its subsidiary but instead are holding equity interest in Gracell Cayman, a Cayman Islands holding company whose consolidated financial results include those of the VIE and its subsidiary under U.S. GAAP. More specifically, investors in the ADSs or our ordinary shares would not hold any ownership interest, directly or indirectly, in the VIE and its subsidiary in China and would merely have a contractual relationship with the operating entities in China.

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Our corporate structure is subject to risks associated with our contractual arrangements with the VIE. These contractual arrangements have not been tested in a court of law in the PRC. If the PRC government finds that these contractual arrangements do not comply with PRC laws and regulations, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the VIE could be subject to severe penalties or be forced to relinquish our interests in the operations of the VIE and its subsidiary. This would result in the VIE and its subsidiary being deconsolidated. As of December 31, 2020, 2021 and 2022, 24%, 15%, 17% of our assets were held by the VIE, respectively. An event that results in the deconsolidation of the VIE would have a material adverse effect on our operations and result in the value of the securities diminish substantially or even become worthless. There are substantial uncertainties regarding potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and consequently, significantly affect the financial performance of the VIE and our company as a whole. For a detailed description of the risks associated with our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”

In addition, we rely on contractual arrangements with the VIE and its shareholders for a portion of our business operations in China, and these contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE. We rely on the performance by the VIE and its shareholders of their obligations under the contracts to direct the activities of the VIE that most significantly impact the VIE’s economic performance. The shareholders of the VIE may not act in the best interests of us or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portion of our business through the contractual arrangements with the VIE. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with the VIE and its shareholders to direct the activities of the VIE that most significantly impact the VIE’s economic performance, which may not be as effective as direct ownership in providing operational control.”

We face various legal and operational risks and uncertainties related to doing business in China, including complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offshore offerings, the use of variable interest entities, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, as well as the lack of inspection by the Public Company Accounting Oversight Board, or PCAOB, on our independent registered public accounting firm in the past, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a U.S. or other foreign exchange. These risks could result in a material adverse change in our operations and the value of the ADSs, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause such securities to significantly decline in value or become worthless, as further explained below:

The PRC government has significant authority to regulate or intervene in the China operations of an offshore holding company, such as us, at any time. Therefore, investors in the ADSs and our business face potential uncertainty from the PRC government’s policy. The Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our ADSs. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government has significant authority to regulate or intervene in the China operations of an offshore holding company, such as us, at any time. Therefore, investors in the ADSs and our business face potential uncertainty from the PRC government’s policy”;

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We believe that our corporate structure and contractual arrangements with the VIE comply with the current applicable PRC laws and regulations. As of the date of this annual report, we believe that our PRC subsidiaries and the VIE are not required to obtain permission or approval from the Chinese Securities Regulatory Commission, or the CSRC, or the Cyberspace Administration of China, or the CAC, to operate their respective business in China or to approve our contractual arrangements with the VIE and its shareholders. However, PRC laws and regulations governing the conditions and the requirements of such approval are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations. Accordingly, the PRC regulatory authorities may take a different view. There can be no assurance that the PRC government authorities would agree that our corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. On December 28, 2021, the CAC, and several other regulatory authorities in China jointly promulgated the Cybersecurity Review Measures, which came into effect on February 15, 2022. As the Cybersecurity Review Measures was newly issued, there remain uncertainties as to how it would be interpreted and enforced, and to what extent it may affect us. See “Risk Factors—Risks Related to Doing Business in China—The approval, filing or other requirements of the CSRC, the CAC or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas.” As of the date of this annual report, we have not received any inquiry, notice, warning, or sanctions regarding our corporate structure and contractual arrangements from the CSRC, CAC or any other PRC governmental agency. If we, our subsidiaries or the VIE (i) do not receive or maintain such permissions or approvals if required, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) if applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future,, our ADSs may significantly decline in value or become worthless if we are unable to assert our contractual control rights over the economic benefits and assets of the VIE and its subsidiaries. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure”; and
Recently, the PRC government initiated a series of regulatory actions and released guidelines to regulate business operations in China with little advance notice, including those related to data security or anti-monopoly concerns, which may have an impact on our ability to conduct certain business in China, accept foreign investments, or list on a U.S. or other foreign exchange. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact of such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on a U.S. or other foreign exchange. For a detailed description of risks and regulations related to doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”

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The Holding Foreign Companies Accountable Act

Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of this annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors— Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

Transfer of Cash Through Our Organization

Although we consolidate the results of the VIE and its subsidiaries under U.S. GAAP, we only have access to the assets or earnings of the VIE and its subsidiaries through our contractual arrangements with the VIE and its shareholders. The cash flows that have occurred between Gracell Cayman, its subsidiaries and the VIE and its subsidiaries are summarized as follows:

For the years ended December 31,

    

2020

    

2021

    

2022

RMB

RMB

RMB

US$

(in thousands)

Fees paid for services to the VIE and its subsidiaries

 

16,906

 

16,226

 

26,415

 

3,830

Restrictions and Limitations on Transfer of Cash

Gracell Cayman is incorporated in the Cayman Islands and its businesses in China are conducted mainly through its PRC subsidiaries and partly through the VIE and its subsidiary. While we currently do not have cash management policies and procedures on the transfer of funds within our group, we face various restrictions and limitations on foreign exchange, our ability to transfer cash between entities, across borders and to U.S. investors, and our ability to distribute earnings from our subsidiaries and/or the VIE and its subsidiaries, to Gracell Cayman and holders of the ADSs as well as the ability to settle amounts owed under the contractual arrangements with the VIE.

Uncertainties regarding the interpretation and implementation of the contractual arrangements with the VIE could limit our ability to enforce such agreements. If the PRC authorities determine that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if current regulations change or are interpreted differently in the future, our ability to settle amount owed by the VIE under the VIE agreements may be seriously hindered.

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Current PRC regulations permit our PRC subsidiaries, including the WFOE, to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries, the VIE and its PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries and the VIE and its subsidiaries may also allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. Furthermore, if the WFOE incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect the WFOE’s ability to pay dividends and other distributions to us. Any limitation on the ability of our PRC subsidiaries, including the WFOE, to distribute dividends to us or on the ability of the VIE to make payments to the WFOE may restrict our ability to satisfy our liquidity requirements. See “Item 4. Information on the Company—B. Business Overview—Regulation—PRC Regulation—Other PRC National- and Provincial-Level Laws and Regulations – Regulations Relating to Dividend Distributions.”

Gracell HK may be considered a non-resident enterprise for tax purposes, so that any dividends paid by our PRC subsidiaries to Gracell HK may be regarded as China-sourced income and, as a result, may be subject to PRC withholding tax at a rate of up to 10%. If we are required under the PRC Enterprise Income Tax Law to pay income tax for any dividends we receive from PRC subsidiaries, or if Gracell HK is determined by PRC government authority as receiving benefits from reduced income tax rate due to a structure or arrangement that is primarily tax-driven, it would materially and adversely affect the amount of dividends, if any, we may pay to our shareholders and ADS holders. If the PRC tax authorities determine that Gracell Cayman is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% tax from dividends we pay to our shareholders and ADS holders, in each case that are non-resident enterprises. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Dividends we receive from our subsidiaries located in the PRC may be subject to PRC withholding tax, which could materially and adversely affect the amount of dividends, if any, we may pay our shareholders.”

In addition, non-resident enterprise shareholders, including our ADS holders, may be subject to PRC tax at a rate of 10% on gains realized on the sale or other disposition of ADSs or ordinary shares if such income is treated as sourced from within the PRC. Furthermore, if Gracell Cayman were deemed to be a PRC resident enterprise, dividends paid to our non-PRC individual shareholders, including our ADS holders, and any gain realized on the transfer of ADSs or ordinary shares by such holders may be subject to PRC tax at a rate of 20% which in the case of dividends may be withheld at source. Any such tax may reduce the returns on your investment in the ADSs or ordinary shares. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—If we are classified as a “resident enterprise” of China under the PRC Enterprise Income Tax Law, we and our non-PRC shareholders could be subject to unfavorable tax consequences, and our business, financial condition and results of operations could be materially and adversely affected.”

Our offshore entities are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries only through loans or capital contributions, subject to the approval of government authorities and limits on the amount of capital contributions and loans. This may delay or prevent us from using the proceeds from our offshore capital raising activities to make loans or capital contribution to our PRC subsidiaries. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiary.”

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Additionally, the PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange of the PRC, or the SAFE, by complying with certain procedural requirements. Dividends payments to us by Gracell HK in foreign currencies are subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approvals by or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, our PRC subsidiaries, including the WFOE, may not be able to pay dividends in foreign currencies to us and our access to cash generated from its operations will be restricted. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may affect the value of your investment.” and “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—Fluctuation in exchange rates could have a negative effect on our results of operations and the value of your investment.”

Taxation on Dividends or Distributions

Gracell Cayman’s source of dividend partly comes from dividends paid by its PRC subsidiaries, including the WFOE, which in part depends on payments received from the VIE under the contractual arrangements with the VIE. None of our subsidiaries has declared or paid any dividend or distribution to us. We have never declared or paid any dividend on our ordinary shares and we have no current intention to pay dividends to shareholders or holders of ADSs. We currently intend to retain most, if not all, of our available funds and any future earnings to fund the research and development of our product candidates and the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future.

Under the current laws of the Cayman Islands, Gracell Cayman is not subject to tax on income or capital gains. Upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed. For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in Mainland China and Hong Kong, assuming that: (i) we have taxable earnings in the VIE, and (ii) we determine to pay a dividend in the future:

Hypothetical pre-tax earnings in the VIE (1)

    

100

%

Tax on earnings at statutory rate of 25% at WFOE level

 

(25)

%

Amount to be distributed as dividend from WFOE to Gracell HK (2)

 

75

%

Withholding tax at tax treaty rate of 5%  

(3.75)

%

Amount to be distributed as dividend at Gracell HK level and net distribution to Gracell Cayman (3)

 

71.25

%

Notes:

(1)

For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount is assumed to equal Chinese taxable income.

(2)

China’s Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a Foreign Invested Enterprise to its immediate holding company outside of Mainland China. A lower withholding income tax rate of 5% is applied if the Foreign Invested Enterprise’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with Mainland China, subject to a qualification review at the time of the distribution. There is no incremental tax at Gracell HK level for any dividend distribution to Gracell Cayman.

(3)

If a 10% withholding income tax rate is imposed, the withholding tax will be 7.5 and the amount to be distributed as dividend at Gracell HK level and net distribution to Gracell Cayman will be 67.5.

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A.   [Reserved]

Disaggregated Financial Information Relating to the VIE

For the years ended December 31, 2020, 2021 and 2022, the VIE and its subsidiaries accounted for a substantial portion of our financial position, results of operations and cash flows. Set forth below are the condensed consolidating schedule showing the financial position as of December 31, 2021 and 2022, the results of operations and cash flows for the years ended December 31, 2020, 2021 and 2022 for (i) Gracell Cayman, (ii) the VIE and its consolidated subsidiaries, (iii) the WFOE (which is the primary beneficiary of the VIE) and (iv) other consolidated entities, and eliminating adjustments and consolidated totals (in thousands of RMB).

We expect that the financial position, results of operations and research and development activities of the VIE and its subsidiaries will constitute a material portion of our consolidated financial information for the foreseeable future. Accordingly, we believe the risks associated with the contractual arrangement with the VIE and its shareholders, if materialized, could adversely affect our financial position, results of operations, prospects or the value of the ADSs.

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Condensed Consolidated Balance Sheets Data

    

As of December 31, 2021

Other 

VIE and

Parent 

Equity 

 VIE’s 

Eliminating 

Consolidated 

Only

Subsidiaries

WFOE

Subsidiary

adjustments

Totals

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

ASSETS

 

  

 

  

 

  

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

 

1,517,362

 

106,790

 

82,634

 

122,220

 

 

1,829,006

Short-term investments

 

 

 

 

3,615

 

 

3,615

Amounts due from Group companies

 

 

50,000

 

487,676

 

65,705

 

(603,381)

 

Prepayments and other current assets

 

26

 

11

 

11,454

 

40,968

 

 

52,459

Total current assets

 

1,517,388

 

156,801

 

581,764

 

232,508

 

(603,381)

 

1,885,080

Investment in subsidiaries

 

 

159,818

 

 

 

(159,818)

 

Investment in VIEs

Amounts due from Group companies-long-term

 

372,092

 

 

 

 

(372,092)

 

Property, equipment and software

 

 

 

62,874

 

60,944

 

 

123,818

Operating lease right-of-use assets

24,825

4,827

29,652

Other non-current assets

 

 

 

13,604

 

7,983

 

 

21,587

TOTAL ASSETS

 

1,889,480

 

316,619

 

683,067

 

306,262

 

(1,135,291)

 

2,060,137

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

 

  

 

  

 

  

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Amounts due to Group companies

 

45,587

 

 

71,000

 

486,794

 

(603,381)

 

Accruals and other current liabilities

 

6,989

 

5,096

 

21,350

 

35,685

 

 

69,120

Short-term borrowings

 

 

 

 

66,100

 

 

66,100

Operating lease liabilities, current

13,160

4,367

17,527

Current portion of long-term borrowings

 

 

 

 

2,376

 

 

2,376

Total current liabilities

 

52,576

 

5,096

 

105,510

 

595,322

 

(603,381)

 

155,123

Deficit in subsidiaries

 

1,069

 

 

 

 

(1,069)

 

Deficit in VIEs

 

 

 

403,639

 

 

(403,639)

 

Amounts due to Group companies-long-term

 

 

312,592

 

 

59,500

 

(372,092)

 

Operating lease liabilities, non-current

14,100

730

14,830

Long-term borrowings

 

 

 

 

54,349

 

 

54,349

Other non-current liabilities

8,464

8,464

TOTAL LIABILITIES

 

62,109

 

317,688

 

523,249

 

709,901

 

(1,380,181)

 

232,766

Shareholders’ equity (deficit):

 

  

 

  

 

  

 

  

 

  

 

  

Ordinary shares

 

223

 

336

 

820,452

 

6,016

 

(826,804)

 

223

Additional paid-in capital

 

2,902,856

 

787,791

 

80,034

 

67,812

 

(935,637)

 

2,902,856

Accumulated other comprehensive income

 

(57,936)

 

(321)

 

 

 

321

 

(57,936)

Accumulated deficit

 

(1,017,772)

 

(788,875)

 

(740,668)

 

(477,467)

 

2,007,010

 

(1,017,772)

Total shareholders’ equity (deficit)

 

1,827,371

 

(1,069)

 

159,818

 

(403,639)

 

244,890

 

1,827,371

TOTAL LIABILITIES, AND SHAREHOLDERS’ EQUITY (DEFICIT)

 

1,889,480

 

316,619

 

683,067

 

306,262

 

(1,135,291)

 

2,060,137

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As of December 31, 2022

Other 

VIE and

Parent 

Equity 

 VIE’s 

Eliminating 

Consolidated 

Only

Subsidiaries

WFOE

Subsidiary

Adjustments

Totals

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

ASSETS

 

  

 

  

 

  

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

 

1,198,856

 

81,797

 

63,513

 

110,479

 

 

1,454,645

Short-term investments

 

 

 

 

3,559

 

 

3,559

Amount due from Group companies

 

 

184,000

 

626,646

 

93,705

 

(904,351)

 

Prepayments and other current assets

 

253

 

266

 

16,357

 

20,675

 

 

37,551

Total current assets

 

1,199,109

 

266,063

 

706,516

 

228,418

 

(904,351)

 

1,495,755

Amount due from Group companies -long-term

435,788

(435,788)

Property, equipment and software

 

 

6,066

 

72,318

 

44,742

 

 

123,126

Operating lease right-of-use assets

 

 

548

 

13,087

 

7,911

 

 

21,546

Other non-current assets

 

3,137

 

1,394

 

8,572

 

2,746

 

 

15,849

TOTAL ASSETS

 

1,638,034

 

274,071

 

800,493

 

283,817

 

(1,340,139)

 

1,656,276

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

 

  

 

  

 

  

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

Amount due to Group companies

 

45,177

 

 

183,000

 

676,174

 

(904,351)

 

Accruals and other current liabilities

 

7,358

 

16,364

 

20,844

 

41,425

 

 

85,991

Short-term borrowings

 

 

 

 

104,600

 

 

104,600

Operating lease liabilities, current

 

 

557

 

11,990

 

4,998

 

 

17,545

Current portion of long-term borrowings

 

 

 

 

7,844

 

 

7,844

Amount due to related parties

4,662

4,662

Total current liabilities

 

57,197

 

16,921

 

215,834

 

835,041

 

(904,351)

 

220,642

Deficit in subsidiaries

 

198,193

 

79,055

 

 

 

(277,248)

 

Deficit in VIEs

 

 

 

661,665

 

 

(661,665)

 

Amounts due to Group companies-long-term

376,288

59,500

(435,788)

Operating lease liabilities, non-current

 

 

 

2,049

 

4,436

 

 

6,485

Long-term borrowings

 

 

 

 

46,505

 

 

46,505

Other non-current liabilities

 

6,879

 

 

 

 

 

6,879

TOTAL LIABILITIES

 

262,269

 

472,264

 

879,548

 

945,482

 

(2,279,052)

 

280,511

Shareholders’ equity (deficit):

 

 

  

 

  

 

  

 

  

Ordinary shares

 

223

 

336

 

1,004,106

 

6,016

 

(1,010,458)

 

223

Additional paid-in capital

 

2,927,295

 

1,184,838

 

90,393

 

72,943

 

(1,348,174)

 

2,927,295

Accumulated other comprehensive income (loss)

 

73,528

 

(18,934)

 

 

 

18,934

 

73,528

Accumulated deficit

 

(1,625,281)

 

(1,364,433)

 

(1,173,554)

 

(740,624)

 

3,278,611

 

(1,625,281)

Total shareholders’ equity (deficit)

 

1,375,765

 

(198,193)

 

(79,055)

 

(661,665)

 

938,913

 

1,375,765

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

 

1,638,034

 

274,071

 

800,493

 

283,817

 

(1,340,139)

 

1,656,276

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Condensed Consolidated Statements of Operations Data

For the year ended December 31, 2020

Other 

VIE and 

Parent 

Equity 

VIE’s 

Eliminating 

Consolidated 

Only

Subsidiaries

WFOE

Subsidiary

adjustments

Totals

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

Revenues

 

  

 

  

 

  

 

  

 

  

 

  

Other-intercompany(a)

 

 

 

 

16,906

 

(16,906)

 

Total revenues

 

 

 

 

16,906

 

(16,906)

 

Expenses

 

  

 

  

 

  

 

  

 

  

 

  

Research and development expenses

 

(1,753)

 

(1,185)

 

(53,356)

 

(112,536)

 

 

(168,830)

Administrative expenses

 

(13,745)

 

(6,439)

 

(18,463)

 

(6,919)

 

 

(45,566)

Other - intercompany(a)

 

(16,906)

 

 

16,906

 

Loss from operations

 

(15,498)

 

(7,624)

 

(88,725)

 

(102,549)

 

 

(214,396)

Interest income(d)

 

2,179

 

 

822

 

554

 

(685)

 

2,870

Interest expense(d)

 

 

 

 

(2,840)

 

685

 

(2,155)

Other income

 

 

 

54

 

4,653

 

 

4,707

Foreign exchange gain (loss), net

 

(1,551)

 

 

(1,362)

 

(1)

 

 

(2,914)

Equity in losses of subsidiaries and VIE(c)

 

(197,030)

 

(189,406)

 

(100,195)

 

 

486,631

 

Others, net

 

 

 

 

(12)

 

 

(12)

Loss before income taxes

 

(211,900)

 

(197,030)

 

(189,406)

 

(100,195)

 

486,631

 

(211,900)

Income tax expense

 

 

 

 

 

 

Net loss

 

(211,900)

 

(197,030)

 

(189,406)

 

(100,195)

 

486,631

 

(211,900)

Accretion of convertible redeemable preferred shares to redemption value

 

(62,733)

 

 

 

 

 

(62,733)

Net loss attributable to Gracell Biotechnologies Inc.’s ordinary shareholders

 

(274,633)

 

(197,030)

 

(189,406)

 

(100,195)

 

486,631

 

(274,633)

Other comprehensive income (loss)

 

  

 

  

 

  

 

  

 

  

 

  

Foreign currency translation adjustments, net of nil tax

 

(20,754)

 

(1,249)

 

 

 

1,249

 

(20,754)

Total comprehensive loss attributable to Gracell Biotechnologies Inc.’s ordinary shareholders

 

(295,387)

 

(198,279)

 

(189,406)

 

(100,195)

 

487,880

 

(295,387)

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Table of Contents

For the year ended December 31, 2021

Other 

VIE and

Parent 

Equity 

 VIE’s 

Eliminating 

Consolidated 

Only

Subsidiaries

WFOE

Subsidiary

adjustments

Totals

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

Revenues

 

  

 

  

 

  

 

  

 

  

 

  

Licensing and collaboration revenue

366

366

Other-intercompany(a)(b)

 

 

 

22,958

 

16,226

 

(39,184)

 

Total revenues

 

 

 

22,958

 

16,592

 

(39,184)

 

366

Expenses

 

  

 

  

 

  

 

  

 

  

 

  

Research and development expenses

 

(15,245)

 

(24,296)

 

(82,651)

 

(204,707)

 

 

(326,899)

Administrative expenses

 

(58,594)

 

(14,202)

 

(46,337)

 

(17,907)

 

 

(137,040)

Other - intercompany(a)(b)

 

(16,226)

 

(22,958)

 

39,184

 

Loss from operations

 

(73,839)

 

(38,498)

 

(122,256)

 

(228,980)

 

 

(463,573)

Interest income(d)

 

8,292

 

36

 

1,413

 

630

 

(1,255)

 

9,116

Interest expense(d)

 

 

 

 

(6,318)

 

1,255

 

(5,063)

Other income

 

 

 

45

 

9,075

 

 

9,120

Foreign exchange gain (loss), net

 

(55)

 

691

 

(1,933)

 

 

 

(1,297)

Equity in losses of subsidiaries and VIE(c)

 

(386,152)

 

(348,381)

 

(225,650)

 

 

960,183

 

Others, net

 

 

 

 

(57)

 

 

(57)

Loss before income taxes

 

(451,754)

 

(386,152)

 

(348,381)

 

(225,650)

 

960,183

 

(451,754)

Income tax expense

 

 

 

 

 

 

Net loss

 

(451,754)

 

(386,152)

 

(348,381)

 

(225,650)

 

960,183

 

(451,754)

Accretion of convertible redeemable preferred shares to redemption value

 

(1,989)

 

 

 

 

 

(1,989)

Net loss attributable to Gracell Biotechnologies Inc.’s ordinary shareholders

 

(453,743)

 

(386,152)

 

(348,381)

 

(225,650)

 

960,183

 

(453,743)

Other comprehensive income (loss)

 

  

 

  

 

  

 

  

 

  

 

  

Foreign currency translation adjustments, net of nil tax

 

(34,024)

 

1,087

 

 

 

(1,087)

 

(34,024)

Total comprehensive loss attributable to Gracell Biotechnologies Inc.’s ordinary shareholders

(487,767)

(385,065)

(348,381)

(225,650)

959,096

(487,767)

For the year ended December 31, 2022

Other 

VIE and

Parent 

Equity 

 VIE’s 

Eliminating 

Consolidated 

Only

Subsidiaries

WFOE

Subsidiary

Adjustments

Totals

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

Revenues

 

  

 

  

 

  

 

  

 

  

 

  

Other-intercompany(a)(b)

 

 

 

16,597

26,415

(43,012)

 

Total revenues

 

 

 

16,597

 

26,415

 

(43,012)

 

Expenses

 

  

 

  

 

  

 

  

 

  

 

  

Research and development expenses

 

(8,517)

 

(114,452)

 

(109,895)

 

(252,524)

 

 

(485,388)

Administrative expenses

 

(42,576)

 

(23,906)

 

(51,745)

 

(21,043)

 

 

(139,270)

Other - intercompany(a)(b)

 

 

 

(26,415)

 

(16,597)

 

43,012

Loss from operations

 

(51,093)

 

(138,358)

 

(171,458)

 

(263,749)

 

 

(624,658)

Interest income(d)

 

19,143

 

2,470

 

2,924

 

1,309

 

(1,929)

23,917

Interest expense(d)

 

 

 

 

(8,666)

 

1,929

(6,737)

Other income

 

 

 

81

 

7,920

 

 

8,001

Foreign exchange gain (loss), net

 

(1)

 

(6,784)

 

(1,384)

 

 

 

(8,169)

Equity in losses of subsidiaries and VIE(c)

 

(575,558)

(432,886)

(263,157)

1,271,601

Others, net

 

 

 

130

 

29

 

 

159

Loss before income taxes

 

(607,509)

 

(575,558)

 

(432,864)

 

(263,157)

 

1,271,601

(607,487)

Income tax expense

 

 

 

(22)

 

 

 

(22)

Net loss attributable to Gracell Biotechnologies Inc.'s ordinary shareholders

 

(607,509)

 

(575,558)

 

(432,886)

 

(263,157)

 

1,271,601

 

(607,509)

Other comprehensive income (loss)

 

 

 

 

 

 

Foreign currency translation adjustments, net of nil tax

 

131,464

 

(18,613)

 

 

 

18,613

 

131,464

Total comprehensive loss attributable to Gracell Biotechnologies Inc.'s ordinary shareholders

(476,045)

(594,171)

(432,886)

(263,157)

1,290,214

(476,045)

Notes to the Condensed Consolidated Statements of Operations Data

(a)

Reflects elimination of inter-company technical service fees charged by VIE to the WFOE subsidiaries. The VIE provided research and development related service to the WFOE and recognized revenue of RMB16.9 million, RMB16.2 million and RMB26.4 million in the years ended December 31, 2020, 2021 and 2022, respectively.

(b)

Reflects the elimination of the inter-company administrative expenses charged by WFOE to the VIE subsidiaries. The VIE received the business cooperation support from the WFOE and recognized the administrative expenses of nil, RMB23.0 million and RMB16.6 million in total in the years ended December 31, 2020, 2021 and 2022.

(c)

Reflects the equity in loss of subsidiaries and VIEs which is eliminated in consolidation.

(d)

Reflects the elimination of the inter-company interest income and expenses.

15

Table of Contents

Condensed Consolidated Cash Flows Data

For the year ended December 31, 2020

Other

VIE and 

Parent 

 Equity 

VIE’s 

Eliminating 

Consolidated 

Only

Subsidiaries

WFOE

Subsidiary

adjustments

Totals

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

Net cash used in operating activities

 

(13,309)

 

(6,952)

 

(93,026)

 

(84,862)

 

 

(198,149)

Cash flows from investing activities:

 

  

 

  

 

  

 

  

 

  

 

  

Purchase of property, equipment and software

 

 

 

(25,313)

 

(54,087)

 

 

(79,400)

Investment in subsidiaries

 

(305,734)

 

(298,538)

 

 

 

604,272

 

Loans to Group companies and VIEs(e)(f)

 

(6,915)

 

 

(189,980)

 

 

196,895

 

Investments in short-term investments

 

 

 

 

(28,055)

 

 

(28,055)

Proceeds from disposal of short-term investments

 

 

 

 

13,514

 

 

13,514

Net cash (used in) generated from investing activities

 

(312,649)

 

(298,538)

 

(215,293)

 

(68,628)

 

801,167

 

(93,941)

Cash flow from financing activities

 

  

 

  

 

  

 

  

 

  

 

  

Repayment of convertible loans

 

 

 

 

(138,695)

 

 

(138,695)

Proceeds from issuance of convertible redeemable preferred shares, net of issuance costs

 

795,420

 

 

 

 

 

795,420

Borrowings under loans from Group companies(e)(f)

 

 

 

 

196,895

 

(196,895)

 

Capital contribution from parent

 

 

305,734

 

298,538

 

 

(604,272)

 

Proceeds from bank borrowings

103,008

103,008

Repayments of bank borrowings

(122)

(122)

Payment of initial public offering costs

(2,645)

(499)

(3,144)

Net cash (used in) generated from financing activities

 

792,775

 

305,734

 

298,039

 

161,086

 

(801,167)

 

756,467

Effect of exchange rate on cash and cash equivalents

 

(19,515)

 

(1,249)

 

(1,363)

 

 

 

(22,127)

Net increase (decrease) in cash and cash equivalents

 

447,302

 

(1,005)

 

(11,643)

 

7,596

 

 

442,250

Cash and cash equivalents at the beginning of year

 

236,263

 

1,453

 

32,189

 

42,153

 

 

312,058

Cash and cash equivalents at the end of year

 

683,565

 

448

 

20,546

 

49,749

 

 

754,308

16

Table of Contents

For the year ended December 31, 2021

Other 

VIE and

Parent 

Equity 

 VIE’s 

Eliminating 

Consolidated 

Only

Subsidiaries

WFOE

Subsidiary

adjustments

Totals

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

    

RMB

Net cash (used in) generated from operating activities

 

2,039

 

(34,535)

 

(105,277)

 

(166,777)

 

 

(304,550)

Cash flows from investing activities:

 

  

 

  

 

  

 

  

 

  

 

  

Purchase of property, equipment and software

 

 

 

(38,886)

 

(17,857)

 

 

(56,743)

Investment in subsidiaries

 

(227,146)

 

(350,638)

 

 

 

577,784

 

Loans to Group companies and VIEs(e)(f)

 

(342,177)

 

(50,000)

 

(192,454)

 

 

584,631

 

Investments in short-term investments

 

 

 

 

(10,000)

 

 

(10,000)

Proceeds from disposal of short-term investments

 

 

 

 

25,127

 

 

25,127

Net cash (used in) generated from investing activities

 

(569,323)

 

(400,638)

 

(231,340)

 

(2,730)

 

1,162,415

 

(41,616)

Cash flow from financing activities

 

  

 

  

 

  

 

  

 

  

 

  

Proceeds from initial public offering and over-allotment, net of underwriting discounts and commissions

 

1,448,959

 

 

 

 

 

1,448,959

Proceeds from exercise of options and restricted share units

 

1,745

 

 

 

 

 

1,745

Borrowings under loans from Group companies(e)(f)

 

 

312,592

 

50,000

 

222,039

 

(584,631)

 

Capital contribution from parent

 

 

227,146

 

350,638

 

 

(577,784)

 

Proceeds from bank borrowings

 

 

 

 

71,233

 

 

71,233

Repayments of bank borrowings

 

 

 

 

(51,294)

 

 

(51,294)

Payment of initial public offering costs

 

(14,458)

 

 

 

 

 

(14,458)

Net cash (used in) generated from financing activities

 

1,436,246

 

539,738

 

400,638

 

241,978

 

(1,162,415)

 

1,456,185

Effect of exchange rate on cash and cash equivalents

 

(35,165)

 

1,777

 

(1,933)

 

 

 

(35,321)

Net increase (decrease) in cash and cash equivalents

 

833,797

 

106,342

 

62,088

 

72,471