Item 7. 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 audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Atara Biotherapeutics is a pioneer in T-cell immunotherapy, leveraging its novel allogeneic EBV T-cell platform to develop transformative therapies for patients with serious diseases, including solid tumors, hematologic cancers and autoimmune disease. With our lead program in Phase 3 clinical development, we are the most advanced allogeneic T-cell immunotherapy company and intend to rapidly deliver off-the-shelf treatments to patients with high unmet medical need. Our platform leverages the unique biology of EBV T cells and has the capability to treat a wide range of EBV-driven diseases or other serious diseases through incorporation of engineered CARs or TCRs. Atara is applying this one platform to create a robust pipeline. Our strategic priorities are:

• CAR T Programs:

Our T-cell immunotherapy platform includes the capability to progress both allogeneic and autologous programs and is potentially applicable to a broad array of targets and diseases. Our off-the-shelf, allogeneic T-cell platform allows for rapid delivery of a T-cell immunotherapy product manufactured in advance of patient need and stored in inventory, with each manufactured lot of cells providing therapy for numerous potential patients. This differs from autologous treatments, in which each patient’s own cells must be extracted, genetically modified outside the body and then delivered back to the patient, requiring a complex logistics network. For our allogeneic programs, we select the appropriate set of cells for use based on a patient’s unique immune profile.

In December 2020, we entered into the Bayer License Agreement, pursuant to which we granted to Bayer an exclusive, field-limited license under the applicable patents and know-how owned or controlled by us and our affiliates covering or related to ATA2271 and ATA3271. Under the terms of the Bayer License Agreement, we will be responsible at our cost for all mutually agreed preclinical and clinical activities for ATA2271 through the first in human Phase 1 clinical study in collaboration with MSK, following which Bayer will be responsible for the further development of ATA2271 at its cost. Bayer will be responsible for the development of ATA3271, except for certain mutually agreed preclinical, translational, manufacturing and supply chain activities to be performed by us relating to ATA3271, in each case at Bayer’s cost. Bayer will also be solely responsible for commercializing the Licensed Products at its cost.

We have also entered into research collaborations with leading academic institutions such as MSK, QIMR Berghofer and Moffitt pursuant to which we acquired rights to novel and proprietary technologies and programs.

Our manufacturing facility in Thousand Oaks, California has the flexibility to manufacture multiple T-cell and CAR T immunotherapies while integrating research and process science functions to enable increased collaboration for rapid product development. We are currently in the process of completing our facility’s commercial production qualification activities for tab-cel® while building inventory according to our commercial product supply strategy.

In addition to our manufacturing facility, we also work with Cognate pursuant to the Manufacturing Agreementthat we entered into in December 2019. Pursuant to the Manufacturing Agreement, Cognate provides manufacturing services for certain of our product candidates. The initial term of theManufacturing Agreement runs until December 31, 2021 and is renewable with Cognate’s approval for an additional one-year period.

We have a limited operating history. Since our inception in 2012, we have devoted substantially all of our resources to identify, acquire and develop our product candidates, including conducting preclinical and clinical studies, acquiring or manufacturing materials for clinical studies, constructing our manufacturing facility and providing general and administrative support for these operations.

Our net losses were $306.6 million, $291.0 million and $230.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, we had an accumulated deficit of $1.1 billion. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. As of December 31, 2020, our cash, cash equivalents and short-term investments totaled $500.7 million, which we intend to use to fund our operations.

Financial Overview

Revenues

We have never generated revenues from the sale of products and have incurred losses since inception. We do not expect to receive any revenue from product sales unless and until we obtain regulatory approval for and commercialize one of our current or future product candidates. Further, we have not generated any revenue to date from the Bayer License Agreement.

We expect that any revenue we generate from our Bayer License Agreement and any future collaboration and research and license partners will fluctuate from year to year as a result of the timing and number of milestones and other payments.

Research and Development Expenses

The largest component of our total operating expenses since inception has been our investment in research and development activities, including the preclinical and clinical development of our product candidates. Research and development expenses consist primarily of compensation and benefits for research and development employees, including stock-based compensation; expenses incurred under agreements with contract research organizations and investigative sites that conduct preclinical and clinical studies; the costs of acquiring and manufacturing clinical study materials and other supplies; payments under licensing and research and development agreements; other outside services and consulting costs; and facilities, information technology and overhead expenses. Research and development costs are expensed as incurred.

We plan to continue investment in the development of our product candidates. Our current planned research and development activities include the following:

• continuing development of ATA188 in progressive MS;

• continuing to develop other preclinical product candidates; and

In addition, we believe it is important to invest in the development of new product candidates to continue to build the value of our product candidate pipeline and our business. We plan to continue to advance our most promising early product candidates into preclinical development with the objective to advance these early-stage programs to human clinical studies over the next several years.

Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs, and timing of clinical studies and development of our product candidates will depend on a variety of factors, including:

• the potential review or reanalysis of our clinical study results;

• future clinical study results;

• significant and changing government regulation;

The process of conducting the necessary clinical research to obtain approval from the FDA and other regulators is costly and time consuming and the successful development of our product candidates is highly uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “1A. Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and benefits for legal, human resources, finance, commercial and other general and administrative employees, including stock-based compensation; professional services costs, including legal, patent, human resources, audit and accounting services; other outside services and consulting costs, including those related to pre-commercial activities; and information technology and facilities costs.

Interest and Other Income, net

Interest and other income, net consists primarily of interest earned on our cash, cash equivalents and short-term investments.

Income Taxes

Our provision for (benefit from) income taxes consists primarily of income taxes in U.S. state and foreign jurisdictions. Our effective tax rate was 0% for the years ended December 31, 2020, 2019, and 2018.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our significant judgments and estimates are detailed below, and our significant accounting policies are more fully described in Note 2 of the accompanying consolidated financial statements.

Revenue Recognition

Revenue from research activities under our research, development, and license agreements is recognized when our customer obtains control of the promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. Revenue generated from our research, development, and license agreements is not subject to repayment and typically includes upfront fees, development, regulatory and commercial milestone payments and royalties on the licensee’s future product sales.

Our research, development, and license agreements may include the transfer of intellectual property rights in the form of licenses, promises to provide research and development services and promises to participate on certain development committees with the collaboration party. We assess whether the promises in these agreements are considered distinct performance obligations that should be accounted for separately. Judgment is required to determine whether licenses to our intellectual property are distinct from the research and development services or participation on development committees.

The transaction price in each agreement is allocated to the identified performance obligations based on the standalone selling price (SSP) of each distinct performance obligation. Due to the early stage of our licensed technology, the license of such technology is typically combined with the research and development services and committee participation as one combined performance obligation.

Revenue associated with nonrefundable upfront license fees where the license fees and research and development activities cannot be accounted for as separate performance obligations is deferred and recognized as revenue over the expected period of performance using a cost-based input method. We utilize judgment to assess the pattern of delivery of the performance obligation. A cost-based input method of revenue recognition requires management to make estimates of costs to complete our performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete our performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in the assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

At the inception of each agreement that includes development, regulatory or commercial milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price by using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. The transaction price is allocated to each performance obligation in the agreement based on relative SSP. We typically determine SSPs using an adjusted market assessment approach model. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of each such milestone and any related constraint, and if necessary, adjust our estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Certain judgments affect the application of our revenue recognition policy. For example, we record short-term and long-term deferred revenue based on our best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months, and long-term deferred revenue consists of amounts that we do not expect will be recognized in the next 12 months. This estimate is based on the our current operating plan and, if our operating plan should change in the future, we may recognize a different amount of deferred revenue over the next 12-month period

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate and accrue expenses, the largest of which is related to research and development expenses, including those related to clinical studies and drug manufacturing. This process involves reviewing contracts and purchase orders, identifying and evaluating the services that have been performed on our behalf, and estimating the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs.

Costs for preclinical studies, clinical studies and manufacturing activities are recognized based on an evaluation of our vendors’ progress towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided to us by our vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed. We determine accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of studies, or the services completed. Our estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided.

For the years ended December 31, 2020 and 2019, there were no material changes from our estimates of accrued research and development expenses.We do not believe there is a reasonable likelihood that there will be a material change in the future estimates of accrued research and development expenses. However, if actual results are not consistent with our estimates, we may be exposed to changes in accrued research and development expenses that could be material or the accrued research and development expenses reported in our financial statements may not be representative of the actual economic cost of accrued research and development.

Stock-based Compensation

We have stock-based compensation programs, which include restricted stock units (RSUs); stock options and an employee stock purchase plan. See Note 2 – “Summary of Significant Accounting Policies” and Note 10 – “Stockholders' Equity” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report for a complete discussion of our stock-based compensation programs. We account for stock-based compensation expense, including the expense for grants of RSUs and stock options that may be settled in shares of our common stock, based on the fair values of the equity instruments issued. The fair value is determined on the measurement date, which is generally the date of grant. The fair value of our RSUs is the fair value of the underlying stock at the measurement date. The fair value for our stock option awards is determined at the grant date using the Black-Scholes valuation model.

Assumptions for the Black-Scholes valuation model used for employee stock awards include:

• The fair value of our common stock is based on observable market prices.

For awards with performance-based vesting criteria, we assess the probability of the achievement of the performance conditions at the end of each reporting period and begin to recognize the share-based compensation costs when it becomes probable that the performance conditions will be met. For awards that are subject to both service and performance conditions, no expense is recognized until it is probable that performance conditions will be met. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material or the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation.

Accounting for Income Taxes

See Note 11 – “Income Taxes” in the Notes to Consolidated Financial Statements, included in Item 8. Financial Statements and Supplementary Data of this report for a complete discussion of the components of Atara's income tax expense, as well as the temporary differences that exist as of December 31, 2020.

Our consolidated effective income tax rate is influenced by tax planning opportunities available to us in the various jurisdictions in which we conduct business. Significant judgment is required in evaluating our tax positions, including those that may be uncertain. Atara is also required to exercise judgment with respect to the realization of our net deferred tax assets. Management evaluates all positive and negative evidence and exercises judgment regarding past and future events to determine if it is more likely than not that all or some portion of the deferred tax assets may not be realized. If appropriate, a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized.

We do not believe that there is a reasonable likelihood that there will be a material change in our liability for uncertain income tax positions or our effective income tax rate. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses that could be material. Atara recorded a valuation allowance of approximately $287.3 million as of December 31, 2020 related primarily to net operating losses, capitalized expenses and stock-based compensation.

Results of Operations

Comparison of the Years Ended December 31, 2020, 2019 and 2018

Research and development expenses

Research and development expenses consisted of the following costs, by program, in the periods presented:

Year ended December 31, Increase (Decrease)

(in thousands)

Tab-cel®expenses were $61.2 million in 2020 as compared to $49.2 million in 2019 and $50.8 million in 2018. Tab-cel® expenses increased in 2020 due to clinical trials and process performance qualification activities at our manufacturing facility, as well as increased activity to support our tab-cel® BLA filing. The slight decrease in 2019 as compared to 2018 was primarily due to higher clinical trial and manufacturing costs in 2018 related to the ramp up of the MATCH and ALLELE Phase 3 clinical studies for patients with EBV+ PTLD.

ATA188, CAR T and other program expenses were $25.1 million in 2020 as compared to $34.9 million in 2019 and $30.2 million in 2018. The decrease in 2020 was primarily due to lower clinical study, manufacturing and other outside services costs for programs that are no longer in active development. The increase in 2019 was primarily related to research and manufacturing process development costs related to our CAR T programs; increased clinical study, manufacturing and other outside service costs related to the Phase 1 clinical study of ATA188 for patients with PMS; and other programs.

Employee and overhead expenses were $158.3 million in 2020 as compared to $132.0 million in 2019 and $86.5 million in 2018. The increases were primarily due to higher compensation-related costs from increased headcount and higher facility-related costs in support of our continuing expansion of research and development activities. Payroll and related costs increased by $21.2 million in 2020 as compared to 2019 and by $29.6 million in 2019 as compared to 2018. Facility-related costs increased by $5.1 million in 2020 as compared to 2019 and by $10.4 million in 2019 as compared to 2018. Outside service costs remained consistent in 2020 as compared to 2019 and increased by $5.6 million in 2019 as compared to 2018.

Total research and development expenses for 2020 were not significantly impacted as a result of the COVID-19 pandemic.

General and administrative expenses

General and administrative expenses for the periods indicated were as follows:

Year ended December 31, (Decrease) Increase

(in thousands)

General and administrative expenses were $64.4 million in 2020 as compared to $79.6 million in 2019 and $69.7 million in 2018. The decrease of $15.2 million in 2020 was primarily due to decreases of $10.1 million in outside services costs and $5.1 million in non-cash stock-based compensation expenses. The increase of $9.9 million in 2019 was primarily due to increases in compensation-related costs driven by increased headcount. Total general and administrative expenses for 2020 were not significantly impacted as a result of the COVID-19 pandemic.

Quarterly Results of Operations Data (unaudited)

The following table sets forth our unaudited consolidated statement of operations data for each of the quarterly periods in the years ended December 31, 2020 and 2019. The unaudited quarterly statement of operations data set forth below have been prepared on a basis consistent with our audited annual consolidated financial statements in this Annual Report on Form 10-K and include, in our opinion, all normal recurring adjustments necessary for a fair statement of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

Three months ended

March 31 June 30 September 30 December 31

2020 (In thousands, except per share amounts)

Operating expenses:

Provision for income taxes — 1 6 8

Other comprehensive (loss) gain:

Unrealized (loss) gain on available-for-sale securities (16 ) 606 (283 ) (231 )

Three months ended

March 31 June 30 September 30 December 31

2019 (In thousands, except per share amounts)

Operating expenses:

Provision for income taxes — — — 12

Other comprehensive gain (loss):

Unrealized gain (loss) on available-for-sale securities 378 135 60 (13 )

Liquidity and Capital Resources

Sources of Liquidity

Since our inception in 2012, we have funded our operations primarily through the issuance of common and preferred stock, issuance of pre-funded warrants to purchase common stock and upfront fees from the Bayer License Agreement.

In December 2020, we completed an underwritten public offering of 5,102,041 sharesof common stock at a public offering price of $24.50 per share and pre-funded warrants to purchase 2,040,816 shares of common stock at a public offering price of $24.4999 per warrant. We received net proceeds of approximately $164.3 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

In the second quarter of 2020, we completed an underwritten public offering of 14,958,039 shares, inclusive of the exercise of the full option granted to the underwriters, of common stock at a public offering price of $11.32 per share and pre-funded warrants to purchase 2,866,961 shares of common stock at a public offering price of $11.3199 per warrant. We received net proceeds of approximately $189.3 million after deducting underwriting discounts and commissions and offering expenses payable by us.

In July 2019, we completed an underwritten public offering of 6,871,727 shares of common stock at a public offering price of $15.28 per share and pre-funded warrants to purchase 2,945,026 shares of common stock at a public offering price of $15.2799 per warrant. We received aggregate net proceeds of approximately $140.7 million after deducting underwriting discounts and commissions and offering expenses payable by us.

In February 2019, we entered into a sales agreement (the 2019 ATM Facility) with Cowen and Company, LLC (Cowen), which provided for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $100.0 million through Cowen, as our sales agent. The issuance and sale of these shares by us pursuant to the 2019 ATM Facility were deemed “at the market” offerings defined in Rule 415 under the Securities Act of 1933, as amended (the Securities Act), and were registered under the Securities Act. We paid a commission of up to 3.0% of gross sales proceeds of the common stock sold under the 2019 ATM Facility.

In February 2020, we entered into a new sales agreement (the 2020 ATM Facility) with Cowen, which provides for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $100.0 million through Cowen, as our sales agent. The 2020 ATM Facility is separate from and does not replace the 2019 ATM Facility in any way. The issuance and sale of these shares by us pursuant to the 2020 ATM Facility are deemed “at the market” offerings and are registered under the Securities Act. We pay a commission of up to 3.0% of gross sales proceeds of any common stock sold under the 2020 ATM Facility.

During the year ended December 31, 2020, we sold an aggregate of 4,785,514 shares of common stock under the ATM facilities, at an average price of $14.60 per share for net proceeds of $68.0 million, after deducting commissions and other offering expenses payable by us. On January 3, 2020, we received net proceeds of approximately $1.2 million from sales of shares of our common stock under the 2019 ATM Facility that occurred during December 2019.

As of December 31, 2020, we have fully utilized the 2019 ATM Facility and $79.7 million of common stock remained available to be sold under the 2020 ATM Facility, subject to certain conditions as specified in the agreement.

We have incurred losses and negative cash flows from operations in each year since inception. We do not expect to receive any revenues from the sale of products unless and until we obtain regulatory approval for and commercialize any of our product candidates. As such, we anticipate that we will continue to incur losses in the foreseeable future. Additionally, as a result of the COVID-19 pandemic, we have experienced, and may experience in the future, disruptions that could severely impact our business, preclinical studies and clinical trials. We expect that our operating expenses will continue to increase. As a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We may borrow funds on terms that may include restrictive covenants, including covenants that restrict the operation of our business, liens on assets, high effective interest rates and repayment provisions that reduce cash resources and limit future access to capital markets. In addition, we expect to continue to opportunistically seek access to additional funds through additional public or private equity offerings or debt financings including by utilizing the 2020 ATM Facility, through potential collaborations, partnering or other strategic arrangements, or a combination of the foregoing. However, the trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a consequence, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. We may face similar difficulties in obtaining funding through debt financing or other arrangements. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses or other rights on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our cash, cash equivalents and short-term investments are held in bank and custodial accounts and consist of money market funds, U.S. Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities.

Our cash, cash equivalents and short-term investments balances as of the dates indicated were as follows:

December 31, December 31,

(in thousands)

Total cash, cash equivalents and short-term investments $ 500,659 $ 259,109

Cash Flows

The following table details the primary sources and uses of cash for each of the periods set forth below:

Year Ended December 31,

(in thousands)

Net cash (used in) provided by:

Operating activities

Net cash used in operating activities was $180.8 million in 2020 as compared to $235.6 million in 2019. The decrease of $54.9 million was primarily due to $52.9 million received as a result of the Bayer License Agreement, a $14.9 million increase in other net operating liabilities and a $2.2 million increase in the amortization of investment premiums, partially offset by a $15.6 million increase in net loss.

Net cash used in operating activities was $235.6 million in 2019 as compared to $179.8 million in 2018. The increase of $55.8 million was primarily due to a $60.3 million increase in net loss and a $19.2 million increase in net operating assets, partially offset by a $17.9 million increase in stock-based compensation, a $3.3 million increase in depreciation and amortization expense, and a $1.0 million increase in loss on disposals of property and equipment.

Investing activities

Net cash used in investing activities in 2020 consisted primarily of $425.9 million used to purchase available-for-sale securities and $4.5 million in purchases of property and equipment, partially offset by $309.7 million received from maturities and sales of available-for-sale securities.

Net cash provided by investing activities in 2019 consisted primarily of $336.3 million received from maturities and sales of available-for-sale securities, partially offset by $270.2 million used to purchase available-for-sale securities and $5.7 million in purchases property and equipment.

Net cash used in investing activities in 2018 consisted primarily of $466.5 million used to purchase available-for-sale securities and $35.9 million used to purchase property and equipment, partially offset by $306.1 million received from maturities and sales of available-for-sale securities.

Financing activities

Net cash provided by financing activities in 2020 consisted primarily of $353.8 million of aggregate net proceeds received from the two underwritten public offerings of common stock and pre-funded warrants, $69.2 million of net proceeds from ATM facilities

and $6.7 million of net proceeds from employee stock award transactions, partially offset by $1.5 million of taxes paid related to the net share settlement of RSUs.

Net cash provided by financing activities in 2019 consisted primarily of $140.9 million of net proceeds received from an underwritten public offering of common stock and pre-funded warrants, $47.7 million of net proceeds from ATM facilities and $7.4 million of net proceeds from employee stock award transactions, partially offset by $6.7 million of taxes paid related to the net share settlement of RSUs.

Net cash provided by financing activities in 2018 consisted of $293.3 million of aggregate net proceeds from the underwritten public offerings in January and March 2018, $47.6 million of net proceeds from ATM facilities and $24.7 million of net proceeds from employee stock award transactions, partially offset by $7.5 million of taxes paid related to the net share settlement of restricted stock and $0.5 million of principal payments on capital lease obligations.

Operating Capital Requirements and Plan of Operations

To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the accumulated losses to increase as we continue the development of and seek regulatory approvals for our product candidates and begin to commercialize any approved products. We are subject to all of the risks inherent in the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need to raise substantial additional funding in connection with our continuing and expected expansion of our operations.

We expect that our existing cash, cash equivalents and short-term investments as of December 31, 2020, together with projected revenue from U.S. tab-cel® sales, if approved, will be sufficient to fund our operations into 2023, including expenses related to the BLA filing and potential commercial launch of tab-cel® in the U.S. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. In addition, we expect to continue to opportunistically seek access to additional funds through additional public or private equity offerings or debt financings, through potential collaborations, partnering or other strategic arrangements, or a combination of the foregoing.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

• our success in establishing and scaling commercial manufacturing capabilities;

• the number and characteristics of product candidates that we pursue;

• the outcome, timing and costs of seeking regulatory approvals;

Until we are able to generate a sufficient amount of product revenue and generate positive net cash flows from operations, which we may never do, meeting our long-term capital requirements is in large part reliant on access to public and private equity and debt capital markets, augmented by cash generated from operations and interest income earned on the investment of our cash balances. We expect to continue to seek access to the equity and debt capital markets to support our development efforts and operations. To the

extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses or other rights on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders.

As a result of economic conditions, general global economic uncertainty, political change and other factors, including the ongoing COVID-19 pandemic, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic uncertainty or other factors, we will be forced to delay, limit, reduce or terminate preclinical studies, clinical studies or other development activities for one or more of our product candidates.

Contractual Obligations and Commitments

We lease our corporate headquarters in South San Francisco, California under a non-cancellable lease agreement for approximately 13,670 square feet of office space. In October 2020, we entered into an amendment of this lease to extend the lease term by one year and an option to extend the lease for an additional five years. The amended lease expires in May 2022.

In February 2017, we entered into a lease agreement for approximately 90,580 square feet of office, lab and cellular therapy manufacturing space in Thousand Oaks, California. The initial 15-year term of this lease commenced in February 2018, and the contractual obligations during the initial term are $16.4 million in aggregate. We have the option to extend this lease for two additional periods of ten and nine years, respectively, after the initial term. In connection with this lease, we were required to issue a letter of credit in the amount of $1.2 million to the landlord, which is recorded as long-term restricted cash in our consolidated balance sheet.

In November 2018, we entered into a lease agreement for approximately 51,160 square feet of office space in Thousand Oaks, California. The initial term of this lease expires in February 2026. The contractual obligations during the initial term are $8.5 million in aggregate. We have the option to extend the lease for an additional period of five years after the initial term.

In May 2019, we entered into a new lease agreement for approximately 8,800 square feet of office and lab space in Aurora, Colorado. The term of this lease expires in April 2024. The contractual obligations during the lease term are $1.1 million in aggregate.

The following table summarizes our contractual obligations as of December 31, 2020:

Payments Due by Period

Less than More than

Total 1 Year 1-3 Years 3-5 Years 5 Years

(in thousands)

The above amounts exclude potential milestone and royalty payments related to our license and collaboration agreements, as the achievement of these milestones is currently not fixed and determinable.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate and Market Risk

We are exposed to market risk related to changes in interest rates. As of December 31, 2020, we had total cash, cash equivalents and short-term investments of $500.7 million. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Our available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase, which could result in a realized loss if we are forced to sell an investment before its scheduled maturity. We currently do not hedge our interest rate risk exposure. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate change in interest rates of 10 basis points would not result in a significant change in the fair market value of our portfolio.

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term and long-term investments in a variety of securities, including money market funds, U.S. Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities. These securities are all classified as available-for-sale and consequently are recorded on the balance sheet at fair value, with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss). Our holdings of the securities of any one issuer, except for obligations of the U.S. Treasury, U.S. Treasury-guaranteed securities or money market funds, do not exceed 5% of our portfolio.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm 84

Consolidated Balance Sheets 87

Consolidated Statements of Operations and Comprehensive Loss 88

Consolidated Statements of Stockholders’ Equity 89

Consolidated Statements of Cash Flows 90

Notes to Consolidated Financial Statements 91

Report of Independent Registered Public Accounting Firm

To the stockholders and the Board of Directors of Atara Biotherapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Atara Biotherapeutics, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases in 2019 due to adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), using the optional transition method.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue and Deferred Revenue – Accounting for Research, Development and License Agreement – Refer to Note 7 to the Financial Statements

Critical Audit Matter Description

The Company entered into a research, development, and license agreement with Bayer AG (“Bayer”) (the “Bayer License Agreement”) in December 2020 to develop mesothelin-directed CAR T-cell therapies for the treatment of solid tumors, pursuant to which the Company granted to Bayer an exclusive, field-limited license under the applicable patents and know-how owned or controlled by the Company and its affiliates covering or related to ATA2271 and ATA3271. Under the terms of the Bayer License Agreement, the Company will be responsible at its cost for all mutually agreed preclinical and clinical activities for ATA2271 through the first in human Phase 1 clinical study. The Company promised a development and commercialization license, the performance of early-stage research and development services, including technology transfer services, joint steering committee participation, and chemistry, manufacturing and control services. In December 2020, the Company received an upfront cash payment of $45.0 million from Bayer for the exclusive license grant, net of applicable withholding taxes, received an additional $15.0 million upfront reimbursement payment from Bayer for certain research and process development activities, and invoiced Bayer $1.3 million for additional, specified translational activities.

The Company determined the Bayer License Agreement is within the scope of Accounting Standards Codification Topic 606 (ASU No. 2014-09), Revenue from Contracts with Customers, and all subsequent amendments (collectively, “ASC 606”) and concluded that the promises in the Bayer License Agreement represent transactions with a customer. In applying ASC 606, the Company has determined the promises in the agreement are highly interdependent upon one another and combined its promises into a single performance obligation. The Company will utilize a cost-based input method to measure its progress toward completion of its performance obligation to calculate the corresponding amount of revenue to recognize each period. In applying the cost-based input method, management uses significant judgment in evaluating assumptions related to its cost estimates. As of December 31, 2020, the Company did not recognize any revenue under the Bayer License Agreement and deferred revenue amounted to $61.3 million, of which $33.5 million is included in current liabilities and $27.8 million is included in long-term liabilities.

We identified accounting for the Bayer License Agreement and the estimated deferred revenue to be recognized as revenue over time as a critical audit matter. Given the judgments necessary to determine the accounting literature to apply to a research, development and license agreement, the estimated future costs to be used in applying the cost-based input method to measure progress toward the completion of the performance obligation and the estimated contractual term over which the performance obligation would be completed, auditing such judgments and estimates required extensive audit effort due to the complexity of the Bayer License Agreement and the high degree of auditor judgment applied when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to determining the accounting literature to apply to a research, development and license agreement and management's estimates of costs used in the cost-based input method for measuring progress included the following, among others:

Accrued Research and Development Expenses & Prepaid Research and Development Expenses (Clinical Trial Accrued and Prepaid Expenses) - Refer to Note 2 to the Financial Statements

Critical Audit Matter Description

The Company recognizes costs it incurs for preclinical studies, clinical trials, and manufacturing activities as research and development expenses based on its evaluation of its vendors’ progress toward completion of specific tasks. Payment timing may differ significantly from the period in which the costs are recognized as expense. Costs that are paid in advance are deferred as a prepaid expense and amortized over the service period as the services are provided. Costs for services incurred that have not yet been be paid are recognized as accrued expenses.

In estimating the vendors’ progress toward completion of specific tasks, the Company uses data such as patient enrollment, clinical site activations or vendor information of actual costs incurred. This data is obtained through reports from or discussions with Company personnel and outside service providers as to the progress or state of completion of trials, or the completion of services.

Given the number of ongoing preclinical study and clinical trial activities and the subjectivity involved in estimating clinical trial accrued and prepaid expenses, auditing the clinical trial accruals and prepaid expenses involved especially subjective judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to clinical trial accrued and prepaid expenses included the following, among others:

o Evaluated management’s judgments compared to the evidence obtained.

/s/ DELOITTE & TOUCHE LLP

San Jose, California

March 1, 2021

We have served as the Company’s auditor since 2013.

Atara Biotherapeutics, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

December 31, December 31,

Assets

Current assets:

Restricted cash - short-term 194 194

Accounts receivable 1,250 —

Prepaid expenses and other current assets 21,170 13,689

Liabilities and stockholders’ equity

Current liabilities:

Accrued research and development expenses 15,813 8,341

Deferred revenue - long-term 27,795 —

Operating lease liabilities - long-term 13,041 14,136

Commitments and contingencies (Note 9)

Stockholders’ equity:

Accumulated other comprehensive income 296 220

Total liabilities and stockholders’ equity $ 588,120 $ 342,942

Atara Biotherapeutics, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

Years Ended December 31,

Operating expenses:

Provision for (benefit from) income taxes 15 12 (44 )

Other comprehensive gain (loss):

Unrealized gain (loss) on available-for-sale securities 76 560 (189 )

Net loss per common share:

Basic and diluted net loss per common share $ (4.15 ) $ (5.67 ) $ (5.27 )

Atara Biotherapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

Accumulated

Common Additional Other Total

Stock Paid-in Comprehensive Accumulated Stockholders’

Shares Amount Capital Income (Loss) Deficit Equity

RSU settlements, net of shares withheld 449 — (7,503 ) — — (7,503 )

Stock-based compensation expense — — 33,817 — — 33,817

Unrealized loss on available-for-sale securities — — — (189 ) — (189 )

Effect of the adoption of ASC topic 842 (Leases) — — — — 364 364

RSU settlements, net of shares withheld 361 — (6,695 ) — — (6,695 )

Issuance of common stock pursuant to employee stock awards 487 — 7,350 — — 7,350

Stock-based compensation expense — — 51,696 — — 51,696

Unrealized gain on available-for-sale securities — — — 560 — 560

Exercise of pre-funded warrants 57 — — — — —

RSU settlements, net of shares withheld 1,112 — (1,521 ) — — (1,521 )

Issuance of common stock pursuant to employee stock awards 551 — 6,680 — — 6,680

Stock-based compensation expense — — 51,351 — — 51,351

Unrealized gain on available-for-sale securities — — — 76 — 76

Atara Biotherapeutics, Inc.

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Non-cash operating lease expense 1,457 964 —

Loss on disposals of property and equipment 130 1,027 —

Asset retirement obligation accretion expense 78 71 49

Non-cash interest expense — — 211

Changes in operating assets and liabilities:

Accounts receivable (1,250 ) — —

Prepaid expenses and other current assets (8,666 ) (998 ) (5,764 )

Operating lease assets 886 239 —

Deferred revenue 61,250 — —

Operating lease liabilities (1,316 ) (731 ) —

Other long-term liabilities 778 — 372

Investing activities

Proceeds from sale of property and equipment — 161 —

Financing activities

Principal payments on finance and capital lease obligations (389 ) (486 ) (528 )

Other financing activities, net (165 ) — —

Non-cash investing and financing activities

Accrued costs related to underwritten public offering $ 192 $ 172 $ —

Capitalized lease obligations $ — $ — $ 441

Property and equipment acquired under capital leases $ — $ — $ 191

Asset retirement costs $ — $ — $ 88

Supplemental cash flow disclosure

Cash paid for interest $ 62 $ 50 $ 240

Cash paid for income taxes $ 10 $ — $ —

Atara Biotherapeutics, Inc.

Notes to Consolidated Financial Statements

1. Description of Business

Atara Biotherapeutics, Inc. (“Atara”, “we”, “our” or “the Company”) was incorporated in August 2012 in Delaware. Atara is a pioneer in T-cell immunotherapy, leveraging its novel allogeneic EBV T-cell platform to develop transformative therapies for patients with serious diseases, including solid tumors, hematologic cancers and autoimmune disease.

We have several T-cell immunotherapies in clinical development and are progressing multiple next-generation allogeneic chimeric antigen receptor T-cell (“CAR T”) programs. We have entered into a research, development and license agreement (“Bayer License Agreement”) with Bayer AG (“Bayer”) pursuant to which we granted to Bayer an exclusive, field-limited license under the applicable patents and know-how owned or controlled by us and our affiliates covering or related to ATA2271 and ATA3271. See Note 7 for further information.

We have licensed rights to T-cell product candidates from Memorial Sloan Kettering Cancer Center (“MSK”), rights related to our next-generation CAR T programs from MSK and from Moffitt Cancer Center, and rights to know-how and technology from the Council of the Queensland Institute of Medical Research (“QIMR Berghofer”). See Note 6 for further information.

2. Summary of Significant Accounting Policies

Basis of Presentation

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and follow the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

Principles of Consolidation

The consolidated financial statements include the accounts of Atara and our wholly owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation.

Segment and Geographic Information

We operate and manage our business as one operating and reportable segment, which is the business of developing and commercializing therapeutics. Our Chief Executive Officer, who is our chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. Substantially all of our assets are located in the U.S.

Liquidity Risk

We have incurred significant operating losses since inception and have relied primarily on public and private equity financings to fund our operations. As we continue to incur losses, our transition to profitability will depend on the successful development, approval and commercialization of product candidates and on the achievement of sufficient revenues to support our cost structure. We may never achieve profitability, and unless and until we do, we will need to continue to raise additional capital. We expect that existing cash, cash equivalents and short-term investments as of December 31, 2020 will be sufficient to fund our operations for at least the next twelve months from the date of issuance of these financial statements.

Concentration of Credit Risk and Other Uncertainties

We place cash and cash equivalents in the custody of financial institutions that management believes are of high credit quality, the amount of which at times, may be in excess of the amount insured by the Federal Deposit Insurance Corporation. We also make short-term investments in money market funds; U.S. Treasury, government agency and corporate debt obligations; commercial paper; certificates of deposit; and asset-backed securities, which can be subject to certain credit risk. However, we mitigate the risks by investing in high-grade instruments, limiting our exposure to any one issuer and monitoring the ongoing creditworthiness of the financial institutions and issuers.

One research, development and license agreement entered into in 2020 accounted for all of the deferred revenue as of December 31, 2020. For the year ended December 31, 2020, we did not recognize any revenue from this agreement.Our accounts receivable balance consists of amounts due pursuant to this agreement. We believe the receivable balance is fully collectible.

We are subject to certain risks and uncertainties and believe that changes in any of the following areas could have a material adverse effect on future financial position or results of operations: our ability to obtain future financing; regulatory approval and market acceptance of, and reimbursement for, our product candidates, if approved by applicable regulatory authorities; performance of third-party clinical research organizations and manufacturers upon which we rely; development of sales channels; protection of our intellectual property; litigation or claims against us based on intellectual property, patent, product, regulatory or other factors; and our ability to attract and retain employees necessary to support our growth.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Significant estimates relied upon in preparing these financial statements include estimates related to revenue recognition, clinical study and other accruals, stock-based compensation expense and income taxes. Actual results could differ materially from those estimates.

Leases

On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). We recorded $14.3 million of operating lease assets and $15.3 million of operating lease liabilities on our consolidated balance sheet as of January 1, 2019 and de-recognized the build-to-suit asset and corresponding lease obligation of $10.3 million for our Thousand Oaks manufacturing facility lease. The transition method we elected for adoption included recording a cumulative effect adjustment to retained earnings as of January 1, 2019, which was not material.

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize short-term lease expense for these leases on a straight-line basis over the lease term. Finance leases are included in other assets, other current liabilities, and other long-term liabilities on our consolidated balance sheets.

Lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The lease term includes renewal options that we are reasonably certain of exercising as of the commencement date. None of the lease terms used to calculate the future minimum lease payments at commencement date include renewal options. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The incremental borrowing rate for our leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral. Lease assets also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Finance lease assets are amortized over the shorter of the lease term or the asset’s estimated useful life.

Our facilities and equipment operating leases have lease and non-lease components and we have made a policy election to account for the lease and non-lease components as a single lease component.

Through December 31, 2018, the leases were reviewed for classification as operating, capital or build-to-suit leases. For operating leases, rent was recognized on a straight-line basis over the lease period. For capital leases, we recorded the leased asset in property and equipment, net, with the related amortization of the capital lease asset recorded in depreciation expense, and we recorded a corresponding liability for principal and interest. Payments were recorded as reductions to these liabilities with interest being charged to interest expense in our consolidated statements of operations and comprehensive loss.

We analyzed the nature of the renovations and our involvement during the construction period of our manufacturing facility and determined that we were the deemed “owner” of the construction project during the construction period. As a result, we were required to capitalize the fair value of the building as well as the construction costs incurred on our consolidated balance sheet along with a corresponding financing liability for landlord-paid construction costs (i.e., “build-to-suit” accounting).

Once construction was complete, the Company considered the requirements for sale-leaseback accounting treatment, including evaluating whether all risks of ownership have been transferred back to the landlord, as evidenced by a lack of continuing involvement in the leased property. Since the arrangement did not qualify for sale-leaseback accounting treatment, the building asset remained on the Company’s consolidated balance sheets at its historical cost, and such asset was depreciated over its estimated useful life. The Company bifurcated its lease payments into a portion allocated to the building and a portion allocated to the parcel of land on which the building has been built. The portion of the lease payments allocated to the land was treated for accounting purposes as operating lease payments, and therefore was recorded as rent expense in the consolidated statements of operations and comprehensive loss. The portion of the lease payments allocated to the building was further bifurcated into a portion allocated to interest expense and a portion allocated to reduce the build-to-suit lease obligation. The initial recording of these assets and liabilities were classified as non-cash investing and financing items, respectively, for purposes of the consolidated statements of cash flows. The build-to-suit asset and corresponding lease obligation was derecognized upon adoption of the new lease standard as we did not control the building during the construction period.See Note 8 for further information.

Asset Retirement Obligations (“ARO”)

ARO are legal obligations associated with the retirement of long-lived assets pertaining to leasehold improvements. These liabilities are initially recorded at fair value and the related asset retirement costs are capitalized by increasing the carrying amount of the related assets by the same amount as the liability. Asset retirement costs are subsequently depreciated over the useful lives of the related assets. Subsequent to initial recognition, the Company records period-to-period changes in the ARO liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. The Company derecognizes ARO liabilities when the related obligations are settled.

Foreign Currency

Transactions and monetary assets and liabilities that are denominated in a foreign currency are translated into U.S. dollars at the current exchange rate on the transaction date and as of each balance sheet date, respectively, with gains or losses on foreign exchange changes recognized in interest and other income (expense), net in the consolidated statements of operations and comprehensive loss. Foreign currency-denominated monetary assets and liabilities as of December 31, 2020 were not material.

Cash Equivalents and Short-Term Investments

Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less at the date of purchase, and generally consist of money market funds, U.S. Treasury, government agency and corporate debt obligations, and commercial paper.

Investments with original maturities of greater than 90 days are classified as short-term investments on the balance sheet, and consist primarily of U.S. Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities.

As our entire investment portfolio is considered available for use in current operations, we classify all investments as available-for-sale and as current assets, even though the stated maturity may be more than one year from the current balance sheet date. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive loss, which is a separate component of stockholders’ equity in the consolidated balance sheet.

The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity, which are both recorded to interest and other income (expense), net in the consolidated statements of operations and comprehensive loss.

Changes in the fair value of available-for-sale securities impact the consolidated statements of operations and comprehensive loss only when such securities are sold, if an allowance for credit losses is recognized or if an impairment is recognized. Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis. We regularly review our investment portfolio to determine if any security is impaired, which would require us to record an allowance for credit losses or impairment charge in the period any such determination is made. In making this judgment, we evaluate, among other things, the duration and extent to which the fair value of a security is less than its cost, our intent to sell or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, the financial condition of the issuer and any changes thereto, and, as necessary, the portion of a decline in fair value that is credit-related. This assessment could change in the future due to new developments or changes in assumptions related to any particular security. Realized gains and losses, allowances for credit losses and impairments on available-for-sale securities, if any, are recorded to interest and other income, net in the statements of operations and comprehensive loss.

Fair Value Measurement

The carrying amounts of certain of our financial instruments including cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their short maturities. Short-term investments are comprised of available-for-sale securities, which are carried at fair value.

Fair Value of Financial Instruments

Our financial assets are measured at fair value on a recurring basis using the following hierarchy to prioritize valuation inputs, in accordance with applicable GAAP:

We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. We recognize transfers into and out of levels within the fair value hierarchy in the period in which the actual event or change in circumstances that caused the transfer occurs. There have been no transfers between Level 1, Level 2, and Level 3 in any periods presented.

Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. U.S. Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities are valued primarily using market prices of comparable securities, bid/ask quotes, interest rate yields and prepayment spreads and are included in Level 2.

Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. We have no Level 3 financial assets or liabilities.

Property and Equipment, net

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to five years. Costs incurred to acquire, construct or install property and equipment during the construction stage of a capital project or costs incurred to purchase and develop internal use software during the application development stage are recorded as construction in progress. Leasehold improvements are amortized over the lesser of the life of the leasehold improvements or the lease term. Maintenance and repairs are charged to operations as incurred.

Long-lived Assets

We evaluate the carrying amount of our long-lived assets whenever events or changes in circumstances indicate that the assets may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset. To date, there have been no such impairment losses.

Stock-Based Compensation Expense

We account for stock-based compensation expense, including the expense of restricted common stock awards (“RSAs”), grants of restricted stock units (“RSUs”), and stock options that may be settled in shares of our common stock, based on the fair values of the equity instruments issued. The fair value is determined on the measurement date, which is generally the date of grant. The fair value for our RSAs is their intrinsic value, which is the difference between the fair value of the underlying stock at the measurement date and the purchase price. The fair value of our RSUs is the fair value of the underlying stock at the measurement date. The fair value for our stock option awards is determined at the grant date using the Black-Scholes valuation model. For awards with performance-based vesting criteria, we assess the probability of the achievement of the performance conditions at the end of each reporting period and begin to recognize the share-based compensation costs when it becomes probable that the performance conditions will be met. For awards that are subject to both service and performance conditions, no expense is recognized until it is probable that performance conditions will be met. Stock-based compensation expense for awards with time-based vesting criteria is recognized as expense on a straight-line basis over the requisite service period. Stock-based compensation expense for awards with performance and other vesting criteria is recognized as expense under an accelerated graded vesting model.

Key assumptions used in the Black-Scholes valuation model used for employee stock awards include:

Expected term – We derived the expected term using the “simplified” method (the expected term is determined as the average of the time-to-vesting and the contractual life of the options), as we have limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior.

Expected volatility – Expected volatility is estimated using comparable public companies’ volatility for similar terms.

Expected dividend – We have not historically declared or paid dividends to our stockholders and have no plans to pay dividends; therefore, we assumed an expected dividend yield of 0%.

Risk-free interest rate – The risk-free interest rate is based on the yield on U.S. Treasury securities with the expected term of the associated award.

The fair value of our common stock is based on observable market prices. We account for forfeitures of stock-based awards as they occur.

Revenue Recognition

At inception, we determine whether contracts are within the scope of Accounting Standards Codification Topic 606 (ASU No. 2014-09), Revenue from Contracts with Customers, and all subsequent amendments (collectively, “ASC 606”) or other topics. For contracts that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy a performance obligation. We only apply the five-step model to contracts when we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment, which is discussed in further detail for our research and license agreement in Note 7. Our research and license agreement did not contain a significant financing component.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. We typically determine standalone selling prices using an adjusted market assessment approach model.

We satisfy performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided by our performance, (ii) our performance creates or enhances an asset that the customer controls as the asset is created or enhanced or (iii) our performance does not create an asset with an alternative use to the entity and we have an enforceable right to payment for performance completed to date. If we do not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring control of a promised good or service to a customer. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

As of December 31, 2020, our deferred revenue is related to the Bayer License Agreement, which is within the scope of ASC 606. As discussed in further detail in Note 7, the terms of this arrangement include potential payments to usfor the following: nonrefundable, upfront fees; development, regulatory, and commercial milestone payments; research and development funding payments; and royalties on the net sales of licensed products. These payments relate to promised goods or services for which revenue will be recognized upon our satisfaction of the underlying performance obligations.

Licenses of intellectual property: If the license of our intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, we recognize revenues from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

Milestone payments: At the inception of each arrangement that includes development milestone payments, the Company evaluates the probability of reaching the milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a significant reversal of revenue would not be probable. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration and license revenues and the consolidated statements of operations and comprehensive loss in the period of adjustment.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on levels of sales, if the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied. To date, we have not recognized any royalty revenue resulting from the Bayer License Agreement.

We receive payments from our customer based on billing schedules established in each contract. Our contract liabilities consist of deferred revenue. Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the we have satisfied our obligations under these arrangements.

Certain judgments affect the application of our revenue recognition policy. For example, we record short-term and long-term deferred revenue based on our best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months, and long-term deferred revenue consists of amounts that we do not expect will be recognized in the next 12 months. This estimate is based on our current operating plan and, if our operating plan should change in the future, we may recognize a different amount of deferred revenue over the next 12-month period.

Contract Balances

Customer payments are recorded as deferred revenue upon receipt or when invoiced and may require deferral of revenue recognition to a future period until we satisfy its performance obligations under these arrangements. Amounts payable to us are recorded as accounts receivable when our right to consideration is unconditional.

Research and Development Expense

Research and development expense consists of costs incurred in performing research and development activities, including compensation and benefits for research and development employees, including stock-based compensation; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical and preclinical studies; the costs of acquiring and manufacturing clinical study materials and other supplies; payments under licensing and research and development agreements; other outside services and consulting costs, and facilities, information technology and overhead expenses. Research and development costs are expensed as incurred.

Clinical Study Accruals

Costs for preclinical studies, clinical studies and manufacturing activities are recognized based on an evaluation of our vendors’ progress towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided to us by our vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services are performed. We determine accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of studies, or the services completed. Our estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided.

Defined Contribution Plan

We have one qualified 401(k) plan covering all eligible employees. Under the plan, employees may contribute up to the statutory allowable amount for any calendar year. Beginning in 2019, we make matching contributions, equal to 50% of each dollar contributed up to the first 6% of an individual’s eligible earnings, up to the annual IRS maximum. For the years ended December 31, 2020 and 2019, we recorded matching contributions of approximately $2.1 million and $1.6 million, respectively.

Other Current Liabilities

Other current liabilities consisted of the following as of each period end:

December 31, December 31,

(in thousands)

Accrued operating expenses $ 3,016 $ 3,900

Current portion of operating lease liabilities 1,730 1,312

Current portion of finance lease liabilities 255 269

Total other current liabilities $ 6,057 $ 5,733

Income Taxes

We use the asset and liability method to account for income taxes. We record deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse. Valuation allowances are provided when necessary to reduce net deferred tax assets to the amount that is more likely than not to be realized. Based on the available evidence, we are unable, at this time, to support the determination that it is more likely than not that our deferred tax assets will be utilized in the future. Accordingly, we recorded a full valuation allowance as of December 31, 2020 and 2019. We intend to maintain valuation allowances until sufficient evidence exists to support their reversal.

Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period resulting from transactions from non-owner sources. Our other comprehensive income (loss) is comprised solely of unrealized gains (losses) on available-for-sale securities and is presented net of taxes. We have not recorded any reclassifications from other comprehensive income (loss) to net loss during any period presented.

Recent Accounting Pronouncements

The Company considers the applicability and impact of any ASUs issued by the Financial Accounting Standards Board (“FASB”). Other than the ASUs we adopted effective January 1, 2020 and listed below, all other ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.

Adoption of New Accounting Pronouncements

We adopted ASU No. 2016-13 (as amended by ASUs 2018-19, 2019-04, 2019-05 and 2019-11), Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, prospectively on January 1, 2020. Under this new guidance, a company is required to estimate credit losses on certain types of financial instruments using an expected-loss model, replacing the current incurred-loss model, and record the estimate through an allowance for credit losses. We do not hold material amounts of the types of financial instruments impacted by this guidance on our balance sheet. The guidance also establishes a new impairment model for available-for-sale debt securities. The adoption did not have a material impact on our consolidated balance sheet or our consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years ended December 31, 2020, 2019 and 2018.

We adopted ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, effective January 1, 2020, electing a prospective adoption method. The new standard requires that certain implementation costs for cloud computing arrangements are capitalized and amortized over the term of associated hosted cloud computing arrangement service. Capitalized implementation costs are classified in prepaid expenses and other assets. The amortization of the capitalized asset is presented in the same line on the statement of operations and comprehensive loss as the fees for the associated hosted cloud computing arrangement service and not included with depreciation or amortization expense related to property and equipment or intangible assets. Cash flows related to capitalized implementation costs are presented in cash flows used in operating activities. The adoption did not have a material impact on our consolidated balance sheet or our consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years ended December 31, 2020, 2019 and 2018.

We adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as of January 1, 2020, which eliminates certain exceptions related to the general principles in ASC 740 and makes amendments to other areas with the intention of simplifying various aspects related to accounting for income taxes. The provisions of the ASU that are applicable to Atara are applied on a prospective basis. The adoption did not have a material impact on our consolidated balance sheet or our consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years ended December 31, 2020, 2019 and 2018.

3. Net Loss per Common Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of shares of common stock and pre-funded warrants outstanding during the period, without consideration of common share equivalents. Diluted net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock, pre-funded warrants and common share equivalents outstanding for the period. The pre-funded warrants are included in the computation of basic and diluted net loss per common share as the exercise price is negligible and the pre-funded warrants are fully vested and exercisable. Common share equivalents are only included in the calculation of diluted net loss per common share when their effect is dilutive.

Potential dilutive securities, which include unvested restricted stock units (“RSUs”), unvested performance-based RSUs for which established performance criteria have been achieved as of the end of the respective periods, vested and unvested options to purchase common stock and shares to be issued under our employee stock purchase plan (“ESPP”), have been excluded from the computation of diluted net loss per share as the effect is antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in all periods presented.

The following table represents the potential common shares issuable pursuant to outstanding securities as of the related period end dates that were excluded from the computation of diluted net loss per common share, as their inclusion would have an antidilutive effect:

As of December 31,

4. Financial Instruments

The following tables summarize the estimated fair value and related valuation input hierarchy of our available-for-sale securities as of each period end:

Total Total Total Total

Amortized Unrealized Unrealized Estimated

As of December 31, 2020: Input Level Cost Gain Loss Fair Value

(in thousands)

Less: amounts classified as cash equivalents (199,090 ) — — (199,090 )

Total Total Total Total

Amortized Unrealized Unrealized Estimated

As of December 31, 2019: Input Level Cost Gain Loss Fair Value

(in thousands)

Government agency obligations Level 2 6,151 1 (1 ) 6,151

Certificate of deposit Level 2 500 — — 500

Less: amounts classified as cash equivalents (72,507 ) — — (72,507 )

The amortized cost and fair value of our available-for-sale securities by contractual maturity were as follows:

Amortized Estimated Amortized Estimated

Cost Fair Value Cost Fair Value

(in thousands) (in thousands)

As of December 31, 2020, no significant facts or circumstances were present to indicate a deterioration in the creditworthiness of the issuers of the available-for-sale securities we hold, and the Company has no requirement or intention to sell these securities before maturity or recovery of their amortized cost basis. We considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that our investments were not significantly impacted. For all securities with a fair value less than its amortized cost basis, we determined the decline in fair value below amortized cost basis to be immaterial and non-credit related, and therefore no allowance for losses has been recorded. During the years ended December 31, 2020, 2019 and 2018, we did not recognize any impairment losses on our investments.

We have elected the practical expedient to exclude the applicable accrued interest from both the fair value and the amortized cost basis of our available-for-sale securities for purposes of identifying and measuring an impairment. We present accrued interest receivable related to our available-for-sale securities in prepaid expenses and other current assets, separate from short-term investments on our consolidated balance sheet. As of December 31, 2020 and 2019, accrued interest receivable was $0.7 million and $0.9 million, respectively. Our accounting policy is to not measure an allowance for credit losses for accrued interest receivables and to write-off any uncollectible accrued interest receivable as a reversal of interest income in a timely manner, which we consider to be in the period in which we determine the accrued interest will not be collected by us. We have not written off any accrued interest receivables for the years ended December 31, 2020, 2019 and 2018.

In addition, restricted cash collateralized by money market funds is a financial asset measured at fair value and is a Level 1 financial instrument under the fair value hierarchy. As of December 31, 2020 and 2019, restricted cash totaled $1.4 million.

The following table provides a reconciliation of cash, cash equivalents and restricted cash within the consolidated balance sheets that sum to the total of the same such amounts in the consolidated statement of cash flows:

December 31, December 31,

(in thousands)

Restricted cash - short-term 194 194

Total cash, cash equivalents and restricted cash $ 201,798 $ 75,711

5. Property and Equipment

Property and equipment consisted of the following as of each period end:

December 31, December 31,

(in thousands)

Computer equipment and software 4,060 3,299

Less: accumulated depreciation and amortization (19,676 ) (11,678 )

Depreciation and amortization expense was $8.3 million, $7.1 million and $3.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.

6. License, Collaboration and Manufacturing Agreements

MSK Agreements – In June 2015, we entered into an exclusive license agreement with MSK for three clinical stage T-cell therapies. We are required to make payments of up to $33.0 million to MSK based on achievement of specified regulatory and sales-related milestones, as well as mid-single-digit percentage tiered royalty payments based onfuture sales of products resulting from the development of the licensed product candidates, if any. In addition, under certain circumstances, we are required to make certain minimum annual royalty payments to MSK, which are creditable against earned royalties owed for the same annual period. We are also required to pay a low double-digit percentage of any consideration we receive for sublicensing the licensed rights. The license agreement expires on a product-by-product and country-by-country basis on the latest of: (i) expiration of the last licensed patent rights related to each licensed product, (ii) expiration of any market exclusivity period granted by law with respect to each licensed product, and (iii) a specified number of years after the first commercial sale of the licensed product in each country. Upon expiration of the license agreement, Atara will retain non-exclusive rights to the licensed products.

100

In May and December 2018, we licensed additional technology from MSK. In connection with the effectiveness of the December 2018 license agreement, we made upfront cash payments of $12.5 million in first quarter of 2019, which were recorded as research and development expense in our consolidated statement of operations and comprehensive loss in the fourth quarter of 2018. We are obligated to make additional milestone payments based on achievement of specified development, regulatory and sales-related milestones as well as mid-single-digit percentage tiered royalty payments based on future sales of products resulting from the development of the licensed product candidates, if any.

QIMR Berghofer Agreements – In October 2015, we entered into an exclusive license agreement and a research and development collaboration agreement with QIMR Berghofer. Under the terms of the license agreement, we obtained an exclusive, worldwide license to develop and commercialize allogeneic T-cell therapy programs utilizing technology and know-how developed by QIMR Berghofer. In September 2016, the exclusive license agreement and research and development collaboration agreement were amended and restated. Under the amended and restated agreements, we obtained an exclusive, worldwide license to develop and commercialize additional T-cell programs, as well as the option to license additional technology that we exercised in June 2018. We further amended and restated our license agreement and research and development collaboration agreements with QIMR Berghofer in August 2019 to terminate our license to certain rights related to cytomegalovirus and again in August 2020 to terminate our license to certain rights related to BK polyomavirus and JC polyomavirus. Our current license agreement also provides for various milestone and royalty payments to QIMR Berghofer based on future product sales, if any. Under the terms of our current research and development collaboration agreement, we are also required to reimburse the cost of agreed-upon development activities related to programs developed under the collaboration. These payments are expensed on a straight-line basis over the related development periods. The agreement also provides for various milestone payments to QIMR Berghofer based on achievement of certain developmental and regulatory milestones.

From time to time, we have entered into other license and collaboration agreements with other parties. For example, we licensed additional rights related to our MSK-partnered next-generation CAR T programs from MSK in May 2018 and we licensed rights related to our next-generation CAR T programs from Moffitt Cancer Center in August 2018, and we agreed to collaborate through sponsored research in connection with each of these licenses. We also licensed rights related to our MSK-partnered next-generation CAR T programs from the National Institutes of Health in December 2018.

Milestones and royalties under each of the above agreements are contingent upon future events and will be recorded as expense when it is probable that the milestones will be achieved or royalties are due. As of December 31, 2020 and 2019, there were no outstanding obligations for milestones and royalties under our license and collaboration agreements.

Cognate Agreement– In December 2019, we entered into a Commercial Manufacturing Services Agreement (the “Manufacturing Agreement”) with Cognate Bioservices, Inc. (“Cognate”). Pursuant to the Manufacturing Agreement, Cognate provides manufacturing services for certain of our product candidates. The initial term of the Manufacturing Agreement is from January 1, 2020 until December 31, 2021 and is renewable with Cognate’s approval for an additional one-year period. We may terminate the Manufacturing Agreement for convenience on six months’ written notice to Cognate, or immediately if Cognate is unable to perform the services under the Manufacturing Agreement or fails to obtain or maintain certain necessary approvals.

7. Research, Development and License Agreement

In December 2020, we entered into the Bayer License Agreement to develop mesothelin-directed CAR T-cell therapies for the treatment of solid tumors, pursuant to which we granted to Bayer an exclusive, field-limited license under the applicable patents and know-how owned or controlled by us and our affiliates covering or related to ATA2271 and ATA3271 (the “Licensed Products”).

Under the terms of the Bayer License Agreement, we will be responsible at our cost for all mutually agreed preclinical and clinical activities for ATA2271 through the first in human Phase 1 clinical study in collaboration with MSK, following which Bayer will be responsible for the further development of ATA2271 at its cost. Bayer will be responsible for the development of ATA3271, except for certain mutually agreed preclinical, translational, manufacturing and supply chain activities to be performed by us relating to ATA3271, in each case at Bayer’s cost. Bayer will also be solely responsible for commercializing the Licensed Products at its cost.

In December 2020, we received an upfront cash payment of $45.0 million from Bayer for the exclusive license grant, net of applicable withholding taxes, which we believe are recoverable, and an additional $15.0 million upfront reimbursement payment for certain research and process development activities to be performed by us. We are also entitled to receive (i) up to an additional $5.0 million for additional, specified translational activities under the Bayer License Agreement, of which we have invoiced $1.3 million, and (ii) an aggregate of up to $610.0 million in milestone payments upon achieving certain development, regulatory and commercial milestones relating to the Licensed Products. In addition, we are eligible to receive from Bayer tiered royalties at percentages up to low double digits on worldwide net product sales of the Licensed Products on a country-by-country and product-by-product basis until the later of 12 years after the first commercial sale in such country or the expiration of specified patent rights in such country, subject to certain reductions and aggregate minimum floors.

101

We will negotiate a separate manufacturing and supply agreement with Bayer for us to manufacture allogeneic mesothelin-directed CAR T-cell therapies for Bayer to use in clinical trials at a price based on our costs plus a margin, which is consistent with our standalone selling price. Bayer and we have formed a joint steering committee (“JSC”) that will provide oversight, decision making and implementation guidance regarding the collaboration activities covered under the agreement.

We assessed this arrangement in accordance with ASC 606 and concluded that the promises in the Bayer License Agreement represent transactions with a customer. We concluded that the Bayer License Agreement contains the following promises: (i) a development and commercialization license; (ii) performance of early-stage research and development (“R&D”) services, including technology transfer services; (iii) JSC participation; and (iv) chemistry, manufacturing and control (“CMC”) services. In accordance with ASC 606, we determined that the license, early-stage R&D and CMC services were not distinct from each other, as the license, early-stage R&D and CMC services are highly interdependent upon one another. Participation on the JSC to oversee the research and development activities are combined into the single performance obligation as these activities are highly interdependent with the other R&D and CMC services. Accordingly, we determined that these promises should be combined into a single performance obligation.

Under the Bayer License Agreement, in order to evaluate the appropriate transaction price, we determined that the $45.0 million upfront payment for the license, $15.0 million for certain research and process development activities and the $5.0 million for additional specified translational activities, to be billed based on certain criteria being met, constituted the entire consideration to be included in the transaction price at the outset of the arrangement, and this amount was allocated to the single performance obligation. The potential development and commercial milestone payments that we are eligible to receive were excluded from the transaction price, as all milestone amounts were fully constrained based on the probability of achievement. None of the future royalty and sales-based milestone payments were included in the transaction price, as the potential payments represent sales-based consideration. We will reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust our estimate of the transaction price.

We will utilize a cost-based input method to measure its progress toward completion of its performance obligation and to calculate the corresponding amount of revenue to recognize each period, as we determined the cost-based input method to be the best measure of progress, as other measures do not reflect how we transfer our performance obligation to Bayer. In applying the cost-based input method of revenue recognition, revenue will be recognized based on the amount of actual costs incurred relative to the total budgeted costs expected to be incurred for the combined performance obligation. A cost-based input method of revenue recognition requires us to make estimates of costs to complete our performance obligation. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete our performance obligation will be recorded in the period in which changes are identified and amounts can be reasonably estimated. Revenue associated with the combined performance obligation is being recognized over the initial estimated contract term of three years. The transfer of control occurs over this time period and, in our judgment, is the best measure of progress towards satisfying the performance obligation. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

During the year ended December 31, 2020, we did not recognize any revenue under Bayer License Agreement. Deferred revenue related to the agreement with Bayer amounted to $61.3 million as of December 31, 2020, of which $33.5 million is included in current liabilities and $27.8 million is included in long-term liabilities, is expected to be recognized over the next three years. No development or sales-based milestone payments were received during the year ended December 31, 2020.

8. Leases

We lease our corporate headquarters in South San Francisco, California under a non-cancellable lease agreement that expires in May 2022 and for which we have an option to extend the lease for an additional five years. In connection with the lease, we are required to maintain a letter of credit in the amount of $0.2 million to the landlord, which expires and is renewed every 12 months, and is classified as restricted cash in our consolidated balance sheet. In November 2018, we entered into a lease agreement for additional office space in Thousand Oaks, California that expires in February 2026 and for which we have the option to extend the lease for an additional period of five years after the initial term. Additionally, we entered into a new lease for our office and lab space in Aurora, Colorado, effective May 2019, that expires in April 2024.

102

In February 2017, we entered into a lease agreement for approximately 90,580 square feet of office, lab and cellular therapy manufacturing space in Thousand Oaks, California. The initial 15-year term of the lease commenced on February 15, 2018, upon the substantial completion of landlord’s work as defined under the agreement. The contractual obligations during the initial term are $16.4 million in aggregate. We have the option to extend the lease for two additional periods of ten and nine years, respectively, after the initial term. In connection with the lease, we were required to issue a letter of credit in the amount of $1.2 million to the landlord, which is recorded as long-term restricted cash in our consolidated balance sheet.

Based on the terms of the lease agreement and on our involvement in certain aspects of the construction, we were deemed the owner of the building during the construction period in accordance with U.S. GAAP in effect prior to January 1, 2019. Under this build-to-suit lease arrangement, we recognized construction in progress based on all construction costs incurred by both us and the landlord. We also recognized a financing obligation equal to all costs funded by the landlord.

Due to completion of the construction by the landlord and not having met the criteria for sale-lease back accounting, we transferred the $10.3 million of landlord’s construction costs previously capitalized as construction in progress to a build-to-suit asset, and recognized a corresponding long-term financing obligation for the same amount in long-term liabilities in our consolidated balance sheets. In addition, we recorded $0.3 million of capitalized interest during the construction period through December 31, 2018. A portion of the monthly lease payment was allocated to land rent and recorded as an operating lease expense and the non-interest portion of the amortized lease payments to the landlord related to rent of the building was applied to the lease financing liability. Further, we recorded ground lease expense of $0.4 million for the year ended December 31, 2018 in our consolidated statement of operations and comprehensive loss, representing the estimated cost of renting the land during the construction period. Due to the adoption of ASU No. 2016-02, Leases (Topic 842), no ground lease expense was recognized for the years ended December 31, 2020 and 2019.

The maturities of lease liabilities under our operating and finance leases as of December 31, 2020 were as follows:

Operating Leases Finance Leases

Years Ending December 31, (in thousands)

Less: amount representing interest (8,417 ) (37 )

Present value of lease liabilities $ 14,771 $ 404

Balance as of December 31, 2020

Other current liabilities $ 1,730 $ 255

Operating lease liabilities - long-term 13,041 —

Other long-term liabilities — 149

The components of lease cost were as follows:

Year Ended Year Ended

(in thousands)

Operating lease cost:

Total operating lease cost $ 4,007 $ 3,348

Finance lease cost:

Amortization expense $ 389 $ 324

Interest on lease liabilities 60 56

Total finance lease cost $ 449 $ 380

103

Rent expense under operating leases for the year ended December 31, 2018 was $2.2 million.

Other information related to leases was as follows:

Year Ended Year Ended

(in thousands, except lease term and discount rate)

Supplemental Cash Flows Information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases $ 2,878 $ 2,346

Operating cash flows for finance leases 62 50

Financing cash flows for finance leases 389 486

Operating lease assets obtained in exchange for lease obligations: $ — $ 838

Finance lease assets obtained in exchange for lease obligations: 281 323

Weighted Average Remaining Lease Term

Operating leases 9.4 years 10.3 years

Finance leases 1.7 years 2.5 years

Weighted Average Discount Rate

Finance leases 9.7 % 10.0 %

Asset Retirement Obligation

The Company’s ARO consists of a contractual requirement to remove the tenant improvements at our manufacturing facility in Thousand Oaks, California and restore the facility to a condition specified in the lease agreement. The Company records an estimate of the fair value of its ARO in long-term liabilities in the period incurred. The fair value of the ARO is also capitalized in property and equipment, net and depreciated over the lease term. The fair value of our ARO was estimated by discounting projected cash flows over the estimated life of the related assets using our credit adjusted risk-free rate.

The following table presents the activity for our ARO liabilities:

ARO Liability

(In thousands)

Accretion expense 78

9. Commitments and Contingencies

License and Collaboration Agreements

Potential payments related to our license and collaboration agreements, including milestone and royalty payments, are detailed in Note 6.

Other Research and Development Agreements

We may enter into contracts in the normal course of business with clinical research organizations for clinical trials, with contract manufacturing organizations for clinical supplies, and with other vendors for preclinical studies, supplies and other services for our operating purposes. These contracts generally provide for termination on notice. As of December 31, 2020 and 2019, there were no amounts accrued related to termination charges for minimum purchase volumes not being met.

104

Indemnification Agreements

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities. The exposure under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations. We also have indemnification obligations to our directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date and we consider the fair value of these indemnification agreements to be minimal. Accordingly, we did not record liabilities for these agreements as of December 31, 2020 and 2019.

Contingencies

From time to time, we may be involved in legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business or otherwise. The ultimate outcome of any litigation is uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. Regardless of outcome, litigation can have an adverse impact on us because of the defense costs, diversion of management resources and other factors. We are not currently involved in any material legal proceedings.

10. Stockholders’ Equity

Our authorized capital stock consists of 520,000,000 shares, all with a par value of $0.0001 per share, of which 500,000,000 shares are designated as common stock and 20,000,000 shares are designated as preferred stock. There were no shares of preferred stock outstanding as of December 31, 2020 and 2019.

Equity Offerings

In January 2018, we completed an underwritten public offering of 7,675,072 shares of common stock at an offering price of $18.25 per share and received net proceeds of $131.4 million, after deducting underwriting discounts and commissions and offering expenses payable by us. Further, in March 2018, we completed an underwritten public offering of 4,928,571 shares of common stock at an offering price of $35.00 per share and received net proceeds of $161.9 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

In July 2019, we issued and sold 6,871,727 shares of common stock at a public offering price of $15.28 per share and pre-funded warrants to purchase 2,945,026 shares of common stock at an offering price of $15.2799 per warrant in an underwritten public offering pursuant to a shelf registration on Form S-3. The gross proceeds from this public offering were $150.0 million, resulting in aggregate net proceeds of $140.7 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

Each pre-funded warrant entitles the holder to purchase one share of common stock at an exercise price of $0.0001 per share and expires seven years from the date of issuance. These warrants were recorded as a component of stockholders’ equity within additional paid-in capital. Per the terms of the warrant agreement, a holder of the outstanding warrants is not entitled to exercise any portion of any pre-funded warrant if, upon exercise of the warrant, the holder’s ownership (together with its affiliates) of our common stock or combined voting power of our securities beneficially owned by such holder (together with its affiliates) would exceed 9.99% after giving effect to the exercise (“Maximum Ownership Percentage”). Upon at least 61 days’ prior notice to us by the holder, any holder may increase or decrease the Maximum Ownership Percentage to any other percentage not to exceed 19.99%. As of December 31, 2020, 2,888,526 of the pre-funded warrants from the July 2019 underwritten public offering were outstanding.

In the second quarter of 2020, we issued and sold 12,633,039 shares of common stock at a public offering price of $11.32 per share and pre-funded warrants to purchase 2,866,961 shares of common stock at a public offering price of $11.3199 per warrant in an underwritten public offering pursuant to a shelf registration on Form S-3. We granted the underwriters an option to purchase up to 2,325,000 additional shares of our common stock at a public offering price of $11.32, less underwriting discounts and commissions. The full option was exercised by the underwriters in June 2020. The gross proceeds from this public offering were $201.8 million, resulting in net proceeds of $189.3 million, after deducting underwriting discounts and commissions and offering expenses payable by us. The terms of the pre-funded warrants issued and sold as part of this public offering were similar to those above.

105

In December 2020, we issued and sold 5,102,041 shares of common stock at a public offering price of $24.50 per share and pre-funded warrants to purchase 2,040,816 shares of common stock at a public offering price of $24.4999 per warrant in an underwritten public offering pursuant to a shelf registration on Form S-3. The gross proceeds from this public offering were $175.0 million, resulting in net proceeds of $164.3 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

As of December 31, 2020, all of the pre-funded warrants issued and sold as part of the 2020 underwritten public offerings were outstanding.

ATM Facilities

In March 2017, we entered into a sales agreement (the “2017 ATM Facility”) with Cowen and Company, LLC (“Cowen”), which provided for the sale, in our sole discretion, of shares of our common stock, in the aggregate offering price of up to $75.0 million through Cowen, as our sales agent.We paid a commission of up to 3.0% of the gross sales proceeds of any common stock sold under the 2017 ATM Facility.

In February 2019, we terminated the 2017 ATM Facility and entered into a new sales agreement (the “2019 ATM Facility”) with Cowen, which provided for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $100.0 million through Cowen, as our sales agent.We paid a commission of up to 3.0% of gross sales proceeds of the common stock sold under the 2019 ATM Facility.

In February 2020, we entered into a new sales agreement (the “2020 ATM Facility”) with Cowen, which provides for the sale, in our sole discretion, of shares of our common stock having an aggregate offering price of up to $100.0 million through Cowen, as our sales agent. The 2020 ATM Facility is separate from and does not replace the 2019 ATM Facility in any way. We pay a commission of up to 3.0% of gross sales proceeds of any common stock sold under the 2020 ATM Facility.

During the fiscal year ended December 31, 2020, we sold an aggregate of 4,785,514 shares of common stock under the ATM facilities, at an average price of $14.60 per share, for gross proceeds of $69.9 million and net proceeds of $68.0 million, after deducting commissions and other offering expenses payable by us. During the fiscal year ended December 31, 2019, we sold an aggregate of 3,135,347 shares of common stock under the 2019 ATM Facility, at an average price of $16.09 per share, for gross proceeds of $50.5 million and net proceeds of $48.9 million, after deducting commissions and other offering expenses payable by us. Approximately $1.2 million of the $48.9 million net proceeds was received on January 3, 2020. The issuance and sale of these shares by us pursuant to the ATM facilities are deemed “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), and are registered under the Securities Act.

As of December 31, 2020, we had fully utilized the 2019 ATM Facility, and $79.7 million of common stock remained available to be sold under the 2020 ATM Facility, subject to certain conditions as specified in the agreement.

Equity Incentive Plans

In March 2014, we adopted the 2014 Equity Incentive Plan (“2014 EIP”), which was amended and restated on October 15, 2014 upon the pricing of our initial public offering (“IPO”).

The 2014 EIP provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with 2015 and ending in 2024, equal to five percent of the number of shares of the Company’s common stock outstanding as of such date or a lesser number of shares as determined by our board of directors.

Under the terms of the 2014 EIP, we may grant stock options, RSAs and RSUs to employees, directors, consultants and other service providers. RSUs generally vest over four years. In 2020, we granted performance-based awards to certain of our employees that provide for the issuance of common stock if specified Company performance criteria related to our clinical programs are achieved. The number of performance-based awards that ultimately vests depends upon if, when and which performance criteria are achieved, as well as the employee’s continuous service, as defined in the 2014 EIP, through the date of vesting. The fair value of RSUs, including those with performance conditions, is determined as the closing stock price on the date of grant. Stock options are granted at prices no less than 100% of the estimated fair value of the shares on the date of grant as determined by the board of directors, provided, however, that the exercise price of an option granted to a 10% shareholder cannot be less than 110% of the estimated fair value of the shares on the date of grant. Options granted generally vest over four years and expire in seven to ten years. As of December 31, 2020, a total of 13,545,106 shares of common stock were reserved for issuance under the 2014 EIP, of which 2,764,225 shares were available for future grant and 10,780,881 shares were subject to outstanding options and RSUs, including performance-based awards.

106

In February 2018, we adopted the 2018 Inducement Plan (“Inducement Plan”), under which we may grant options, stock appreciation rights, RSAs and RSUs to new employees. In September 2020, we amended the Inducement Plan to reserve an additional 1,500,000 shares of the Company’s common stock for issuance under the Inducement Plan, as amended. As of December 31, 2020, 2,634,836 shares of common stock were reserved for issuance under the Inducement Plan, of which 1,734,211 shares were available for future grant and 900,625 shares were subject to outstanding options and RSUs.

Restricted Stock Units

The weighted average grant date fair value of RSUs granted during the years ended December 31, 2020, 2019 and 2018 was $12.19, $27.04 and $36.83, respectively. The estimated fair value of RSUs that vested in the years ended December 31, 2020, 2019 and 2018 was $23.6 million, $13.8 million and $10.8 million, respectively. As of December 31, 2020, there was $39.4 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted average period of 2.3 years. This excludes unrecognized stock-based compensation expense for performance-based RSUs that were deemed not probable of vesting in accordance with U.S. GAAP. The aggregate intrinsic value of the RSUs outstanding as of December 31, 2020 was $75.2 million.

The following is a summary of RSU activity under our 2014 EIP and Inducement Plan:

RSUs

Shares Weighted Average Grant Date Fair Value

Under our RSU settlement procedures, for some of the RSUs granted to our employees, we withhold shares at settlement to cover the estimated payroll withholding tax obligations. During 2020, we settled 1,218,945 shares underlying RSUs, of which 276,822 shares underlying RSUs were net settled by withholding 106,459 shares. The value of the shares underlying RSUs withheld was $1.5 million, based on the closing price of our common stock on the settlement date. During 2019, we settled 574,168 shares underlying RSUs, of which 488,964 shares underlying RSUs were net settled by withholding 212,879 shares. The value of the shares underlying RSUs withheld was $6.7 million, based on the closing price of our common stock on the settlement date. The value of RSUs withheld in each period was remitted to the appropriate taxing authorities and has been reflected as a financing activity in our consolidated statements of cash flows.

Stock Options

The following is a summary of stock option activity under our 2014 EIP and Inducement Plan. The table below also includes the activity relating to options for 275,000 shares of our common stock which were issued in 2017 outside of these plans:

Aggregate intrinsic value represents the difference between the closing stock price of our common stock on December 31, 2020 and the exercise price of outstanding, in-the-money options. As of December 31, 2020, there was $48.8 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 2.6 years.

107

Options for 268,938, 347,716 and 1,051,180 shares of our common stock were exercised during the years ended December 31, 2020, 2019 and 2018, with an intrinsic value of $1.0 million, $3.8 million and $19.2 million, respectively. As we believe it is more likely than not that no stock option related tax benefits will be realized, we do not record any net tax benefits related to exercised options.

The fair value of each option issued was estimated at the date of grant using the Black-Scholes valuation model. The following table summarizes the weighted-average assumptions used as inputs to the Black-Scholes model and resulting weighted-average grant date fair values of stock options granted during the periods indicated:

Year ended December 31,

Assumptions:

Expected term (years) 6.0 5.9 4.6

Risk-free interest rate 0.8 % 2.1 % 2.7 %

Expected dividend yield 0.0 % 0.0 % 0.0 %

Fair Value:

The estimated fair value of stock options that vested in the years ended December 31, 2020, 2019 and 2018 was $29.4 million, $31.6 million and $16.2 million, respectively.

Employee Stock Purchase Plan

In May 2014, we adopted the 2014 Employee Stock Purchase Plan (“2014 ESPP”), which became effective on October 15, 2014 upon the pricing of our IPO. The 2014 ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Eligible employees can purchase shares of the Company’s common stock at 85% of the lower of the fair market value of the common stock at (i) the beginning of a 12-month offering period, or (ii) at the end of one of the two related 6-month purchase periods. No participant in the 2014 ESPP may purchase shares of common stock valued at more than $25,000 per calendar year. The first offering under the 2014 ESPP commenced on June 1, 2016, and subsequent offerings commence on each anniversary of this date. The Company recorded $1.8 million, $1.3 million and $1.2 million of expense related to the 2014 ESPP in the years ended December 31, 2020, 2019 and 2018, respectively. A total of 282,514, 139,466 and 109,193 shares were purchased under the ESPP during the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, there was $0.6 million of unrecognized stock-based compensation expense related to the ESPP that is expected to be recognized by the end of second quarter of 2021.

The 2014 ESPP provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with 2015 and ending in 2024, equal to the lower of (i) one percent of the number of shares of our common stock outstanding as of such date, (ii) 230,769 shares of our common stock, or (iii) a lesser number of shares as determined by our board of directors. As of December 31, 2020, there were 1,586,742 shares authorized under the 2014 ESPP.

Reserved Shares

The following shares of common stock were reserved for future issuance under our equity incentive plans as of December 31, 2020:

Total Shares Reserved

Total reserved shares of common stock 17,130,745

108

Stock-based Compensation Expense

Total stock-based compensation expense related to all stock awards was as follows:

Year Ended December 31,

(in thousands)

11. Income Taxes

Losses before provision for income taxes were as follows in each period presented:

Year Ended December 31,

(in thousands)

The Company liquidated its Cayman Islands entity in 2018 and elected to treat the entity as disregarded for the fiscal year 2018. As such, the applicable 2018 losses are treated as losses in the United States.

The components of provision for (benefit from) income taxes were as follows in each period presented:

Year Ended December 31,

(in thousands)

Current provision for (benefit from) income taxes:

Federal $ — $ — $ (31 )

Total current provision for (benefit from) income taxes $ 15 $ 12 $ (44 )

A reconciliation of statutory tax rates to effective tax rates were as follows in each of the periods presented:

Year Ended December 31,

Federal income taxes at statutory rate 21.0 % 21.0 % 21.0 %

Impact of stock compensation (2.4 %) 0.1 % —

Non-deductible executive compensation (0.1 %) (0.7 %) (0.7 %)

Capitalized research — — 7.8 %

Change in valuation allowance (18.8 %) (20.2 %) (27.5 %)

Effective tax rate 0.0 % 0.0 % 0.0 %

109

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows for each of the dates presented:

As of December 31,

(in thousands)

Deferred tax assets:

Deferred tax liabilities:

Total deferred tax liabilities (4,409 ) (5,096 )

Net deferred tax assets (liabilities) $ — $ —

We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes, as well as for tax attribute carryforwards. We regularly evaluate the positive and negative evidence in determining the realizability of our deferred tax assets. Based upon the weight of available evidence, which includes our historical operating performance and reported cumulative net losses since inception, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 2020 and 2019. We intend to maintain a full valuation allowance on our deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. The valuation allowance increased by $82.1 million for the year ended December 31, 2020 and increased by $78.1 million for the year ended December 31, 2019.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, providing companies with various tax relief provisions and other stimulus measures. Such measures include, but are not limited to, temporary changes regarding the prior and future utilization of net operating losses, technical corrections to prior tax legislation for tax depreciation of certain qualified improvement property, acceleration of AMT credit refunds, and changes to business interest limitations. The Consolidated Appropriations Act was also signed into law on December 27, 2020 to provide further relief measures and renew various expiring tax provisions. Additionally, the IRS issued final regulations and proposed regulations on calculating the limitation on business interest expense, the allowance for the first-year depreciation deduction under IRC Section 168(k), as amended by the Tax Cuts and Jobs Act (the “Tax Act”), for qualified property acquired and placed in service after September 27, 2017, and meals and entertainment deductions. Based on our evaluation, these regulations did not have a material impact on the income tax provision for the years ended December 31, 2020, 2019 and 2018.

Under the Tax Act, as modified by the CARES Act, federal net operating losses generated in tax years beginning on or after January 1, 2018 and in future years may be carried forward indefinitely, but the utilization of such federal net operating losses arising in taxable years beginning on or after January 1, 2021 is limited to 80% of a tax year’s taxable income. The CARES Act temporarily suspends this 80% taxable income limitation, allowing a net operating loss carryforward to fully offset taxable income in tax years beginning before January 1, 2021. Not all states conform to the Tax Act or CARES Act and some states have varying conformity to the Tax Act or CARES Act.

110

As of December 31, 2020, we had federal and state net operating loss carryforwards for tax return purposes of $811.7 million and $988.1 million, respectively. Of the $811.7 million federal net operating loss carryforwards, $65.3 million will begin to expire in 2032, with the remaining $746.4 million being carried forward indefinitely. Of the $988.1 million state net operating loss carryforwards, $986.4 million will begin to expire in 2030, with the remaining amount not being subject to expiration under applicable state laws.

As of December 31, 2020, we had federal research & development and orphan drug tax credits of $12.9 million and $75.1 million, respectively, to offset future taxes payable. These federal credits begin to expire in 2032 and 2035, respectively, if not utilized. As of December 31, 2020, we had California research & development tax credits of $21.6 million, which do not expire, to offset future taxes payable.

Under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we have experienced an “ownership change.” Generally, a Section 382 “ownership change” occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Similar rules may apply under state tax laws.

We have completed a Section 382 study of transactions in our stock through December 31, 2020. The study concluded that we have experienced ownership changes since inception and that our utilization of net operating loss carryforwards will be subject to annual limitations. However, it is not expected that the annual limitations will result in the expiration of tax attribute carryforwards prior to utilization.

The changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the years ended December 31, 2018, 2019 and 2020 are as follows:

(In thousands)

Gross increases for tax positions related to current year 12,927

Gross increases for tax positions related to prior year 704

Gross decreases for tax positions related to prior year (2,608 )

Gross increases for tax positions related to current year 22,800

Gross increases for tax positions related to prior year 22,126

Gross decreases for tax positions related to prior year —

ATRA US Equity

ATRA · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

ATRA US Equity☆

ATRA · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

ATRA US Equity