TIL US Equity☆

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Annual Report. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Forward-Looking Statements” and “Risk Factors.”

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, our expectations regarding our clinical trials, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on developing an innovative cell therapy pipeline of autologous tumor infiltrating lymphocyte, or TIL, therapies for the treatment of patients with cancer. We have assembled an accomplished team with a successful track record in cell therapy innovation. We are developing a novel class of genetically engineered TIL therapies using our Co-Stimulatory Antigen Receptor, or CoStAR, platform. These modified CoStAR-TILs still rely on their native, patient-specific T cell receptors, or TCRs, to bind to tumor neoantigens, but have been enhanced to express novel CoStAR molecules, which bind to shared tumor-associated antigens and provide potent costimulation to T cells within the tumor microenvironment. We believe that the ability of CoStAR to augment the activation of TILs upon native TCR-mediated recognition of tumor neoantigens has the potential to bring TIL therapy to patients with cancer types that have been historically resistant to immunotherapy and increase the benefit from TIL therapy in patients with cancer types that have been historically sensitive to immunotherapy. In 2022, we submitted an investigational new drug application, or IND, for ITIL-306, our first CoStAR-TIL therapy, to the U.S. Food and Drug Administration, or FDA, and, following clearance, opened a Phase 1 dose escalation trial of ITIL-306 in non-small cell lung cancer, or NSCLC, ovarian, and renal cancers. In October 2022, we announced the successful dosing of the first patient with NSCLC in the ITIL-306 Phase 1 trial.

We were founded in August 2018. In February 2019, we entered into a license agreement with Immetayte Ltd., or Immetacyte, pursuant to which we obtained a worldwide license to Immetacyte's proprietary technology, know-how and intellectual property for the research, development, manufacture and commercialization of TIL therapies. Immetacyte had been manufacturing a TIL product under a compassionate use program since 2011.

In March 2020, we acquired 100% of the share capital of Immetacyte. We acquired Immetacyte primarily for this in-process research and development (IPR&D), which is critical to achieve our objective of developing an innovative cell therapy pipeline of autologous TIL therapies for the treatment of patients with cancer, as well as the dedicated workforce of Immetacyte. Utilizing this IPR&D, we have designed and developed our initial CoStAR

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construct targeting folate receptor alpha and are advancing our first CoStAR-TIL product candidate, ITIL-306, for the treatment of multiple solid tumors. We have initiated a Phase 1 clinical trial of ITIL-306 in the United States, and plan to initiate a Phase 1 clinical trial of ITIL-306 in the United Kingdom in 2023.

Since inception, we have had significant operating losses. Our net loss was $223.2 million and $156.8 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $424.9 million. As of December 31, 2022, we had cash, cash equivalents and marketable securities of $260.9 million which consists of $43.7 million in cash and cash equivalents and $217.2 million in marketable securities. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase.

Recent Developments

In May 2022, we achieved IND clearance from the FDA for a Phase 1 dose escalation study of ITIL-306 in NSCLC, ovarian cancer, and renal cell carcinoma, and we announced the successful dosing of the first patient with NSCLC in October 2022. In January 2023, we announced the consolidation of substantially all of our research and development operations, including clinical product manufacturing and clinical trial operations, to our Manchester, United Kingdom site to further extend our expected cash runway beyond 2026. We expect initial clinical data from the ITIL-306 program in 2024.

In December 2022, our Board of Directors approved a strategic reprioritization of our preclinical and clinical development programs. This decision involves reallocating resources to focus on advancing ITIL-306, our CoStAR platform, and other next-generation TIL technologies, while discontinuing our ITIL-168 development program. As part of this strategic restructuring plan, we have reduced our U.S. workforce to a team of approximately 15 individuals responsible for leading our global business operations. Additionally, we are currently concentrating our efforts with our UK workforce to re-align our operating model.

Components of Operating Results

Operating Expenses

Research and Development

Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of research and development, manufacturing, monitoring and other services payments and, to a lesser extent, salaries, benefits, and other personnel-related costs, including stock-based compensation, professional service fees and facility and other related costs. In addition, research and development expense is presented net of reimbursements from reimbursable tax and expenditure credits and grants from the UK government. For the years ended December 31, 2022 and 2021, we did not allocate our research and development expenses by program.

We expect our future research and development expenses to change in line with our prioritization of advancing our clinical development activities for ITIL-306, our CoStAR platform, and other next-generation TIL technologies, and changes in the size of our company. Our expenditures on future nonclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of clinical trials and development of product candidates will depend on a variety of factors, including:

•the scope, rate of progress and expenses of clinical trials and other research and development activities, including the impacts of our voluntary pause in our clinical trials and the related investigation into our manufacturing processes;

•potential safety monitoring and other studies requested by regulatory agencies;

•significant and changing government regulation; and

•the timing and receipt of regulatory approvals, if any.

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

General and Administrative

General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive, finance and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, insurance costs, recruiting costs, travel expenses, amortization and depreciation, and other general and administrative costs.

We expect our future general and administrative expenses to change in line with our prioritization of advancing our CoStAR platform and other next-generation TIL technologies, changes in the size of our company to support our research and development activities and operations generally, and the potential growth of our business. If any of our product candidates receive marketing approval, we expect to incur additional expenses related to commercialization activities.

Additionally, we expect to continue to incur expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, additional director and officer insurance expenses, and investor relations activities, as well as other administrative and professional services.

Restructuring and Impairment Charges

Restructuring and impairment charges consist primarily of asset impairment charges, contract terminations, severance and other employee-related costs. Restructuring and impairment charges are related to our strategic prioritization of the Company’s preclinical and clinical development programs. Our restructuring plan is designed to reduce costs and reallocate resources to focus on advancing our CoStAR platform and other next-generation TIL technologies. As part of the restructuring plan, our ITIL-168 development program was discontinued and we reduced our U.S. workforce by approximately 60%.

Interest Income

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

Interest Expense

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

Other Expense, Net

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

Income Tax Provision

We are subject to income taxes in the United States and the foreign jurisdiction where we operate, the United Kingdom. The United Kingdom has statutory tax rates that differ from those in the United States. Accordingly, our

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effective tax rates will vary depending on the relative proportion of United Kingdom to United States income, the availability of research and development tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the business in which we operate, projections of future profitability are difficult and past profitability is not necessarily indicative of future profitability. At December 31, 2022, we maintained a full valuation allowance against net deferred tax assets for the United States and the United Kingdom. The valuation allowance has been provided based on the positive and negative evidence relative to our company, including the existence of cumulative net operating losses, or NOLs, since the Company’s inception, and the inability to carryback these NOLs to prior periods. Furthermore, the Company determined that it is more likely than not that the benefit of these assets would not be realized in the foreseeable future. The timing and the reversal of the Company's valuation allowance will continue to be monitored.

Results of Operations

Comparison of the Years Ended December 31, 2022and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31, Change

Operating expenses:

Restructuring and impairment charges 23,167 — 23,167

Research and Development Expenses

Research and development expenses were $141.1 million and $107.3 million for the years ended December 31, 2022 and 2021, respectively. The increase in research and development expenses during this period of $33.8 million was primarily due to:

•$14.0 million in costs from an increase in headcount, consisting of $15.5 million in wages and benefits, partially offset by a decrease in stock-based compensation expense of $1.0 million and a decrease of $0.5 million for other employee-related expenses in relation to our research and development personnel;

•$8.2 million in costs related to research and clinical development activities, including from our clinical trials and expanded clinical manufacturing activities; and

•$11.6 million of expenses related to facilities and overhead, depreciation and amortization, and other expenses.

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We anticipate a reduction in our future research and development expenses as a result of discontinuing the ITIL-168 development program, implementing significant workforce reductions in the United States, and adapting to changes in our company's size.

General and Administrative Expenses

General and administrative expenses were $62.2 million and $48.3 million for the years ended December 31, 2022 and 2021, respectively. The net increase of $13.9 million was primarily due to:

•$12.0 million in costs resulting from increased headcount and personnel related costs, including increased stock-based compensation expense of $5.3 million, to support our growing business and for preparation of clinical trials;

•$1.3 million in consulting and professional service costs, mainly consisting of costs of information technology and facility consultants of $0.6 million, and costs of business operations consultants of $0.7 million; and

•$0.6 million from an increase in insurance expense and other office expenses.

We anticipate a reduction in our future general and administrative expenses as a result of discontinuing the ITIL-168 development program, implementing significant workforce reductions in the United States, and adapting to changes in our company's size. If any of our product candidates receive marketing approval, we expect to incur additional expenses related to commercialization activities.

Restructuring and Impairment Charges

Restructuring and impairment charges were approximately $23.2 million for the year ended December 31, 2022 and nil for the year ended December 31, 2021, since we did not have any restructuring and impairment charges during the prior year. The net increase of $23.2 million was primarily due to:

•$15.8 million in costs resulting from a goodwill impairment charge of $5.7 million and an in-process research and development impairment charge of $10.1 million;

•$1.9 million in costs resulting from a leasehold improvement charge of $1.2 million and a $0.7 million impairment for other fixed assets;

•$3.0 million in costs consisting of severance payments and benefits continuation costs; and

•$2.4 million in costs comprised principally of the termination of software contracts.

Interest Income, Interest Expense and Other Expense, Net

Interest income, interest expense and other expense, net were $1.2 million of income and $1.2 million of expense for the years ended December 31, 2022 and 2021, respectively. The increase of $2.4 million was primarily due to:

•$3.6 million of interest income related to our investments;

•$1.0 million from our derivative investment; and

•$0.4 million gain in other income, primarily consisting of a gain on asset disposal, net of other expenses;

•partially offset by an increase of interest expense of $1.9 million from our note payable; and

•$0.7 million of loss on foreign currency transactions.

Income Tax Expense

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Income tax expense, decreased from $39 thousand expense for the year ended December 31, 2021 to $2.1 million benefit for the year ended December 31, 2022. During the year ended December 31, 2022, income tax benefit mostly consisted of deferred foreign income taxes from our operations in the United Kingdom.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have not generated any revenue from product sales and we have incurred significant operating losses. We do not have any products that have achieved regulatory marketing approval and we do not expect to generate revenue from sales of any product candidates for several years, if ever.

As of December 31, 2022, we had cash, cash equivalents, and marketable securities of $260.9 million, which consists of $43.7 million in cash and cash equivalents, and $217.2 million in marketable securities. As of December 31, 2021, we had cash and cash equivalents of $37.6 million and $416.5 million in marketable securities. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

In June 2022, our wholly-owned subsidiary, Complex Therapeutics Mezzanine LLC, and our wholly-owned indirect subsidiary, Complex Therapeutics LLC, entered into a mortgage construction loan and mezzanine construction loan, or together, the Loan, secured by our Tarzana, California land and building, which is partially complete and is expected to reach full completion in the second quarter of 2023. The initial principal amount of the Loan was $52.1 million, with additional future principal of up to $32.9 million to fund ongoing construction costs. As of December 31, 2022, the outstanding principal amount under the Loan was $74.8 million and unamortized debt issuance costs were $2.4 million.

On April 1, 2022, we filed an automatic shelf registration statement on Form S-3, or the 2022 Shelf Registration Statement. We have not yet sold and issued any securities under the 2022 Shelf Registration Statement.

In March 2021, we raised net proceeds of $339.0 million in our initial public offering, or IPO, pursuant to which we sold an aggregate of 18,400,000 shares of common stock.

In the first quarter of 2021, we raised aggregate net cash proceeds of $52.5 million from the issuance and sale of our Series C convertible preferred stock.

Future Funding Requirements

Based on our current operating plan, we believe our existing cash and cash equivalents, and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements beyond 2026. We are also evaluating opportunities for a potential sale or lease of the Tarzana manufacturing site, as well as subleases of other facilities under lease, which would further extend our expected cash runway. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect to continue to expend significant resources for the foreseeable future.

We use our cash to fund operations, primarily to fund our research and development expenditures and related personnel costs. We expect our expenses to continue to be significant as we invest in research and development activities, particularly as we advance our product candidates into later stages of development and conduct larger clinical trials, seek regulatory approvals for and commercialize any product candidates that successfully complete clinical trials, hire personnel and invest in and grow our business, expand and protect our intellectual property portfolio, and operate as a public company. Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, we are unable to estimate the exact timing and amount of our funding requirements. Our future operating expenditures will depend on many factors, including:

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•the scope, rate of progress, costs and results of our clinical and preclinical development activities, including the impacts of our voluntary pause in our clinical trials, the results of our discussions with the FDA and other regulatory agencies, and the related investigation into our manufacturing process;

•the number and characteristics of any additional product candidates we develop or acquire;

•the timing of, and the costs involved in, obtaining regulatory approvals for ITIL-306 or any future product candidates, and the number of trials required for regulatory approval;

•the cost of manufacturing ITIL-306 or any future product candidates as well as any products we successfully commercialize;

•costs related to our manufacturing and other facilities;

•the cost of commercialization activities of our product candidates, if approved for sale, including marketing, sales and distribution costs;

•the timing, receipt and amount of sales of ITIL-306 or any future product candidates, if approved;

•the costs associated with constructing our new clinical and commercial manufacturing facility and building out lab space, as well as our ability to complete a sale or lease of our Tarzana, California facility, as well as subleases of other facilities under lease;

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

•our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such arrangements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;

•any product liability or other lawsuits;

•the expenses needed to attract, hire and retain skilled personnel;

•our investments in our operational, financial and management information systems;

•the costs associated with operating as a public company;

•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and

•any delays or issues resulting from the ongoing COVID-19 pandemic or adverse geopolitical and economic conditions.

In March 2020, we acquired 100% of the share capital of Immetacyte for total cash and non-cash consideration, including contingent consideration, of $15.4 million. In connection with the acquisition, we terminated the Immetacyte license agreement and associated payment obligations. The maximum consideration that remained unpaid at December 31, 2022, which payment is contingent on future events, was $13.3 million.

Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through equity offerings, debt financings or other capital sources, which may include strategic collaborations or other arrangements with third parties. Additional funds may not be available to us on acceptable terms or at all. If we raise additional funds by issuing equity or convertible debt securities, our stockholders will suffer dilution and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities receive any distribution of our corporate assets. If we raise funds through collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to technologies, future revenue streams, product candidates or research programs or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common shares. Our ability to raise additional funds may be adversely impacted by worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from, among other

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things, inflation, rising interest rates, the war in Ukraine and the COVID-19 pandemic. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. See "Risk Factors."

We lease various operating spaces in the United States and the United Kingdom under non-cancelable operating lease arrangements that expire on various dates through 2026. These arrangements require us to pay certain operating expenses, such as taxes, repairs, and insurance and contain landlord or tenant incentives or allowances, renewal and escalation clauses. As of December 31, 2022, our future minimum lease payments under committed or non-cancelable lease agreements were $8.4 million, as discussed in Note 7 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our contractual obligations and commitments primarily consist of amounts we will pay to the general contractor constructing and developing land and buildings in Tarzana, California which we acquired in October 2020 for $37.6 million. We are in the process of developing this land for our U.S. operations and our contractual commitments for this development project are limited to unreimbursed spend by the general contractor. As of December 31, 2022, $4.0 million was contractually committed to the development of this project.

In the normal course of business, we enter into contracts with Clinical Research Organizations, or CROs, and other third parties for preclinical studies and clinical trials, research and development supplies and other testing and manufacturing services. We are committed to approximately $13.5 million in future services related to clinical trial progress as of December 31, 2022.

In December 2022, the Company’s Board of Directors approved a restructuring plan to implement a strategic prioritization of the Company’s preclinical and clinical development programs. In the year ended December 31, 2022, the Company recorded aggregate restructuring and impairment charges of approximately $23.2 million related to contract termination, severance payments and other employee-related costs.

On January 30, 2023, the Company’s Board of Directors approved an expansion of its previously announced restructuring plan implementing a strategic prioritization of the Company’s preclinical and clinical development programs. The Company currently estimates that it will incur charges of up to $9.0 million in connection with the restructuring plan, consisting primarily of cash expenditures for severance payments, retention bonus payments, contract terminations and related costs, as well as non-cash expenses related to vesting of share-based awards, excluding any charges or costs associated with any potential sale of its facilities and asset impairments. The Company expects that the majority of the restructuring and impairment charges will be incurred in the next 12 months and that the execution of the restructuring will be substantially complete by the end of April 2023.

Cash Flows

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

Years Ended December 31,

Net cash provided by (used in):

Cash provided by (used in) investing activities 114,541 (474,396)

Cash Flows from Operating Activities

Cash used in operating activities for the year ended December 31, 2022 was $180.2 million, which consisted of the net loss of $223.2 million and a $9.6 million net change to our net operating assets and liabilities, partially offset

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by $52.6 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities. The net change in our operating assets and liabilities was primarily due to a decrease of $1.8 million in accounts payable, decrease of $9.0 million in accrued expenses and other current liabilities, and a decrease of $0.4 million in prepaid expenses and other current assets, offset partially by an increase of $1.6 million in long-term liabilities. The non-cash charges primarily consisted of stock-based compensation expense of $30.4 million, goodwill and intangible assets impairment of $15.8 million, depreciation and amortization expense of $6.0 million and change in foreign exchange measurement of $1.4 million.

Cash used in operating activities for the year ended December 31, 2021 was $122.1 million, which consisted of the net loss of $156.8 million, partially offset by $30.3 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and a $4.4 million net change to our net operating assets and liabilities. The non-cash charges primarily consisted stock-based compensation of $26.2 million, and depreciation and amortization expense of $2.8 million. The net change in our operating assets and liabilities was primarily due to an increase of $3.9 million in accounts payable, an increase of $12.0 million in accrued expenses and other current liabilities, partially offset by an increase of $5.0 million in prepaid expenses and other current assets and an increase in $6.5 million in other long-term assets.

Cash Flows from Investing Activities

Cash provided by investing activities for the year ended December 31, 2022 was $114.5 million, of which $200.3 million provided related to marketable securities, partially offset by $1.2 million used related to derivative financial instruments and $84.6 million used related to purchases of property.

Cash used in investing activities for the year ended December 31, 2021 was $474.4 million, of which $57.8 million was related to purchases of property, plant and equipment of $416.6 million was related to marketable securities.

Cash Flows from Financing Activities

Cash provided by financing activities for the year ended December 31, 2022 was $71.9 million, which was primarily related to net cash proceeds from our note payable of $70.3 million and cash proceeds from exercise of stock options of $1.5 million.

Cash provided by financing activities for the year ended December 31, 2021 was $393.2 million, which was primarily related to net cash proceeds from our IPO of $339.0 million, net cash proceeds from the issuance of Series C convertible preferred stock of $52.5 million and cash proceeds from exercise of stock options of $1.8 million.

Contractual Obligations and Commitments

Our construction contractual obligations and commitments primarily consist of amounts we will pay to the general contractor for constructing and developing our land and buildings in Tarzana, California. As of December 31, 2022, $4.0 million was contractually committed to the development of this project.

In June 2022, our wholly-owned subsidiary, Complex Therapeutics Mezzanine LLC, and our wholly-owned indirect subsidiary, Complex Therapeutics LLC, entered into a mortgage construction loan and mezzanine construction loan (together, the "Loan") and as of December 31, 2022, the outstanding principal amount under the Loan was $74.8 million and unamortized debt issuance costs were $2.4 million.

As of December 31, 2022, we had non-cancelable purchase commitments of approximately $18.3 million consisting mainly of CROs, software and operating commitments. Additionally, future minimum lease payments under noncancellable operating leases as of December 31, 2022 totaled $8.4 million, as discussed in Note 7.

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As part of our restructuring plan, as of December 31, 2022, we recorded $3.0 million related to one-time employee termination benefits and $2.4 million for contract termination, as discussed in Note 12.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the notes to our consolidated financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Intangible Assets and Goodwill

Our intangible assets classified as in-process research and development or IPR&D, are composed of intangible assets acquired in a business combination and used in research and development activities that have not yet reached technological feasibility, regardless of their potential future use. The main criterion we use to determine the technological feasibility or completion of these projects is regulatory approval to market the underlying products in a relevant geographic region. However, obtaining regulatory approval is often subject to significant risks and uncertainties, which may result in the eventual realized value of the acquired IPR&D projects differing from their fair value at the date of acquisition. We classify IPR&D intangible assets acquired in a business combination as indefinite-lived until the completion or abandonment of the associated research and development efforts. Once the associated research and development activities are completed, we will assess the useful life and begin amortizing the assets to reflect their use over their remaining lives. In the event of permanent abandonment, we will write off the remaining carrying amount of the associated IPR&D intangible asset.

Our indefinite-lived IPRD intangible assets are tested at least annually for impairment, or upon the occurrence of a triggering event. The impairment test for IPR&D involves comparing the fair value of the asset, based on updated forecasts and commercial development plans, with its carrying value. Impairment is deemed to exist when the fair value of IPR&D assets is less than their carrying value.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment. We review goodwill for impairment at least annually or more frequently for triggering events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable based on management’s assessment of the fair value of the Company’s reporting unit as compared to their related carrying value. Under the authoritative guidance issued by the Financial Accounting Standards Board, we have the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

Our impairment tests are based on a single operating segment and reporting unit structure. If the carrying value of the reporting unit exceeds its fair value, an impairment charge is recognized for the excess of the carrying value of the reporting unit over its fair value.

In December 2022, we performed a quantitative goodwill impairment test for our Immetacyte acquisition. The test was prompted by the discontinuation of the ITIL-168 development program (see Note 12 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K), the realignment of our preclinical and clinical development programs and decline in our stock price. Based on the results of the test as of December 31, 2022, we determined that the carrying amount of our goodwill and intangible assets exceeded their fair value. The fair value of the IPR&D was determined through utilizing the multiperiod excess earnings method (MPEEM), which

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considered various factors such as future cash flows, discount rates, and market conditions. The fair value of the reporting unit was determined through an income approach, the discounted cash flow model, considering projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, a perpetual growth rate, and projected future economic and market conditions.

As a result of the analysis, we recognized a non-cash impairment charge of $15.8 million for the year ended December 31, 2022. The charge consisted of $10.1 million for IPR&D impairment and $5.7 million for goodwill impairment during the fourth quarter of 2022. These impairment charges were recorded in the consolidated statements of operations and comprehensive loss in the line item “restructuring and impairment charges".

Stock-Based Compensation

We maintain a stock-based compensation plan as a long-term incentive for employees, directors and consultants. The plan allows for the issuance of stock options, stock appreciation rights and restricted stock units.

For stock-based awards with only service conditions, we recognize stock-based compensation expense for stock-based awards on a straight-line basis over the requisite service period and account for forfeitures as they occur. For stock-based awards with performance conditions, stock-based compensation expense is not recognized until the performance condition is probable to occur. Our stock-based compensation costs are based upon the grant date fair value estimated using the Black-Scholes option pricing model. This model utilizes inputs that are highly subjective assumptions and generally require significant judgment. These assumptions include:

•Fair Value of Common Stock—Prior to our IPO in March 2021, the fair value of the shares of common stock underlying stock options had historically been determined by the Board of Directors. Because there has been no public market for the our common stock, the Board of Directors has determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including important developments in our operations, contemporaneous valuations performed by an independent third party firm, sales of our convertible preferred stock, our operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price volatility of similar public companies and the lack of marketability of our common stock, among other factors. After our IPO in March 2021, the fair value of common stock is determined using the closing price of our common stock on the Nasdaq Global Select Market.

•Expected Term—The expected term represents the period that stock-based awards are expected to be outstanding and is determined as the average of the time-to-vesting and the contractual life of the awards.

•Expected Volatility—Since we do not have sufficient trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

•Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of awards.

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

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements applicable to us is included in Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Emerging Growth Company Status and Smaller Reporting Company Status

We are an “emerging growth company” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our

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independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest of (i) December 31, 2026, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We are also a "smaller reporting company," as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250.0 million or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We had cash, cash equivalents and marketable securities of $260.9 million which consists of $217.2 million in marketable securities as of December 31, 2022. We generally hold our cash in interest-bearing money market accounts. We believe that historical fluctuations in interest rates have not had a material effect on our results of operations during the period presented.

Due to the low risk profile of our investments and debt, including our interest rate swap discussed in Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, a hypothetical one percentage point change in interest rates during the period presented would not have had a material impact on our financial statements included elsewhere in this report.

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

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Item 8. Financial Statements and Supplementary Data.

INSTIL BIO, INC.

Index to financial statements

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID #34) 110

Notes to the Consolidated Financial Statements 115

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Instil Bio, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Instil Bio, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles accounting principles generally accepted in the United States of America.

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 Public Company Accounting Oversight Board (United States) (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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.

/s/ Deloitte & Touche LLP

San Diego, California

March 31, 2023

We have served as the Company’s auditor since 2020.

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INSTIL BIO, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

December 31,

ASSETS

Current assets:

Prepaid expenses and other current assets 8,458 9,921

Operating lease right-of-use assets 12,457 —

Intangible assets — 10,104

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accrued expenses and other current liabilities 30,069 34,449

Contingent consideration, current portion 360 1,341

Contingent consideration, net of current portion 7,882 10,980

Operating lease liabilities, non-current 5,171 —

Deferred tax liabilities — 2,426

Other long-term liabilities 332 20

Commitments and contingencies (Note 7)

Stockholders’ equity:

Accumulated other comprehensive loss (493) (87)

Total liabilities and stockholders’ equity $ 482,128 $ 609,983

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

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INSTIL BIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

Year Ended December 31,

Operating expenses:

Restructuring and impairment charges 23,167 —

Interest expense (1,883) —

Income tax benefit (expense) 2,073 (39)

Other comprehensive income (loss):

Foreign currency translation 9 246

Unrealized loss on available-for-sale securities, net (415) (50)

Net loss per share, basic and diluted $ (1.72) $ (1.48)

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

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INSTIL BIO, INC.

CONSOLIDATED STATEMENTS OF

CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share and per share amounts)

Shares Amount Shares Amount

Other comprehensive income — — — — — 196 — 196

Other comprehensive loss — — — — — (406) — (406)

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

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INSTIL BIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

Cash flows from operating activities:

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

Non-cash lease expense 1,765 —

Foreign exchange remeasurement loss 1,391 710

Impairment of goodwill and intangible assets 15,826 —

Impairment of assets 1,907 —

Change in fair value of contingent consideration (2,879) 294

Depreciation and amortization 5,987 2,752

Non-cash interest expense (1,225) —

Change in fair value of derivative instrument (1,414) —

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (430) (5,045)

Operating lease liabilities (335) —

Long-term liabilities 1,628 —

Accrued expenses and other current liabilities (8,977) 12,046

Cash flows from investing activities:

Purchases of property, plant and equipment (84,589) (57,831)

Purchase of derivative financial instrument (1,174) —

Net cash provided by (used in) investing activities 114,541 (474,396)

Cash flows from financing activities:

Proceeds from initial public offering, net of issuance costs — 339,016

Proceeds from exercise of stock options 1,548 1,757

Proceeds from note payable 70,338 —

Other financing activities — (69)

Net cash provided by financing activities 71,886 393,164

Cash, cash equivalents and restricted cash—beginning of period 38,090 241,764

Cash, cash equivalents and restricted cash—end of period $ 43,716 $ 38,090

Supplemental disclosure of cash flow information:

Cash paid for interest, net of amounts capitalized $ 1,068 $ —

Supplemental disclosure of noncash information:

Conversion of preferred stock to common stock upon IPO $ — $ 384,426

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

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INSTIL BIO, INC.

Notes to Consolidated Financial Statements

1. Organization and Description of Business

Instil Bio, Inc. (the “Company” or “Instil Bio”) is headquartered in Dallas, Texas and was incorporated in the state of Delaware in August 2018. The Company is a clinical-stage biopharmaceutical company focused on developing an innovative cell therapy pipeline of autologous tumor infiltrating lymphocyte (“TIL”) therapies for the treatment of patients with cancer. Principal operations commenced during the first quarter of 2019 when the Company in-licensed its foundational TIL technology.

In December 2022, the Company’s Board of Directors approved a restructuring plan (the "Plan") to implement a strategic prioritization of the Company’s preclinical and clinical development programs. As part of the Plan, the Company’s ITIL-168 development program was discontinued (see Note 12 for more details).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. Instil Bio (UK) Ltd. (formerly Immetacyte Ltd. (“Immetacyte”)) and Complex Therapeutics, LLC. Immetacyte was acquired on March 2, 2020 and Complex Therapeutics, LLC was incorporated on October 14, 2020. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include but are not limited to the fair value of stock valuations prior to the Company's initial public offering, the fair value of contingent consideration payable and the estimation of fair value of goodwill and in-process research and development (IPR&D) intangible assets and associated impairment charges. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial Instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company's cash and cash equivalents are held by two financial institutions in the United States ("U.S.") and one financial institution in the United Kingdom ("UK"), which management believes to be financially sound, and accordingly, minimal credit risk exists with respect to the financial institutions. At times, the Company's deposits held in the U.S. and UK may exceed the Federal Depository Insurance Corporation and Financial Services Compensation Scheme, respectively, insured limits. During the years ended December 31, 2022 and 2021, the Company has not experienced any credit losses in such accounts or marketable securities.

Risks and Uncertainties

The Company is subject to a number of risks similar to other development-stage biopharmaceutical companies, including but not limited to, dependency on the clinical and commercial success of its product candidates, ability to obtain regulatory approval of its product candidates, uncertainty of broad adoption of its approved products, if any,

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by physicians and patients, manufacturing, the need to obtain adequate additional funding, significant competition, and protection of its intellectual property portfolio.

Stock Split and Initial Public Offering

On March 12, 2021, the Company effected a 1.2-for-1 stock split of the Company’s common stock. The par value was not adjusted as a result of the stock split. The authorized shares as of March 12, 2021 were adjusted as a result of the stock split. All share and per share information included in the accompanying consolidated financial statements has been adjusted to reflect this stock split. The accompanying consolidated financial statements and notes thereto give retroactive effect to the stock split for all periods presented.

On March 23, 2021, the Company completed its initial public offering ("IPO") through an underwritten sale of an aggregate of 18,400,000 shares of its common stock at a price of $20.00 per share. The aggregate net proceeds from the offering, inclusive of an additional 2,400,000 common shares sold upon the full exercise of the underwriter's purchase option, after deducting underwriting discounts and commissions of $25.8 million and other offering expenses of $3.2 million, was $339.0 million.

Concurrent with the IPO, all then-outstanding shares of the Company's convertible preferred stock outstanding (see Note 8) were automatically converted into an aggregate of 89,220,699 shares of common stock and were reclassified into permanent equity. Further, immediately following the closing of the IPO, the Company amended and restated its certificate of incorporation such that the total number of shares of common stock authorized to be issued was 300,000,000 and the total number of shares of preferred stock authorized to be issued was 10,000,000. Following the IPO, there are no shares of convertible preferred stock outstanding.

Segments

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the chief operating decision-maker in deciding how to allocate resources to an individual segment and in assessing performance. The Company has determined it operates in a single operating segment and has one operating segment.

Cash, Cash Equivalents, Restricted Cash and Marketable Securities

The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents include amounts invested in money market accounts.

Restricted cash consists of a money market account which serves as collateral for the Company’s employee corporate credit cards and is classified within other long-term assets on the consolidated balance sheet as of December 31, 2021. The Company did not have restricted cash on the consolidated balance sheet as of December 31, 2022.

The Company's short-term marketable securities have original maturities of less than a year at date of purchase. The Company classifies and accounts for marketable securities as available-for-sale securities, which are carried at their fair values based on the quoted market prices of the securities. Unrealized gains and losses are reported as accumulated other comprehensive income (loss). Realized gains on available-for-sale securities are included in net loss in the period earned or incurred. As of December 31, 2022, marketable securities consisted of U.S. Treasury bills that the Company classifies within marketable securities on the consolidated balance sheets.

Short-term marketable securities are recorded at their estimated fair value. The Company periodically reviews whether its securities may be other-than-temporarily impaired, including whether or not (i) the Company has the intent to sell the security or (ii) it is more likely than not that the Company will be required to sell the security before its anticipated recovery. If one of these factors is met, the Company will record an impairment loss associated with its impaired investment. The impairment loss will be recorded as a write-down of investments in the consolidated

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balance sheets and a realized loss within other expense in the consolidated statements of operations and comprehensive loss. For the year ended December 31, 2022, there were no impairment losses for the investments.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the amounts shown in the consolidated statements of cash flows (in thousands):

December 31,

Restricted cash — 500

Cash, cash equivalents and restricted cash $ 43,716 $ 38,090

Fair Value Measurement

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company measures fair value based on a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 —Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 —Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liabilities. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In determining fair value, the Company utilize quoted market prices, or valuation techniques that maximize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Property, Plant and Equipment, Net

Property, plant and equipment, with the exception of land, is stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheets and the resulting gain or loss is reflected in the consolidated statement of operations and comprehensive loss. The estimated useful lives of the Company’s property, plant and equipment are as follows:

Laboratory equipment 5 years

Manufacturing equipment 5 years

Office and computer equipment 3 years

Building 35 years

Leasehold improvements Shorter of remaining lease term or estimated useful life

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The Company owns land and buildings that it is in the process of developing for its U.S. operations. As described in Note 3, the clinical manufacturing building has been completed and is ready for its intended use. The commercial building is still in development and depreciation will commence once the commercial manufacturing facility is ready for its intended use. A variety of costs are incurred in the development of a property. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when the development project is substantially complete and placed into service to begin depreciation involves a degree of judgment. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, and construction costs. When the development project is substantially complete and available for occupancy, the Company ceases capitalization of costs other than costs to improve the functionality or extend the useful lives of property, plant and equipment included as part of the project.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or that the useful life is shorter than originally estimated. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset over its remaining useful life. If such assets are impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. If the useful life is shorter than originally estimated, the Company depreciates or amortizes the remaining carrying value over the revised shorter useful life. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell. To date, the Company has recorded impairment losses on long-lived assets associated with a sustained decrease in the Company's stock price and the Plan implemented on December 2, 2022 for a strategic prioritization of the Company’s preclinical and clinical development programs. The Company recognized a non-cash impairment charge of $1.9 million during the fourth quarter of 2022. The impairment charge was recorded in the consolidated statements of operations and comprehensive loss in the line item “restructuring and impairment charges.” See Note 12 for more information.

Business Combinations

The Company evaluates acquisitions of assets and related liabilities and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the requirements of a business.

The Company accounts for its business combinations using the acquisition method of accounting which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their full fair value as of the date it obtains control. The Company has determined the fair value of assets acquired and liabilities assumed based upon management's estimates of the fair values of assets acquired and liabilities assumed in the acquisitions. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired. The Company accounts for contingent considerations at the acquisition-date fair value as part of the consideration transferred in the transaction and remeasures at fair value for each reporting period.

While management has used its best estimates and assumptions to measure the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, not to exceed one year from the date of acquisition, any changes in the estimated fair values of the net assets recorded for the acquisition will result in an adjustment to goodwill. Upon the conclusion of the measurement period of final determination of the values of assets acquired or liabilities assumed, whichever comes first, the Company records any subsequent adjustments to the consolidated statements of operations and comprehensive loss. Acquisition-related costs, such as legal and consulting fees, are expensed as incurred.

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The Company accounts for an asset acquisition by recognizing net assets based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. Goodwill is not recognized in an asset acquisition; any excess consideration transferred over the fair value of the net assets acquired is allocated to the non-monetary identifiable assets and liabilities assumed based on relative fair values. Acquired IPR&D is expensed as incurred provided there is no alternative future use.

Goodwill and other Indefinite Lived Intangible Assets

Indefinite-lived intangible assets consist of goodwill and IPR&D acquired in a business combination.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment at least annually or more frequently if a triggering event occurs . The Company’s impairment tests are based on a single operating segment and reporting unit structure. If the carrying value of the reporting unit exceeds its fair value, an impairment charge is recognized for the excess of the carrying value of the reporting unit over its fair value (see Note 12).

IPR&D assets represent the fair value of incomplete research and development projects that had not reached technological feasibility as of the date of acquisition; initially, these are classified as IPR&D and are not subject to amortization. Once these research and development projects are completed, the asset balances are transferred from IPR&D to acquisition-related developed technology and are subject to amortization from this point forward. The Company reviews IPR&D for possible impairment annually or more frequently if events or changes in circumstances indicate that carrying amount may not be recoverable. Significant assumptions inherent in the evaluation and measurement of impairment include, but are not limited to, external factors such as industry and economic trends, and internal factors such as changes in the Company’s business strategy and the Company’s forecasts for specific projects (see Note 12). During the year ended December 31, 2022, there was $15.8 million in impairment of Goodwill & IPR&D recognized in the consolidated statement of operations and comprehensive loss in the line item "restructuring and impairment charges".

Grant Proceeds

The Company receives government grants in the UK for the furtherance of certain research and development projects. Grant proceeds are recognized when all conditions of such grants are fulfilled or there is a reasonable assurance that they will be fulfilled. Grant proceeds are classified as a reduction of research and development expenses. For the years ended December 31, 2022 and 2021, $1.6 million and $1.7 million, of grant proceeds were recognized in research and development expenses on the Company’s consolidated statements of operations and comprehensive loss, respectively.

Research and Development Expenses

Research and development (“R&D”) costs are expensed as incurred. Advance payments for research and development activities are deferred as prepaid expenses, classified as current or noncurrent on the Company’s consolidated balance sheets based on the estimated timing the related services will be performed and are expensed as the related services are performed. Costs incurred by third parties pursuant to contracts with research institutions and clinical research organizations are expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from the external service providers. The Company adjusts its accrual as actual costs become known. If the actual timing of the performance of services or the level of effort varies significantly from the estimate, the Company will adjust the accrual accordingly. The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception.

Research and development expenses are presented net of government grants, as described above, and R&D tax and expenditure credits from the UK government, which are recognized over the period necessary to match the reimbursement with the related costs when it is probable that the Company has complied with any conditions

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attached and will receive the reimbursement. Reimbursable R&D tax and expenditure credits were $3.1 million and $1.8 million in the years ended December 31, 2022 and 2021, respectively.

Stock-Based Compensation

The Company measures its stock-based awards granted to employees, non-employee directors, consultants and independent advisors based on the estimated grant date fair value of the awards. For stock-based awards with only service conditions, compensation expense is recognized over the requisite service period using the straight-line method. For stock-based awards that include performance conditions, compensation expense is not recognized until the performance condition is probable to occur. The Company uses the Black-Scholes option pricing model to estimate the fair value of its stock-based awards. The Black-Scholes option pricing model requires the Company to make assumptions and judgements about the variables used in the calculations, including the fair value of common stock, expected term, expected volatility of the Company’s common stock, risk-free interest rate and expected dividend yield. The Company accounts for forfeitures of stock-based awards as they occur.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts or existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. The Company records a valuation allowance to reduce deferred tax assets to an amount expected to be realized.

The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

Foreign Currency

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s subsidiary located in the United Kingdom is the British Sterling. Balance sheets prepared in the functional currency are translated to the reporting currency at exchange rates in effect at the end of the accounting period, except for stockholders’ deficit accounts, which are translated at rates in effect when these balances were originally recorded. Revenue and expense accounts are translated using an average exchange rate in effect during the period. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive loss in the accompanying consolidated balance sheets.

Gains and losses resulting from exchange rate changes on intercompany transactions denominated in a currency other than the local currency are included in earnings as incurred as the related amounts are expected to be repaid in the foreseeable future.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of the Company’s common stock outstanding for the period, without consideration for potential dilutive shares of common stock. For purposes of the diluted net loss per share calculation, convertible preferred stock and common stock options are considered to be potentially dilutive securities. Diluted net loss per share is the same as basic net loss per share for each period presented since the effects of potentially dilutive securities are antidilutive given the net loss of the Company.

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Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. For the year ended December 31, 2022, comprehensive loss consists of foreign currency translation adjustments, and unrealized loss on available-for-sale securities net of tax. For the year ended December 31, 2021, comprehensive loss consists of foreign currency translation adjustments and unrealized loss on available-for-sale securities.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to avail itself of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Leases

The Company adopted the new standard Accounting Standards Updated ("ASU") No. 2016-2, Leases effective January 1, 2022 using the modified retrospective transition approach. For its long-term operating leases, the Company recognizes a right-of-use asset and a lease liability on its consolidated balance sheets.

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

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

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

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See Note 7, Commitments and Contingencies, regarding the Company’s leases, below.

Recent Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The Company adopted the new standard effective January 1, 2022 using the modified retrospective transition approach. Upon adoption on January 1, 2022, the Company recognized ROU assets and lease liabilities totaling $12.5 million and $7.6 million, respectively, to reflect the present value of remaining lease payments under existing lease arrangements. The Company applied the modified retrospective transition approach and did not recast prior periods. As permitted by the standard, the Company elected the transition practical expedient package, which among other things, allows the carryforward of historical lease classifications. The Company’s new accounting policies around leases are described in Leases, above, and in Note 7, Commitments and Contingencies.

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

In December 2019, the FASB issued ASU No. 2019-12. Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improves consistent application by clarifying and amending existing guidance. The Company adopted this standard on January 1, 2022. The adoption of this standard did not have a material impact on the Company's consolidated financial statements and disclosures.

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3. Balance Sheet Components

Property, Plant and Equipment, Net

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

December 31,

Office and computer equipment 4,969 2,239

Less: accumulated depreciation (8,484) (2,979)

______________________________________________________________

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

For the years ended December 31, 2022 and 2021 the Company recognized depreciation expense of $6.0 million and $2.7 million, respectively, in the consolidated statements of operations and comprehensive loss.

As of December 31, 2022 the Company is in the process of developing this land for its U.S. operations and has capitalized $104.0 million in work-in-progress costs associated with this development project. The Company’s contractual commitments for this development project are limited to unreimbursed spend by the general contractor and as such, as of December 31, 2022 and 2021, $4.0 million and $63.2 million, respectively, is contractually committed to the development of this project.

During the year ended December 31, 2022, the Company capitalized $1.2 million of interest related to qualifying expenditures for construction work-in-progress for its commercial manufacturing facility, which is not ready for its intended use.

Accrued Expenses and Other Current Liabilities

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

December 31,

Accrued compensation and benefits 3,273 11,928

Accrued restructuring costs 5,434 —

Accrued research, development and clinical trial expenses 3,827 4,234

Operating lease liabilities, current 2,381 —

Current tax liabilities — 524

Other current liabilities 592 386

Total accrued expenses and other current liabilities $ 30,069 $ 34,449

4. Goodwill and Intangible Assets

In March 2020, the Company acquired 100% of the share capital of Immetacyte. The acquisition was accounted for as a business combination and, accordingly, the total fair value of purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values on the acquisition date. Due to the Company’s pre-commercialization stage, many of the processes and methods used in the production of TILs were still in experimental development and pre-clinical stages and as such, resulted in a $10.1 million IPR&D asset and $5.7 million in goodwill.

During December 2022, the Company realigned its preclinical and clinical development programs driven by discontinuation of its ITIL-168 development program (see Note 12). As of December 31, 2022, the Company determined that the carrying amount of its goodwill and intangible assets exceeded its fair value. The fair value was determined based on a discounted cash flow analysis, which took into account multiple factors including future cash flows, discount rates, and market conditions. As a result of this analysis, the Company recognized a non-cash impairment charge of $5.7 million for goodwill and $10.1 million for intangible assets during the fourth quarter of 2022. The impairment charge was recorded in the consolidated statements of operations and comprehensive loss in the line item “restructuring and impairment charges.”

5. Fair Value Measurement

The fair value of cash and cash equivalents approximates carrying value since cash and cash equivalents consist of short-term highly liquid investments with maturities of less than three months at the time of purchase. Cash and cash equivalents are quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. Money market funds are open-end mutual funds that invest in cash, government securities, and/or repurchase agreements that are collateralized fully. To the extent that these funds are valued based upon the reported net asset value, they are categorized in Level 1 of the fair value hierarchy.

Short-term marketable securities comprised of U.S. Treasury bills that are classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations, alternative pricing sources or U.S. Government Treasury yield of appropriate term.

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:

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Level 1 Level 2 Level 3 Total

(In thousands)

Financial Assets

Derivative financial instrument — 2,202 — 2,202

Financial Liabilities

Contingent consideration $ — $ — $ 8,242 $ 8,242

Level 1 Level 2 Level 3 Total

(In thousands)

Financial Assets

Financial Liabilities

There were no transfers in or out of Level 1, 2 and 3 measurements for the years ended December 31, 2022 and 2021. As of December 31, 2022 and 2021, there were no securities within Level 3 of the fair value hierarchy. The derivative financial instrument above relates to the interest rate swap discussed in Note 7, and is included in other long-term assets in the consolidated balance sheets.

As of December 31, 2022, the fair value of the Company's Loan (as defined in Note 7) was $69.0 million. The fair value was determined on the basis of its net present value and is considered Level 2 in the fair value hierarchy (see Note 2).

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

Fair value, beginning balance $ 12,321

Change in fair value (2,879)

Development milestone achieved (1,200)

Fair value, ending balance $ 8,242

Fair value, beginning balance $ 12,277

Change in fair value 294

Development milestone achieved (250)

Fair value, ending balance $ 12,321

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The Company’s acquisition of Immetacyte involved the potential for the payment of future contingent consideration upon the achievement of (i) certain product development milestones including, approval of studies and commencement and completion of certain product trials, or (ii) various other performance conditions including, receipt of final approval for the first marketing authorization and first commercial sale in certain geographical markets. Contingent consideration is recorded at the estimated fair value of the contingent payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within research and development expense in the consolidated statements of operations and comprehensive loss.

During the year of acquisition, Company determines the fair value of the contingent consideration by probability weighting scenarios of milestone achievements to determine the expected future contingent consideration payment, discounted to present value using an 8% discount rate based on the Company’s pre-tax cost of debt on the acquisition date. The probability of payments ranged from 20% to 100% and the timing of future payments ranged from 2020 to 2026. In determining the likelihood of milestone achievements which trigger payouts related to the contingent consideration, as well as the probabilities for various scenarios used in the Company’s calculations were based on internal unobservable projections.

During the year ended December 31, 2021, the change of fair value related to the contingent consideration is due to the Company recognizing a development milestone of $0.3 million, the change in present value for the passage of time, as well as expected dates and probabilities of milestone achievement revisions. During the year ended December 31, 2021, the Company recognized a development milestone achievement, which is classified as an accrued expense in other current liabilities in the consolidated balance sheets as of December 31, 2021 and subsequently paid in 2022.

During the year ended December 31, 2022, the change of fair value related to the contingent consideration is due to the Company recognizing development milestones of $1.2 million, the discontinuation of ITIL-168 development program, the change in present value for the passage of time, as well as expected dates and probabilities of milestone achievement revisions.

6. Financial Instruments

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

Maturity Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Maturity Amortized Cost Unrealized Gains Unrealized Losses Fair Value

As of December 31, 2022 and 2021, all marketable securities had contractual maturities less than one year, or marketable securities with maturities greater than one year are classified as current because management considers all marketable securities to be available for current operations. The Company does not intend to sell its marketable securities and it is not likely that the Company will be required to sell these securities before recovery of their amortized cost bases. There were $217.2 million and $416.5 million marketable securities classified as available-for-sale at December 31, 2022 and 2021, respectively.

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7. Commitments and Contingencies

Operating Leases Obligations

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

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

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

Year Ended

Short-term lease cost $ 1,155

Operating lease cost 4,852

Variable lease cost 1,096

Total lease cost $ 7,103

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

Year Ended

Cash paid for operating lease liabilities $ 3,258

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

Operating lease right-of-use assets $ 12,457

Current operating lease liabilities $ 2,381

Non-current operating lease liabilities $ 5,171

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

Weighted-average remaining lease term (in years) 3.29

Weighted-average discount rate 6.75 %

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

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Total future lease payments 8,415

Less: imputed interest 863

Total lease liability balance 7,552

Less: current portion of operating lease liabilities 2,381

Total operating lease liabilities, non-current $ 5,171

Under ASC 840, rent expense recognized under the leases was $3.0 million for the year ended December 31, 2021.

Future minimum lease payments under noncancellable operating leases as of December 31, 2021 were as follows (in thousands):

Construction Commitments

The Company’s contractual commitments for the development of the Tarzana project are limited to unreimbursed spend by the general contractor and as such, as of December 31, 2022, was $4.0 million, which is contractually committed to the development of this project.

Legal Proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company does not expect that the resolution of these matters will have a material adverse effect on its financial position, results of operations or cash flows.

Debt

In June 2022, the Company’s wholly-owned subsidiary, Complex Therapeutics Mezzanine LLC, and the Company's wholly-owned indirect subsidiary, Complex Therapeutics LLC, entered into a mortgage construction loan and mezzanine construction loan (together, the “Loan”) secured by its Tarzana, California land and building (the “Property”) which is partially complete. The initial principal amount of the Loan was $52.1 million, with additional future principal of up to $32.9 million to fund ongoing Property construction costs. The Loan principal is payable in July 2025, with the option to extend until July 2027. As of December 31, 2022, the outstanding principal

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amount under the Loan was $74.8 million and unamortized debt issuance costs were $2.4 million. The Loan is guaranteed by the Company and secured by the Property, and bears interest at one-month Secured Overnight Financing Rate, plus 5.25% per annum. The Company's effective interest rate during the year ended December 31, 2022 was approximately 7.3%. The Loan contains customary negative and affirmative covenants that include limitations on the ability of the Company to enter into significant contracts and incur additional debt. The Company is also required to maintain consolidated net worth and liquid assets of at least $85.0 million as of December 31, 2022 and 2021 as defined in the loan agreement. As of December 31, 2022, the Company was in compliance with the covenants of the Loan. The Company is also required to maintain certain insurance coverage on the Property. In connection with the Loan, the Company entered into an interest rate swap to effectively limit its maximum interest rate, as discussed in Note 5.

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

Unamortized debt issuance cost (2,405)

Net carrying amount $ 72,350

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

Year Ended

Contractual interest expense $ 1,302

Amortization of debt issuance cost 581

Total interest expense related to the Loan $ 1,883

Indemnifications

The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. No liability associated with such indemnifications was recorded as of December 31, 2022 and 2021.

Other Commitments

In the normal course of business, we enter into contracts and various purchase agreements commitments with third-party vendors for clinical research services, products and other services from third parties for operating purposes. These agreements generally provide for termination or cancellation, other than for costs already incurred. As of December 31, 2022, the Company had non-cancelable purchase commitments of approximately $18.3 million consisting mainly of contract research organizations, software and operating commitments. The Company also recorded $3.0 million in commitments elated to one-time employee termination benefits and $2.4 million in commitments for contract termination as part of the Plan (see Note 12).

8. Equity

Common Stock

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and if declared by the Board of Directors, subject to the prior

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rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors from inception.

In November 2020, the Company executed a limited recourse promissory note with its Chief Executive Officer, Bronson Crouch, in the amount of $1.1 million which was secured by a pledge of a total of 3.2 million shares of its common stock issued upon exercise of vested stock options. The note bore an interest rate of 2.5% per annum with a maturity date of the earlier of (i) five years from the date of the note or (ii) one business day prior to the filing or submission of the Company’s first registration statement covering the Company’s common stock with the SEC. The principal and interest under the note may be repaid at any time without penalty. Because the Company only had partial recourse under the promissory note, the Company deemed the note receivable to be non-substantive. As such, the note receivable was not reflected in the consolidated financial statements and the related stock transaction was recorded at the time the note receivable is settled in cash. The promissory note was fully repaid in January 2021.

On March 23, 2021, the Company completed its IPO through an underwritten sale of an aggregate of 18,400,000 shares of its common stock at a price of $20.00 per share (see Note 2).

As of December 31, 2022, the Company had outstanding 130,079,097 shares of common stock.

Preferred Stock Activity

All then outstanding shares of convertible preferred stock were converted into an aggregate of 89,220,699 shares of common stock on March 23, 2021, the closing date of the Company's IPO (see Note 2). After the completion of the IPO, the Company's current amended and restated certificate of incorporation authorizes the Company to issue up to 10,000,000 shares of preferred stock at $0.000001 par value per share. The Board of Directors is authorized to provide for the issuance of the preferred stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in subsequent resolution or resolutions adopted by the board providing for the issuance of such shares. As of December 31, 2022 and 2021 there were no shares of preferred stock issued nor outstanding.

9. Stock-Based Compensation

2021 Equity Incentive Plan

In March 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”), which became effective in connection with the IPO. The 2021 Plan was approved by the Company’s Board of Directors and stockholders in March 2021. The 2021 Plan is an equity incentive plan pursuant to which the Company may grant the following awards: (i) incentive stock options; (ii) nonstatutory stock options; (iii) stock appreciation rights; (iv) restricted stock awards; (v) restricted stock unit awards; (vi) performance awards; and (vii) other forms of stock awards to employees, directors, and consultants, including employees and consultants of the Company’s affiliates. The 2021 Plan is a successor to the Company's 2018 Stock Incentive Plan (the “2018 Plan”). Following the effectiveness of the 2021 Plan, no further grants may be made under the 2018 Plan; however, any outstanding equity awards granted under the 2018 Plan will continue to be governed by the terms of the 2018 Plan.

The number of shares available for future issuance under the 2021 Plan is the sum of (1) 8,660,000 new shares of common stock, (2) 4,194,437 remaining shares of common stock reserved under the 2018 Plan that became available for issuance upon the effectiveness of the 2021 Plan and (3) the number of shares of common stock subject to outstanding awards under the 2018 Plan when the 2021 Plan became effective that thereafter expire or are forfeited, canceled, withheld to satisfy tax withholding or to purchase or exercise an award, repurchased by the Company or are otherwise terminated. The number of shares of common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each year, for a period of ten years, from January 1, 2022

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continuing through January 1, 2031, by 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s Board of Directors. Stock options granted by the Company to employees generally vest over four years with a one-year cliff.

As of December 31, 2022, 8,095,739 shares of common stock remained available for issuance under the 2021 Plan. As of December 31, 2022, the total number of shares authorized for issuance under the 2021 Plan was 12,854,437 shares.

The following summarizes option activity under the 2021 Plan:

Additional Shares Authorized 8,660,000

Additional Shares Authorized —

______________________________________________________________

(1) Includes 295,237 and 2,519,137 stock options during the years ended December 31, 2022 and 2021, respectively, subject to only performance conditions.

(2) Excludes the exercise of 3,159,750 stock options that are subject to a limited recourse promissory note.

The aggregate intrinsic value disclosed in the above table is based on the difference between the exercise price of the stock option and the estimated fair value of the Company’s common stock as of the respective period-end dates. There were 1,050,819 and 3,976,028 stock options exercised during the years ended December 31, 2022 and 2021, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2022 and 2021, was $0 million and $66.3 million, respectively. The weighted-average grant date fair value of stock options granted during the years ended December 31, 2022 and 2021, was $5.19 and $11.59 per share, respectively.

The following table sets forth stock-based compensation included in the Company’s statement of operations and comprehensive loss (in thousands):

Year Ended December 31,

Total stock-based compensation expense $ 30,441 $ 26,197

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During 2022, the Company accelerated the vesting of 36,162 options held by 36 employees. As a result of that modification, the Company recognized a reversal of compensation expense of $0.2 million for the year ended December 31, 2022.

Also during 2022, the Company extended the post-termination exercise period for 1,068,544 fully vested share options held by an employee. As a result of that modification, the Company recognized additional compensation expense of $0.1 million for the year ended December 31, 2022.

As of December 31, 2022 and 2021, there was $55.0 million and $69.5 million of total unrecognized compensation cost related to unvested stock options granted under the 2021 Plan (excluding performance awards), which is expected to be recognized over a weighted average period of 1.98 years and 2.24 years, respectively.

The fair value of the Company’s stock option awards was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

Year Ended December 31,

Expected dividend yield —% —%

Prior to the Company's IPO in March 2021, the fair value of the shares of common stock underlying stock options had historically been determined by the Company’s Board of Directors. Because there has been no public market for the Company’s common stock, the Board of Directors has determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including important developments in the Company’s operations, contemporaneous valuations performed by an independent third party firm, sales of the Company’s convertible preferred stock, the Company’s operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price volatility of similar public companies and the lack of marketability of the Company’s common stock, among other factors. After the Company’s IPO in March 2021, the fair value of common stock is determined using the closing price of the Company’s common stock on the Nasdaq Global Select Market.

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

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding and is determined as the average of the time-to-vesting and the contractual life of the awards.

Expected volatility—Since the Company is privately held and does not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of awards.

Expected dividend yield—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Performance Awards

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During the years ended December 31, 2022 and 2021, 295,237 and 2,519,137 stock options were granted to both employees and non-employees based upon performance conditions and strategic transactions. 2022 performance grants are expected to be recognized over a weighted average period of 3.17 years, and the 2021 performance grants are expected to be recognized over a weighted average period of 2.02 years. A strategic transaction has been defined as (a) a change in control, (b) certain corporate and business goals specific to the employee's performance or employment agreement. Included in stock-based compensation expense for the year ended December 31, 2022 is $5.9 million related to awards where performance conditions were achieved. As of December 31, 2022 and 2021, the Company had $10.6 million and $21.1 million of unrecognized compensation cost relating to these performance awards, calculated using the accelerated attribution method and the grant date fair value of the awards, respectively.

Employee Stock Purchase Plan

In March 2021, the Company adopted the Employee Stock Purchase Plan (the “ESPP”), which became effective in connection with the IPO. The ESPP was adopted by the Company’s Board of Directors and stockholders in March 2021. The ESPP initially provides participating employees with the opportunity to purchase up to an aggregate of 1,237,000 shares of common stock. The number of shares reserved under the 2021 ESPP will automatically increase on January 1 of each year, for a period of ten years, from January 1, 2022 continuing through January 1, 2031, in an amount equal to the lesser of (i) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year and (ii) 2,474,000 shares; provided, however, that before the date of any such increase, the Board of Directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). The Company has not yet commenced offerings to employees under the ESPP.

10. Net Loss Per Share

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

December 31,

All outstanding shares of convertible preferred stock were converted on a 1.2-for-1 conversion ratio of shares of common stock on March 23, 2021, the date of the Company's IPO (see Note 2).

11. Income Taxes

The geographical breakdown of loss before provision for income taxes is as follows (in thousands):

Year Ended December 31,

The components of the provision for income taxes are as follows (in thousands):

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Year Ended December 31,

Current provision for income taxes:

Domestic $ 13 $ —

Foreign — —

Total current 13 —

Deferred tax provision:

Domestic — 18

Total income tax expense (benefit) $ (2,073) $ 39

The following table presents a reconciliation of the Company’s statutory federal income tax rate and effective tax rate:

Year Ended December 31,

U.S. federal taxes at statutory rate 21.0 % 21.0 %

Research and development tax credits — % 0.9 %

Stock-based compensation (2.0) % (3.1) %

Permanent differences and other 0.2 % (0.3) %

Statutory tax rate differences 1.1 % 2.7 %

Change in valuation allowance (19.4) % (21.2) %

Total 0.9 % — %

The components of deferred tax liabilities consist of the following (in thousands):

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Year Ended December 31,

Deferred tax assets:

Research and development credits 4,915 4,682

Accrued compensation and benefits 352 2,364

Capitalized Research and Development 20,966 505

Other temporary differences 517 1,033

Total deferred tax assets, net 1,505 2,812

Deferred tax liabilities:

Intangible assets — (2,672)

Total gross deferred tax liabilities (1,505) (5,238)

Net deferred tax liabilities $ — $ (2,426)

The components of unrecognized tax benefits consist of the following (in thousands):

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the business in which the Company operates, projections of future profitability are difficult and past profitability is not necessarily indicative of future profitability. The Company does not believe it is more likely than not that the deferred tax assets will be realized, and accordingly, the valuation allowance increased $43.5 million for the year ended December 31, 2022. As of December 31, 2022, the Company had net operating loss carryforwards for federal income tax purposes of $225.7 million, which will carryforward indefinitely, but may only offset 80% of the Company’s taxable income. This limitation on the net operating loss may require the Company to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years. In addition, the Company has $25.1 million of net operating loss carryforwards available to reduce future taxable income, for California state income tax purposes for the year ended December 31, 2022. The state net operating loss carryforwards will begin to expire, if not utilized, in 2041. The Company has R&D credits of $4.1 million, and $3.7 million for federal and California, respectively, as of December 31, 2022. The federal R&D credits expire in 2040 and the California R&D credits carryforward indefinitely.

The Company files income tax returns in the U.S. federal jurisdiction, various states where the Company has employees and/or significant business activities, and the United Kingdom. As of December 31, 2022, the Company’s federal and state returns through 2019 are still open to examination. The UK returns starting from 2016 are open to examination. The Company had uncertain tax positions as of December 31, 2021 of $2.3 million and this balance remained unchanged during December 31, 2022. The Company does not anticipate that the amount of

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existing unrecognized tax benefits will significantly increase or decrease during the next 12 months. The Company had no accrued interest or penalties related to uncertain tax positions as of December 31, 2022.

The Company has not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation. Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the Company’s net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

12. Corporate Restructuring

In December 2022, the Company’s Board of Directors approved a the Plan to implement a strategic prioritization of the Company’s preclinical and clinical development programs. The Plan is designed to reduce costs and reallocate resources to focus on advancing the Company’s CoStimulatory Antigen Receptor (CoStAR) platform and other next-generation tumor infiltrating lymphocyte (TIL) technologies. As part of the Plan, the Company’s ITIL-168 development program was discontinued, and the Company reduced its U.S. workforce by approximately 60%.

Restructuring and Impairment Charges

As a result of the Plan, in the year ended December 31, 2022, the Company recorded restructuring and impairment charges of approximately $23.2 million within the restructuring and impairment charges line item within the consolidated statements of operations and comprehensive loss. These charges relate to asset impairments, contract terminations, severance payments and other employee-related costs incurred. The following table summarizes the restructuring and impairment charges by category (in thousands):

Asset impairment for goodwill and intangible assets $ 15,826

Asset impairment for leasehold improvements 1,202

Asset impairment for other fixed assets 705

One-time employee termination benefits 2,995

Contract terminations 2,439

Total restructuring and impairment charges $ 23,167

Restructuring Liability

The restructuring liability was recorded in the consolidated balance sheets under “Accrued expenses and other current liabilities” and were measured at the amount expected amount to be paid. During the year ended December 31, 2022, the Company did not pay restructuring charges and expects to pay the majority of the restructuring cost within the next 12 months. The following table shows the liability related to the Plan (in thousands):

One-Time Employee Termination Benefits $ 2,995

Contract Termination 2,439

Restructuring liability balance $ 5,434

Corporate Restructuring Expansion Plan

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On January 30, 2023, the Company’s Board of Directors approved an expansion of its previously announced restructuring plan implementing a strategic prioritization of the Company’s preclinical and clinical development programs. In connection with the expanded restructuring plan (“the Expanded Plan”), the Company will extend its previously announced U.S. reduction in force, resulting in a team of approximately 15 in the United States to lead global business operations and approximately 65 employees in the United Kingdom for research, development, clinical studies and technical operations. The reduction is expected to be substantially completed by the end of April 2023. The Expanded Plan is designed to reduce operating expenses, which is expected to preserve financial resources and extend the Company’s cash runway beyond 2026 based on the Expanded Plan as currently contemplated. In connection with the Expanded Plan, the Company expects to transition clinical manufacturing and trial operations of ITIL-306 to its operations in the United Kingdom. In addition, the Company is evaluating opportunities for a potential sale or lease of its Tarzana, California manufacturing site, as well as subleases of other facilities currently under lease.

The Company currently estimates that it will incur charges of up to $9.0 million in connection with the Expanded Plan, consisting primarily of cash expenditures for severance payments, retention bonus payments, contract terminations and related costs, as well as non-cash expenses related to vesting of share-based awards, excluding any charges or costs associated with any potential sale of its facilities and asset impairments, if any. The Company may incur additional costs associated with its restructuring plan. The Company expects that the majority of the restructuring charges will be incurred in the next 12 months and that the execution of the Expanded Plan will be substantially complete by the end of April 2023.

The charges that the Company expects to incur in connection with the Expanded Plan are estimates and subject to a number of assumptions, and actual results may differ materially. The foregoing estimated amounts do not include any non-cash charges associated with stock-based compensation.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

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•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.