ImmunityBio, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. ImmunityBio is a clinical-stage biotechnology company developing cancer and infectious-disease therapies and vaccines. It had no products approved for commercial sale and generated only minimal revenue.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $41,000 | $35,000 | $401,000 | $49,000 |
| Research and development | $53.2 million | $63.1 million | $132.4 million | $118.5 million |
| Selling, general and administrative | $32.0 million | $16.6 million | $64.7 million | $57.2 million |
| Operating loss | $85.1 million | $79.6 million | $196.7 million | $175.6 million |
| Net loss attributable to common stockholders | $137.9 million | $94.6 million | $254.2 million | $197.4 million |
| Loss per share, basic and diluted | $0.32 | $0.24 | $0.59 | $0.50 |
| Net cash used in operating activities | Not separately stated | Not separately stated | $164.1 million | $166.2 million |
Margins are not meaningful given negligible revenue and operating losses. Q2 total other expense was $53.1 million, including $32.2 million of interest expense, a $10.0 million warrant-liability fair-value loss, and a $6.8 million convertible-note fair-value loss. For the six-month period, a $17.5 million warrant-liability fair-value gain partly offset other expenses.
At June 30, cash and cash equivalents were $43.5 million; marketable securities totaled approximately $3.3 million, and total assets were $291.2 million. Current liabilities were $613.5 million, including $481.9 million of related-party promissory notes and $36.6 million of related-party convertible debt at fair value. Total liabilities were $936.4 million, against a stockholders’ deficit of $645.2 million. The filing reports $802.5 million of related-party indebtedness, including accrued interest and excluding unamortized discounts and fair-value adjustments; $535.0 million was due December 31, 2023.
Changes versus prior comparable periods
- Q2 net loss attributable to common stockholders widened to $137.9 million from $94.6 million. Operating expenses rose 7%; lower R&D was more than offset by a 93% increase in SG&A, principally higher legal costs.
- Six-month net loss attributable to common stockholders widened to $254.2 million from $197.4 million. Operating expenses increased 12%, with R&D up 12% and SG&A up 13%.
- Six-month interest expense increased to $62.1 million from $18.2 million, primarily reflecting higher related-party borrowings, higher SOFR and debt-discount amortization.
- Cash and cash equivalents fell from $104.6 million at December 31, 2022 to $43.5 million at June 30, 2023. Financing activities provided $120.3 million, including $59.7 million from related-party notes, $47.2 million from a registered offering and $13.6 million from the ATM.
- Common shares outstanding increased to 440.7 million at June 30 from 421.6 million at year-end. The company reported 456.2 million shares outstanding on August 4, excluding treasury shares.
Outlook, significant developments and risks
- Anktiva regulatory status: On May 9, 2023, the FDA issued a complete response letter for Anktiva (N-803) plus BCG for BCG-unresponsive non-muscle-invasive bladder cancer with carcinoma in situ. The letter cited third-party contract manufacturing organization inspection deficiencies and additional chemistry, manufacturing and controls issues and assays. It did not request new preclinical studies or Phase 3 trials, but requested updated duration-of-response data and a safety update. The company sought an FDA meeting and said approval timing is uncertain, if approval occurs at all.
- Funding and going concern: The company reported substantial doubt about its ability to continue as a going concern without additional funding or support. Management believed available resources, prospective equity issuance and potential affiliated-entity borrowing would fund operations for at least 12 months after issuance of the financial statements, relying primarily on the Executive Chairman’s stated intent and ability to provide support. The company had $164.1 million of operating cash outflow in the first half and expects significant ongoing losses and additional funding needs.
- Debt and dilution: Related-party debt carries significant repayment and interest obligations, including $535.0 million due in December 2023. Variable-rate notes generally bear Term SOFR plus 8%. Some notes can convert into common shares; additional equity offerings or warrant exercises may dilute existing shareholders. The company also had substantial financing capacity through its ATM and shelf, but access and terms are not assured.
- Post-quarter financing: In July, the company agreed to a registered direct offering of shares and warrants for approximately $40.0 million gross. It also repriced and extended the February 2023 warrants, lowering their exercise price from $4.2636 to $3.2946 and extending expiry to July 2026. The filing said the change reduced potential cash proceeds from exercise of those warrants from approximately $60.0 million to $46.4 million.
- Management outlook: No quantitative revenue, earnings or cash-flow guidance was provided. Management expects R&D expenses to increase significantly, expects SG&A to rise as operations and commercialization preparation expand, and anticipates accelerated manufacturing-related capital spending. It was exploring a partnership for commercialization of intravesical N-803, aiming for a 2023 transaction, but gave no assurance of completion or acceptable terms.
- Contingencies: A securities class action filed June 30 alleges misleading statements concerning CMO deficiencies and Anktiva approval prospects; the company said it cannot estimate potential loss. Beike arbitration is ongoing, with potential loss not estimable. A Sorrento bankruptcy settlement concerning approximately $176.4 million in judgments was subject to bankruptcy-court approval; the company had recorded no receivable and could not assure recovery or timing. The regulatory-approval CVR milestone tied to approval by December 31, 2022 terminated because it was not achieved; up to $164.2 million of sales-milestone CVRs held by other former Altor stockholders could be payable in cash if the milestone is achieved and holders elect cash.
- Manufacturing and facility obligations: The company’s Dunkirk facility build-out, third-party manufacturing remediation and compliance are material execution risks. Dunkirk arrangements include a $1.52 billion operational-spending commitment over the initial 10-year term and hiring commitments; failure to meet obligations could threaten facility access or tax and grant benefits. The filing also identifies $115.1 million of near-term contractual commitments, primarily capital expenditures, purchase orders and milestone payments.
- Disclosure controls and procedures were assessed as effective at the reasonable assurance level; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Progress and timing of resolving FDA CRL items, the requested FDA meeting, updated response-duration and safety data, and any BLA resubmission or decision.
- Actual cash burn, available financing, related-party funding support and the company’s ability to address the $535.0 million due December 2023.
- Terms, net proceeds and dilution from the July offering, warrant repricing and any further equity or debt financing.
- Manufacturing remediation status, CMO inspection outcomes, Dunkirk build-out costs and compliance with facility commitments.
- Outcome of the proposed Sorrento settlement and potential recovery, plus developments in the securities class action and Beike arbitration.
- Potential cash or share settlement of sales-milestone CVRs and any resulting funding needs or dilution.