ImmunityBio, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. Financial amounts below are in U.S. dollars; millions are abbreviated as “million.”
Business context and reporting period
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, mainly from bioreactors, licenses, and grants. The company reported nine therapeutic agents in 27 clinical trials across 13 indications, and said 17 trials were in Phase 2 or 3.
The lead regulatory program is Anktiva (N-803) in combination with BCG for BCG-unresponsive non-muscle-invasive bladder cancer with carcinoma in situ. The FDA accepted the BLA in July 2022 and set a May 23, 2023 target action date; approval is not assured.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.118 million | $0.066 million | $0.167 million | $0.544 million |
| Research and development expense | $71.6 million | $49.3 million | $190.1 million | $144.2 million |
| Selling, general and administrative expense | $19.3 million | $29.6 million | $76.5 million | $107.3 million |
| Operating loss | $90.8 million | $78.8 million | $266.4 million | $251.0 million |
| Net loss | $111.2 million | $88.4 million | $309.0 million | $258.3 million |
| Net loss per share, basic and diluted | $(0.28) | $(0.22) | $(0.77) | $(0.66) |
Revenue is immaterial relative to expenses, so conventional revenue-based margin comparisons are not informative. The company reported an accumulated deficit of $2.3 billion.
At September 30, 2022, cash and cash equivalents were $104.2 million and marketable securities were $7.7 million, for total cash, cash equivalents, and marketable securities of $111.9 million, down from $317.9 million at December 31, 2021. Current assets were $143.1 million and current liabilities $70.8 million. Total assets were $352.9 million, total liabilities $782.0 million, and stockholders’ deficit $429.1 million.
For the nine months, operating cash outflow was $246.8 million, compared with $202.8 million in 2021. Investing activities provided $46.2 million, principally reflecting security maturities and sales; financing activities provided $123.7 million, mainly from related-party borrowing. Capital spending included $59.2 million for property and equipment and $21.2 million for acquired intangible assets.
Related-party debt carrying value, net of discounts, was $661.1 million, including $373.3 million of variable-rate promissory notes and $287.8 million of convertible notes. The company disclosed $740.7 million of indebtedness including accrued interest. The variable-rate notes mature December 31, 2023 and carried a 11.55% rate at quarter end; $315.7 million of fixed-rate notes mature September 30, 2025 and have a conversion feature at $5.67 per share. Nine-month interest expense was $35.0 million, versus $10.4 million a year earlier.
Material changes versus the prior comparable period
- Nine-month net loss increased $50.7 million, or 20%, while operating loss increased $15.4 million. R&D rose $45.9 million, principally due to higher personnel, manufacturing, facility, and regulatory costs, including costs related to the Anktiva BLA.
- SG&A declined $30.9 million, reflecting lower legal and merger-related consulting costs and lower stock-based compensation, partly offset by increased personnel and travel costs. Litigation insurance reimbursements contributed to the reported legal-cost decline.
- Interest expense increased $24.6 million for the nine-month period, mainly because of higher related-party borrowings and debt-discount amortization. The company also recorded an $8.6 million equity-method investment loss.
- Cash and marketable securities fell by $206.0 million from year-end 2021. Related-party debt amendments extended the $300 million variable-rate note’s maturity from December 2022 to December 2023 and raised its spread from Term SOFR plus 5.4% to plus 8.0%.
- The company recorded an $82.9 million gain on extinguishment of related-party debt in additional paid-in capital, not earnings, because the debt was with entities under common control. It also issued 2.23 million shares, valued at $10.7 million, to settle appraisal claims.
Outlook, risks, contingencies, and unusual items
- Management expects R&D expense and capital spending to rise as clinical programs and manufacturing capacity expand. It expects operating losses and negative operating cash flows to continue; the filing provides no revenue or earnings guidance.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern without additional funding or support. Management nevertheless believes available resources, potential ATM equity issuance, and the Executive Chairman’s stated intent and ability to provide affiliated-entity funding would fund operations for at least 12 months after issuance of the financial statements. There is no assurance that financing or support will be available on acceptable terms. The ATM had $330.8 million available for future issuance at quarter end.
- Debt repayment and refinancing are significant liquidity risks: $425.0 million of variable-rate principal is due December 31, 2023, and fixed-rate convertible notes are due in 2025. Conversion could dilute shareholders; the notes are held by affiliated entities, and the Executive Chairman and affiliates controlled approximately 78.3% of common shares at September 30, 2022.
- Altor acquisition CVRs include approximately $304 million tied to N-803 approval by December 31, 2022 and approximately $304 million tied to worldwide annual sales exceeding $1.0 billion before December 31, 2026. The filing says the approval-related amount would not be payable if approval did not occur by the 2022 deadline, despite the FDA’s May 2023 target action date. Some holders may elect cash for their CVRs, creating potential funding needs.
- The Dunkirk manufacturing arrangement carries substantial obligations: $1.52 billion of operating expenditures over the initial 10-year term, a further $1.50 billion if renewed, and hiring commitments. Construction was expected to take approximately 12–18 months; a workforce reduction resulted in $1.0 million of severance and retention expense and a $0.7 million intangible-asset write-off. Failure to meet agreement obligations could expose the company to termination or recoupment of benefits. The filing also notes a construction-related lawsuit filed in the fourth quarter of 2022.
- Other contingencies include a proposed $5.0 million cash settlement with Altor class plaintiffs, subject to a court hearing scheduled for December 5, 2022, and Sorrento-related litigation and arbitrations for which the company could not estimate potential loss. Management said it was not then party to proceedings it considered likely to have a material adverse effect.
- Management identified clinical, regulatory, manufacturing scale-up, patient enrollment, third-party supply, reimbursement, intellectual-property, and financing risks. It noted the COVID-19 pandemic had not materially adversely affected the business to the filing date but could delay trials and increase uncertainty. Disclosure controls and procedures were assessed as effective at the reasonable-assurance level.
Most important facts for investors to verify
- Progress and outcome of the Anktiva BLA review, including the May 23, 2023 target date and the CVR approval deadline and consequences.
- Cash burn, available liquidity, ATM capacity, and whether affiliated funding or other financing is actually provided.
- Debt balances, cash interest costs, December 2023 maturities, refinancing options, and potential conversion dilution at $5.67 per share.
- Execution costs and compliance with Dunkirk construction, spending, and hiring commitments, including the status of the fourth-quarter construction lawsuit.
- Outcome and cash requirements of the Altor class settlement and other material litigation or arbitration matters.