Item 1.01 Entry into a Material Definitive Agreement.
On January 7, 2022, ImmunityBio, Inc., a Delaware corporation (the “Company,” “we” or “us”), entered into a Purchase Agreement (the “Agreement”) with Athenex, Inc., a Delaware corporation (“Seller”), pursuant to which Seller will sell, assign and transfer to us all of Seller’s rights, and we will assume all of Seller’s duties and obligations under, various third-party agreements (the “Facility Agreements”), subject to the terms and conditions of the Agreement, relating to an approximately 409,000 square foot, newly constructed cGMP ISO Class 5 high potency pharmaceutical manufacturing facility located at 3805 Lakeshore Drive East, Dunkirk, New York (the “Dunkirk Facility”).
The Dunkirk Facility is a state-of-the-art, full-scale manufacturing facility and includes clean rooms for upstream and downstream manufacturing activities, and also includes fill-finish and lyophilization capabilities, to increase capacity and the ability to scale production associated with certain of the Company’s product candidates. These state-of-the-art facilities will substantially expand and diversify the Company’s existing manufacturing capacity and are expected to accelerate the Company’s ability to develop, prove and bring to market its key products and therapies in a competitive and regulated market.
The Facility Agreements include, without limitation, the Fort Schuyler Management Corporation Lease, dated as of October 1, 2021, by and between Fort Schuyler Management Corporation, a not-for-profit corporation affiliated with the State of New York (“FSMC”), as landlord, and Seller, as tenant (the “Lease Agreement”), the Agreement for Medical Technology Research, Development, Innovation and Commercialization Alliance, effective as of May 1, 2015, by and between FSMC and Seller, as amended (the “Alliance Agreement”), and certain additional agreements entered into with each of the New York State Urban Development Corporation d/b/a Empire State Development (“ESD”) and the County of Chautauqua Industrial Development Agency (“CCIDA”).
The Lease Agreement was entered into pursuant to the Alliance Agreement, under which FSMC agreed to generate funding from the State of New York, to be administered through FSMC or an affiliate thereof, for the construction and build-out of the Dunkirk Facility and purchase of related equipment. The State of New York has made significant investments in the 409,000 square foot, state-of-the-art Dunkirk Facility. The Dunkirk Facility, as well as equipment purchased using the aforementioned grant funding, is owned by the FSMC and will be leased to us pursuant to the Lease Agreement and other Facility Agreements. Upon the closing of the Agreement (the “Closing”), our annual lease payment will be $2.00 per year for an initial 10-year term, with the option for us to renew under the same terms and conditions for an additional 10-year term. As part of the assumed obligations under the Facility Agreements, we will have a commitment to spend an aggregate of $1.52 billion on operational expenses during the initial 10-year term, and an additional $1.50 billion on operational expenses if we elect to renew the lease for the additional 10-year term. We will also be committed to hiring 450 employees at the Dunkirk Facility within the first five years of operations, with 300 such employees to be hired within the first two-and-a-half years of operations, following the commencement of the Seller’s lease on October 1, 2021. The agreements with the CCIDA provided for certain sales tax exemption savings during the development of the Dunkirk Facility and provide for certain property tax savings over the next 20 years, subject to certain terms and conditions including performance of certain of the aforementioned obligations. Failure to satisfy the obligations over the lease term may give rise to certain rights and remedies of governmental authorities including, for example, termination of the Lease Agreement and other Facility Agreements and potential recoupment of a percentage of the grant funding and other benefits received, subject to the terms and conditions of the applicable agreements.
The Closing is subject to the receipt of all necessary consents and approvals, including, without limitation, the consent of FSMC, ESD and CCIDA, and a lender of Seller, and other customary conditions. Upon Closing, in addition to assuming the obligations of Seller under the Facility Agreements, we will pay Seller an amount equal to its costs and obligations incurred with respect to the construction, build-out and equipment purchases for the Dunkirk Facility outside of the grants referenced above, which is currently estimated to be approximately $38,000,000, subject to adjustment at Closing and not to exceed $40,000,000.
Upon Closing, we will be responsible for all operating costs and expenses for the Dunkirk Facility and Seller’s obligations under the Facility Agreements. ImmunityBio and Seller have also entered into a preliminary agreement, pursuant to which Seller, or one of its affiliates, will have the ability to manufacture its 503B products at the Dunkirk Facility at prices to be determined on a product-by-product basis, provided that the pricing will not exceed our costs plus a 15% margin, and the parties expect to enter into a definitive preferred contract manufacturing agreement. Seller has not assigned any of its rights to its corporate headquarters in Buffalo, New York, under the Agreement and it will retain all of its rights and obligations with respect to its corporate headquarters.