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United States securities and exchange commission logo
May 11, 2022
William Wei Cao
Chief Executive Officer
Gracell Biotechnologies Inc.
Building 12, Block B, Phase II
Biobay Industrial Park
218 Sangtian St.
Suzhou Industrial Park, 215123
People s Republic of China
Re: Gracell
Biotechnologies Inc.
Registration
Statement on Form F-3
Filed April 28,
2022
File No. 333-264545
Dear Dr. Cao:
We have limited our review of your registration statement to
those issues we have
addressed in our comments. In some of our comments, we may ask you to
provide us with
information so we may better understand your disclosure.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe our comments apply to your
facts and
circumstances or do not believe an amendment is appropriate, please tell
us why in your
response.
After reviewing any amendment to your registration statement and
the information you
provide in response to these comments, we may have additional comments.
Registration Statement on Form F-3 filed April 28, 2022
Cover Page
1. Please provide
prominent disclosure here disclosing that you were provisionally identified
by the Commission on
May 4, 2022 under the HFCAA. Refer to
https://www.sec.gov/hfcaa. Please also revise your disclosure in the sales
agreement
prospectus accordingly.
William Wei Cao
FirstName LastNameWilliam
Gracell Biotechnologies Inc. Wei Cao
Comapany
May NameGracell Biotechnologies Inc.
11, 2022
May 11,
Page 2 2022 Page 2
FirstName LastName
2. Please revise your disclosure on the cover page to address how recent
statements and
regulatory actions by China s government, such as those related to
the use of variable
interest entities and data security or anti-monopoly concerns, have or
may impact the
company s ability to conduct its business, accept foreign
investments, or list on a U.S. or
other foreign exchange. Please also provide a specific cross-reference
to your detailed
discussion of risks facing the company as a result of your auditor
being subject to the
determinations announced by the PCAOB on December 16, 2021. Please
also revise your
disclosure in the sales agreement prospectus accordingly.
Our Company, page 3
3. Disclose clearly that the company uses a structure that involves a VIE
based in China and
what that entails, and provide early in the summary a diagram of the
company s corporate
structure, identifying the person or entity that owns the equity in
each depicted entity.
Describe all contracts and arrangements through which you claim to
have economic rights
and exercise control that results in consolidation of the VIE s
operations and financial
results into your financial statements. Identify clearly the entity in
which investors are
purchasing their interest and the entity(ies) in which the company s
operations are
conducted. Refrain from using terms such as we or our when
describing activities or
functions of a VIE. Describe the relevant contractual agreements
between the entities and
how this type of corporate structure may affect investors and the
value of their investment,
including how and why the contractual arrangements may be less
effective than direct
ownership and that the company may incur substantial costs to enforce
the terms of the
arrangements. Disclose the uncertainties regarding the status of the
rights of the Cayman
Islands holding company with respect to its contractual arrangements
with the VIE, its
founders and owners, and the challenges the company may face enforcing
these
contractual agreements due to legal uncertainties and jurisdictional
limits.
4. We note your disclosure on the cover page and page 4 that the Cayman
Islands holding
company obtained control over the VIE s business operations through
contractual
agreements between the VIE and your Wholly Foreign-Owned Enterprise
(WFOE). We
also note your disclosure that the Cayman Islands holding company is
the primary
beneficiary of the VIE. However, neither the investors in the holding
company nor the
holding company itself have an equity ownership in, direct foreign
investment in, or
control of, through such ownership or investment, the VIE.
Accordingly, please refrain
from implying that the contractual agreements are equivalent to equity
ownership in the
business of the VIE. Any references to control or benefits that accrue
to you because of
the VIE should be limited to a clear description of the conditions you
have satisfied for
consolidation of the VIE under U.S. GAAP. Additionally, your
disclosure should clarify
that you are the primary beneficiary of the VIE for accounting
purposes. Please also
disclose, if true, that the VIE agreements have not been tested in a
court of law. Please
revise your disclosure in the sales agreement prospectus accordingly.
William Wei Cao
FirstName LastNameWilliam
Gracell Biotechnologies Inc. Wei Cao
Comapany
May NameGracell Biotechnologies Inc.
11, 2022
May 11,
Page 3 2022 Page 3
FirstName LastName
5. Please revise to add a summary of risk factors that includes
disclosure of the risks that
your corporate structure and being based in or having the majority of
the company s
operations in China poses to investors. In particular, describe the
significant regulatory,
liquidity, and enforcement risks with cross-references to the more
detailed discussion of
these risks in the prospectus. For example, specifically discuss risks
arising from the legal
system in China, including risks and uncertainties regarding the
enforcement of laws and
that rules and regulations in China can change quickly with little
advance notice; and the
risk that the Chinese government may intervene or influence your
operations at any time,
or may exert more control over offerings conducted overseas and/or
foreign investment in
China-based issuers, which could result in a material change in your
operations and/or the
value of the securities you are registering for sale. Acknowledge any
risks that any
actions by the Chinese government to exert more oversight and control
over offerings that
are conducted overseas and/or foreign investment in China-based
issuers could
significantly limit or completely hinder your ability to offer or
continue to offer securities
to investors and cause the value of such securities to significantly
decline or be worthless.
6. Please provide prominent disclosure in this section that includes a
clear description of how
cash is transferred through your organization. Disclose your
intentions to distribute
earnings or settle amounts owed under the VIE agreements. Quantify any
cash flows and
transfers of other assets by type that have occurred between the
holding company, its
subsidiaries, and the consolidated VIEs, and direction of transfer.
Quantify any dividends
or distributions that a subsidiary or consolidated VIE have made to
the holding company
and which entity made such transfer, and their tax consequences.
Similarly quantify
dividends or distributions made to U.S. investors, the source, and
their tax consequences.
Your disclosure should make clear if no transfers, dividends, or
distributions have been
made to date. Describe any restrictions on foreign exchange and your
ability to transfer
cash between entities, across borders, and to U.S. investors. Describe
any restrictions and
limitations on your ability to distribute earnings from the company,
including your
subsidiaries and/or the consolidated VIEs, to the parent company and
U.S. investors as
well as the ability to settle amounts owed under the VIE agreements.
Please disclose if
you have specific cash management policies and procedures in place
that dictate how
funds are transferred through your organization and if applicable,
describe these policies
and procedures in greater detail. Provide specific cross-references
here and on the cover
page to the condensed consolidating schedule and the consolidated
financial statements in
your most recent annual report on Form 20-F. Please also revise your
disclosure in the
sales agreement prospectus accordingly.
William Wei Cao
FirstName LastNameWilliam
Gracell Biotechnologies Inc. Wei Cao
Comapany
May NameGracell Biotechnologies Inc.
11, 2022
May 11,
Page 4 2022 Page 4
FirstName LastName
7. Please clearly disclose here that trading in your securities may be
prohibited under the
Holding Foreign Companies Accountable Act if the PCAOB determines that
it cannot
inspect or investigate completely your auditor, and that as a result
an exchange may
determine to delist your securities. Disclose whether your auditor is
subject to the
determinations announced by the PCAOB on December 16, 2021. Please
also disclose
that the United States Senate has passed the Accelerating Holding
Foreign Companies
Accountable Act, which, if enacted, would decrease the number of
non-inspection years
from three years to two years, and thus, would reduce the time before
your securities may
be prohibited from trading or delisted. Update your disclosure to
reflect that the
Commission adopted rules to implement the HFCAA and that, pursuant to
the HFCAA,
the PCAOB has issued its report notifying the Commission of its
determination that it is
unable to inspect or investigate completely accounting firms
headquartered in mainland
China or Hong Kong. We refer to your disclosure on the cover page.
Please also revise
your disclosure in the sales agreement prospectus accordingly.
Permissions Required from the PRC Authorities for Our Issuance of Securities to
Foreign
Investors, page 6
8. Please revise to include disclosure that the Cybersecurity Review
Measures, which were
promulgated by the CAC and several other regulatory authorities in
China, became
effective on February 15, 2022. Please also describe the consequences
to you and your
investors if you, your subsidiaries, or the VIEs: (i) do not receive
or maintain such
permissions or approvals, (ii) inadvertently conclude that such
permissions or approvals
are not required, or (iii) applicable laws, regulations, or
interpretations change and you are
required to obtain such permissions or approvals in the future. Revise
your disclosure for
the sales agreement prospectus accordingly.
Enforceability of Civil Liabilities, page 24
9. Please expand your disclosure to specifically discuss whether you have
officers or
directors located in China, and if so, address the difficulty of
bringing actions and
enforcing judgments against individuals located in China. Please also
include relevant
summary risk factor and risk factor disclosure, as applicable. Please
also revise your
disclosure in the sales agreement prospectus accordingly.
William Wei Cao
FirstName LastNameWilliam
Gracell Biotechnologies Inc. Wei Cao
Comapany
May NameGracell Biotechnologies Inc.
11, 2022
May 11,
Page 5 2022 Page 5
FirstName LastName
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration. Please
allow adequate
time for us to review any amendment prior to the requested effective date of
the registration
statement.
You may contact Jane Park at 202-551-7439 or Jason Drory at 202-551-8342
with any
questions.
Sincerely,
Division of
Corporation Finance
Office of Life
Sciences
cc: Will Cai, Esq.