ImmunityBio, Inc. 10-Q

ibrx-20210930 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission file number: 001-37507 _____________________________________ IMMUNITYBIO, INC. (Exact name of Registrant as specified in its Charter) _____________________________________ Delaware 43-1979754 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3530 John Hopkins Court San Diego , California 92121 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: ( 858 ) 633-0300 _____________________________________ Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.0001 per share IBRX The Nasdaq Global Select Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer þ Smaller reporting company þ Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ The number of shares of the Registrant’s common stock outstanding as of November 10, 2021 was 397,594,535 (excluding 163,800 shares held by a majority owned subsidiary of ours which are treated as treasury shares for accounting purposes). TABLE OF CONTENTS Page PART I—FINANCIAL INFORMATION Item 1. Financial Statements 1 Condensed Consolidated Balance Sheets – As of Sep t e mber 30, 2021 and December 31, 2020 1 Condensed Consolidated Statements of Operations – For the three and nine months ended September 30, 2021 and 2020 2 Condensed Consolidated Statements of Comprehensive Loss – For the three and nine months ended September 30, 2021 and 2020 3 Condensed Consolidated Statements of Stockholders’ Deficit – For the three and nine months ended September 30, 2021 and 2020 4 Condensed Consolidated Statements of Cash Flows – For the nine months ended September 30, 2021 and 2020 8 Notes to Unaudited Condensed Consolidated Financial Statements 10 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 45 Item 3. Quantitative and Qualitative Disclosures about Market Risk 61 Item 4. Controls and Procedures 61 PART II—OTHER INFORMATION Item 1. Legal Proceedings 62 Item 1A. Risk Factors 62 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 129 Item 3. Defaults Upon Senior Securities 129 Item 4. Mine Safety Disclosures 129 Item 5. Other Information 129 Item 6. Exhibits 130 Signatures 131 -i- Table of Contents PART I—FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) September 30, 2021 December 31, 2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 64,524 $ 34,915 Marketable securities 15,848 61,146 Due from related parties 1,304 2,003 Prepaid expenses and other current assets (including amounts with related parties) 12,776 13,649 Total current assets 94,452 111,713 Marketable securities, noncurrent 802 950 Property, plant and equipment, net 69,878 72,541 Non-marketable equity investment — 7,849 Intangible asset, net 1,432 1,463 Convertible note receivable 6,316 6,129 Operating lease right-of-use assets, net (including amounts with related parties) 34,099 18,138 Other assets (including amounts with related parties) 7,442 2,598 Total assets $ 214,421 $ 221,381 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 15,120 $ 11,510 Accrued expenses and other liabilities 38,519 36,771 Due to related parties 8,697 14,838 Operating lease liabilities (including amounts with related parties) 3,072 5,015 Total current liabilities 65,408 68,134 Related-party notes payable 303,240 254,353 Operating lease liabilities, less current portion (including amounts with related parties) 34,642 16,179 Deferred income tax liability 170 170 Other liabilities 905 1,035 Total liabilities 404,365 339,871 Commitments and contingencies ( Note 7 ) Stockholders’ deficit: Common stock, $ 0.0001 par value; 500,000,000 shares authorized; 394,509,695 and 382,243,142 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively; excluding treasury stock, 163,800 shares outstanding as of September 30, 2021 and December 31, 2020, respectively 39 38 Additional paid-in capital 1,682,072 1,495,163 Accumulated deficit ( 1,870,662 ) ( 1,615,131 ) Accumulated other comprehensive income 53 122 Total ImmunityBio stockholders’ deficit ( 188,498 ) ( 119,808 ) Noncontrolling interests ( 1,446 ) 1,318 Total stockholders’ deficit ( 189,944 ) ( 118,490 ) Total liabilities and stockholders’ deficit $ 214,421 $ 221,381 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (in thousands, except share and per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue $ 66 $ 151 $ 544 $ 752 Operating expenses: Research and development (including amounts with related parties) 49,277 35,772 144,205 96,151 Selling, general and administrative (including amounts with related parties) 29,625 19,596 107,345 47,436 Impairment of intangible assets — 10,660 — 10,660 Total operating expenses 78,902 66,028 251,550 154,247 Loss from operations ( 78,836 ) ( 65,877 ) ( 251,006 ) ( 153,495 ) Other expense, net: Interest and investment (loss) income, net ( 5,941 ) 149 2,826 1,213 Interest expense (including amounts with related parties) ( 3,614 ) ( 2,226 ) ( 10,359 ) ( 6,238 ) Other (expense) income, net (including amounts with related parties) ( 38 ) 84 252 1,269 Total other expense, net ( 9,593 ) ( 1,993 ) ( 7,281 ) ( 3,756 ) Loss before income taxes and noncontrolling interests ( 88,429 ) ( 67,870 ) ( 258,287 ) ( 157,251 ) Income tax benefit (expense) — 1,700 ( 8 ) 1,637 Net loss ( 88,429 ) ( 66,170 ) ( 258,295 ) ( 155,614 ) Net loss attributable to noncontrolling interests, net of tax ( 800 ) ( 567 ) ( 2,764 ) ( 1,534 ) Net loss attributable to ImmunityBio common stockholders $ ( 87,629 ) $ ( 65,603 ) $ ( 255,531 ) $ ( 154,080 ) Net loss per ImmunityBio common share – basic and diluted $ ( 0.22 ) $ ( 0.17 ) $ ( 0.66 ) $ ( 0.41 ) Weighted-average number of common shares used in computing net loss per share – basic and diluted 391,853,623 381,763,170 386,606,200 375,369,638 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Loss (in thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net loss $ ( 88,429 ) $ ( 66,170 ) $ ( 258,295 ) $ ( 155,614 ) Other comprehensive income (loss), net of income taxes: Net unrealized (losses) gains on available-for-sale securities ( 1 ) 5 16 10 Foreign currency translation adjustments 17 ( 53 ) ( 85 ) ( 46 ) Reclassification of net realized losses on available-for-sale securities included in net loss — 2 — 2 Total other comprehensive income (loss) 16 ( 46 ) ( 69 ) ( 34 ) Comprehensive loss ( 88,413 ) ( 66,216 ) ( 258,364 ) ( 155,648 ) Less: Comprehensive loss attributable to noncontrolling interests ( 800 ) ( 567 ) ( 2,764 ) ( 1,534 ) Comprehensive loss attributable to ImmunityBio common stockholders $ ( 87,613 ) $ ( 65,649 ) $ ( 255,600 ) $ ( 154,114 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (in thousands, except share amounts) (Unaudited) Three Months Ended September 30, 2021 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total ImmunityBio Stockholders’ Deficit Noncontrolling Interests Total Stockholders’ Deficit Shares Amount Balance as of June 30, 2021 390,347,740 $ 39 $ 1,625,018 $ ( 1,783,033 ) $ 37 $ ( 157,939 ) $ ( 646 ) $ ( 158,585 ) Issuance of common stock under “at-the market” offering net of commissions and offering costs of $ 962 3,796,537 — 42,061 — — 42,061 — 42,061 Stock-based compensation expense — — 13,840 — — 13,840 — 13,840 Exercise of stock options 176,196 — 678 — — 678 — 678 Vesting of restricted stock units (RSUs) 285,280 — — — — — — — Net share settlement for RSUs vesting ( 96,058 ) — ( 960 ) — — ( 960 ) — ( 960 ) Sale of assets to an entity under common control (Note 8) — — 1,435 — — 1,435 — 1,435 Other comprehensive income, net of tax — — — — 16 16 — 16 Net loss — — — ( 87,629 ) — ( 87,629 ) ( 800 ) ( 88,429 ) Balance as of September 30, 2021 394,509,695 $ 39 $ 1,682,072 $ ( 1,870,662 ) $ 53 $ ( 188,498 ) $ ( 1,446 ) $ ( 189,944 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (in thousands, except share amounts) (Unaudited) Nine Months Ended September 30, 2021 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total ImmunityBio Stockholders’ Deficit Noncontrolling Interests Total Stockholders’ Deficit Shares Amount Balance as of December 31, 2020 382,243,142 $ 38 $ 1,495,163 $ ( 1,615,131 ) $ 122 $ ( 119,808 ) $ 1,318 $ ( 118,490 ) Issuance of common stock under “at-the market” offering net of commissions and offering costs of $ 4,039 10,216,978 1 136,947 — — 136,948 — 136,948 Stock-based compensation expense — — 47,001 — — 47,001 — 47,001 Exercise of stock options 1,626,300 — 5,110 — — 5,110 — 5,110 Vesting of RSUs 621,364 — — — — — — — Net share settlement for RSUs vesting ( 198,089 ) — ( 3,584 ) — — ( 3,584 ) — ( 3,584 ) Sale of assets to an entity under common control (Note 8) — — 1,435 — — 1,435 — 1,435 Other comprehensive loss, net of tax — — — — ( 69 ) ( 69 ) — ( 69 ) Net loss — — — ( 255,531 ) — ( 255,531 ) ( 2,764 ) ( 258,295 ) Balance as of September 30, 2021 394,509,695 $ 39 $ 1,682,072 $ ( 1,870,662 ) $ 53 $ ( 188,498 ) $ ( 1,446 ) $ ( 189,944 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (in thousands, except share amounts) (Unaudited) Three Months Ended September 30, 2020 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total ImmunityBio Stockholders’ Equity (Deficit) Noncontrolling Interests Total Stockholders’ Equity (Deficit) Shares Amount Balance as of June 30, 2020 381,280,749 $ 38 $ 1,493,486 $ ( 1,481,757 ) $ ( 75 ) $ 11,692 $ 2,687 $ 14,379 Issuance of common stock, net of offering costs of $ 4,373 — — 19 — — 19 — 19 Stock-based compensation expense — — 714 — — 714 — 714 Exercise of stock options 883,256 — 353 — — 353 — 353 Vesting of RSUs 83,260 — — — — — — — Net share settlement for RSUs vesting ( 138,091 ) — ( 321 ) — — ( 321 ) — ( 321 ) Other comprehensive loss, net of tax — — — — ( 46 ) ( 46 ) — ( 46 ) Net loss — — — ( 65,603 ) — ( 65,603 ) ( 567 ) ( 66,170 ) Balance as of September 30, 2020 382,109,174 $ 38 $ 1,494,251 $ ( 1,547,360 ) $ ( 121 ) $ ( 53,192 ) $ 2,120 $ ( 51,072 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (in thousands, except share amounts) (Unaudited) Nine Months Ended September 30, 2020 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total ImmunityBio Stockholders’ Equity (Deficit) Noncontrolling Interests Total Stockholders’ Equity (Deficit) Shares Amount Balance as of December 31, 2019 371,976,995 $ 37 $ 1,406,002 $ ( 1,393,280 ) $ ( 87 ) $ 12,672 $ 3,654 $ 16,326 Issuance of common stock, net of offering costs of $ 4,373 8,521,500 1 86,301 — — 86,302 — 86,302 Stock-based compensation expense — — 1,516 — — 1,516 — 1,516 Exercise of stock options 1,142,273 — 917 — — 917 — 917 Vesting of RSUs 642,236 — — — — — — — Net share settlement for RSUs vesting ( 173,830 ) — ( 485 ) — — ( 485 ) — ( 485 ) Other comprehensive income, net of tax — — — — ( 34 ) ( 34 ) — ( 34 ) Net loss — — — ( 154,080 ) — ( 154,080 ) ( 1,534 ) ( 155,614 ) Balance as of September 30, 2020 382,109,174 $ 38 $ 1,494,251 $ ( 1,547,360 ) $ ( 121 ) $ ( 53,192 ) $ 2,120 $ ( 51,072 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Nine Months Ended September 30, 2021 2020 Operating activities: Net loss $ ( 258,295 ) $ ( 155,614 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 47,001 1,516 Impairment of intangible assets — 10,660 Unrealized gains on equity securities ( 2,383 ) ( 490 ) Depreciation and amortization 10,643 10,513 Non-cash interest expense, net (including amounts with related parties) 9,126 5,743 Non-cash lease expense related to operating lease right-of-use assets 3,500 3,374 Realized gains on sales of equity securities ( 173 ) 2 Amortization of net premiums and discounts on marketable debt securities 261 425 Change in fair value of contingent consideration ( 134 ) ( 797 ) Deferred tax — ( 2,731 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets 425 ( 6,769 ) Other assets ( 4,844 ) ( 22 ) Accounts payable ( 170 ) 7,275 Accrued expenses and other liabilities 624 11,158 Related parties ( 4,714 ) 4,727 Operating lease liabilities ( 3,647 ) ( 3,090 ) Net cash used in operating activities ( 202,780 ) ( 114,120 ) Investing activities: Purchases of property, plant and equipment ( 23,160 ) ( 2,368 ) Proceeds from sales of property, plant and equipment ( Note 8 ) 20,498 — Purchases of marketable debt securities, available-for-sale ( 2,749 ) ( 85,651 ) Maturities of marketable debt securities, available for sale 44,759 6,582 Proceeds from sales of marketable debt and equity securities 13,568 54,080 Net cash provided by (used in) investing activities 52,916 ( 27,357 ) Financing activities: Proceeds from equity offering, net of issuance costs paid 136,948 86,302 Proceeds from issuance of related-party promissory notes 40,000 63,700 Proceeds from exercises of stock options 5,110 917 Sale of assets to an entity under common control ( Note 8 ) 1,435 — Payment for contingent consideration ( 419 ) — Net share settlement for RSUs vesting ( 3,584 ) ( 485 ) Net cash provided by financing activities 179,490 150,434 Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 17 ) ( 73 ) Net change in cash, cash equivalents, and restricted cash 29,609 8,884 Cash, cash equivalents, and restricted cash, beginning of period 35,094 75,980 Cash, cash equivalents, and restricted cash, end of period $ 64,703 $ 84,864 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Continued) (in thousands) (Unaudited) Nine Months Ended September 30, 2021 2020 Reconciliation of cash, cash equivalents, and restricted cash, end of period: Cash and cash equivalents $ 64,524 $ 84,685 Restricted cash ( Note 3 ) 179 179 Cash, cash equivalents, and restricted cash, end of period $ 64,703 $ 84,864 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 1,466 $ 19 Income taxes 11 9 Supplemental disclosure of non-cash activities: Property and equipment purchases included in accounts payable, accrued expenses and due to related parties $ 5,582 $ 524 Right-of-use assets obtained in exchange for operating lease liabilities 19,461 1,492 Unrealized gains (losses) on marketable debt securities 16 ( 12 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 9 Table of Contents ImmunityBio, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements 1. Description of Business Organization The company was established following a series of mergers and name changes, beginning with the original predecessor company, which was incorporated in Illinois on October 7, 2002 under the name ZelleRx Corporation. On January 22, 2010, the name was changed to Conkwest, Inc. In March 2014, the company formed Conkwest, Inc. (“Conkwest Delaware”), a wholly-owned subsidiary in the state of Delaware, for the purposes of changing the state of our incorporation to the state of Delaware. In March 2014, the parent company merged with and into Conkwest Delaware, with Conkwest Delaware surviving the merger. On July 10, 2015, we changed our name to NantKwest, Inc. On March 9, 2021, we completed a merger with NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) (“NantCell”), and we changed our name to ImmunityBio, Inc. Our principal executive offices are located in San Diego, California. In these notes to the unaudited condensed consolidated financial statements, the terms “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio and subsidiaries. We established ImmunityBio to advance next-generation immunotherapies and address unmet needs within the clinical fields of oncology and infectious disease. We are developing treatments based on a proprietary immunotherapy platform that is designed to overcome limitations of the current standards of T cell-based immunotherapies, including checkpoint inhibitors and CAR-T cells. Our platform is based on four key modalities: (1) activating natural killer (“NK”), and T cells using antibody cytokine fusion proteins, (2) activating tumoricidal macrophages using low-dose synthetic immuno-modulators, (3) generating memory T cells using vaccine candidates developed with our second-generation adenovirus (“hAd5”), yeast and saRNA technologies, and (4) off-the-shelf NK cells from the NK‑92 cell line and memory-like cytokine-enriched NK cells (“M‑ceNK”) from allogenic and autologous donors. ImmunityBio’s immunotherapy pipeline includes an antibody cytokine fusion protein (an IL‑15 superagonist (N‑803) known as Anktiva™), an albumin-associated anthracycline synthetic immuno-modulator (aldoxorubicin), hAd5 and yeast vaccine technologies (targeting the novel strain of coronavirus disease (“SARS‑CoV‑2”) , tumor-associated antigens and neoepitopes), off-the-shelf genetically engineered natural killer cell lines inducing cancer and virally infected cell death through a variety of concurrent mechanisms (including innate killing, antibody-mediated killing, and CAR-directed killing), patient specific NK cell product for cancer (M-ceNK), macrophage polarizing peptides, and bi-specific fusion proteins targeting CD20, PD‑L1, TGF‑b and IL‑12 . Our immunotherapy clinical pipeline consists of 20 actively recruiting clinical trials in Phase I, II, or III development. There are 13 active clinical trials in Phase II or III development across 12 indications in solid and liquid cancers (including bladder, pancreatic and lung cancers) and infectious diseases (including SARS‑CoV‑2 and the human immunodeficiency virus (“HIV”)). We have an expansive clinical-stage pipeline and intellectual property portfolio with 16 first-in-human assets. In December 2019, the United States (“U.S.”) Food and Drug Administration (“FDA”) granted Breakthrough Therapy designation to Anktiva™ for bacillus Calmette-Guérin (“BCG”) unresponsive non-muscle invasive bladder cancer carcinoma in situ (“CIS”). Based on patient readout data that was submitted with our application to obtain our Breakthrough Therapy designation, Anktiva™ achieved its primary endpoint of complete response rate at any time in the ongoing registrational Phase II/III trial. Other indications currently with registration-potential studies include BCG unresponsive papillary bladder cancer, lung cancer, and metastatic pancreatic cancer. 10 Table of Contents The Merger On December 21, 2020 , we and NantCell entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which we and NantCell agreed to combine our businesses. The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell (the “Merger”), with NantCell surviving the Merger as a wholly-owned subsidiary of the company. On March 9, 2021, we completed the Merger pursuant to the terms of the Merger Agreement. Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted auto matically into a right to receive 0.8190 (the “Exchange Ratio”) newly issued shares of common stock, par value $ 0.0001 per share, of the company (“Company Common Stock”), with cash paid in lieu of any fractional shares. At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase NantCell common stock was converted using the Exchange Ratio into an option, warrant or restricted stock unit, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock. Immediately following the Effective Time, the former stockholders of NantCell held approximately 71.5 % of the outstanding shares of Company Common Stock and the stockholders of the company as of immediately prior to the Merger held approximately 28.5 % o f the outstanding shares of Company Common Stock. As a result of the Merger and immediately following the Effective Time, Dr. Patrick Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, and his affiliates beneficially owned, in the aggregate, approxim ately 81.8 % of th e outstanding shares of Company Common Stock. Following the consummation of the Merger, shares of the company’s common stock were listed on the Nasdaq Global Select Market under the symbol “IBRX.” We incurred costs tota ling $ 23.3 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, of which $ 13.0 million was recorded during the nine months ended September 30, 2021. Merger-related costs are reported in selling, general and administrative expense , on the condensed consolidated statements of operations. Accounting Treatment of the Merger The Merger represents a business combination pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805-50, Mergers , which is accounted for as a transaction between entities under common control as Dr. Soon-Shiong and his affiliates were the controlling stockholders of both the company and NantCell for all of the periods presented in this report. As a result, all of the assets and liabilities of NantCell were combined with ours at their historical carrying amounts on the closing date of the Merger. We have recast our prior period financial statements to reflect the conveyance of NantCell’s common shares as if the Merger had occurred as of the earliest date of the financial statements presented. All material intercompany accounts and transactions have been eliminated in consolidation. 11 Table of Contents The following tables provide the impact of the change in reporting entity on our unaudited condensed consolidated statements of operations for the three months ended March 31, 2021 and the three and nine months ended September 30, 2020, respectively (in thousands): Three Months Ended March 31, 2021 (Unaudited) NantCell NantKwest Intercompany Eliminations ImmunityBio, Inc. Revenue $ 183 $ — $ ( 44 ) $ 139 Operating expenses: Research and development (including amounts with related parties) 21,509 19,725 ( 106 ) 41,128 Selling, general and administrative (including amounts with related parties) 24,382 20,903 ( 10 ) 45,275 Loss from operations ( 45,708 ) ( 40,628 ) 72 ( 86,264 ) Other (expense) income, net (including amounts with related parties) ( 848 ) 6,637 — 5,789 Income tax expense — ( 6 ) — ( 6 ) Net loss $ ( 46,556 ) $ ( 33,997 ) $ 72 $ ( 80,481 ) Three Months Ended September 30, 2020 (Unaudited) NantCell NantKwest Intercompany Eliminations ImmunityBio, Inc. Revenue $ 126 $ 68 $ ( 43 ) $ 151 Operating expenses: Research and development (including amounts with related parties) 18,911 17,284 ( 423 ) 35,772 Selling, general and administrative (including amounts with related parties) 14,885 4,711 — 19,596 Impairment of intangible assets 10,660 — — 10,660 Loss from operations ( 44,330 ) ( 21,927 ) 380 ( 65,877 ) Other (expense) income, net (including amounts with related parties) ( 2,146 ) 153 — ( 1,993 ) Income tax benefit (expense) 1,702 ( 2 ) — 1,700 Net loss $ ( 44,774 ) $ ( 21,776 ) $ 380 $ ( 66,170 ) 12 Table of Contents Nine Months Ended September 30, 2020 (Unaudited) NantCell NantKwest Intercompany Eliminations ImmunityBio, Inc. Revenue $ 1,819 $ 90 $ ( 1,157 ) $ 752 Operating expenses: Research and development (including amounts with related parties) 52,547 44,227 ( 623 ) 96,151 Selling, general and administrative (including amounts with related parties) 30,833 16,603 — 47,436 Impairment of intangible assets 10,660 — — 10,660 Loss from operations ( 92,221 ) ( 60,740 ) ( 534 ) ( 153,495 ) Other (expense) income, net (including amounts with related parties) ( 4,251 ) 495 — ( 3,756 ) Income tax benefit (expense) 1,643 ( 6 ) — 1,637 Net loss $ ( 94,829 ) $ ( 60,251 ) $ ( 534 ) $ ( 155,614 ) 2. Summary of Significant Accounting Policies There have been no material changes to our significant accounting policies from those described in the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 to our Current Report on Form 8‑K/A filed with the Securities and Exchange Commission (“SEC”) on April 22, 2021. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. The unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. The unaudited condensed consolidated financial statements do not include all information and notes required by U.S. GAAP for annual reports. As of September 30, 2021, the company had an accumulated deficit of $ 1.9 billion. We also had negative cash flows from operations of $ 202.8 million for the nine months ended September 30, 2021. The company will likely need additional capital to further fund the development of, and seek regulatory approvals for, our product candidates, and to begin to commercialize any approved products. The condensed consolidated financial statements are derived from NantKwest’s and NantCell’s respective historical consolidated financial statements for each period presented. Since the entities have been under common control for all periods presented, the condensed consolidated financial statements assume that the Merger took place at the beginning of the earliest period for which the condensed consolidated financial statements are presented. Accordingly, these financial statements should be read in conjunction with the audited Combined Consolidated Financial Statements and Notes thereto included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 to our Current Report on Form 8‑K/A filed with the SEC on April 22, 2021. Interim operating results are not necessarily indicative of operating results for the full year. 13 Table of Contents The condensed consolidated financial statements have been prepared assuming the company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of the uncertainty of our ability to continue as a going concern. As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support. However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including but not limited to the offering, issuance and sale by us of up to a maximum aggregate offering of $ 500.0 million of our common stock that may be issued and sold under an “at-the-market” sales agreement with Jefferies LLC (the “ATM”)), and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the financial statements based primarily upon our Executive Chairman and Global Chief Scientific and Medical Officer’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt. We may also seek to sell additional equity, through one or more follow-on public offerings, or in separate financings, or obtain a credit facility. However, we may not be able to secure such financing in a timely manner or on favorable terms. Without additional funds, we may choose to delay or reduce our operating or investment expenditures. Further, because of the risk and uncertainties associated with the commercialization of our product candidates in development, we may need additional funds to meet our needs sooner than planned. Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of the company and its subsidiaries. All intercompany amounts have been eliminated. For consolidated entities where we have less than 100% of ownership, we record net loss attributable to noncontrolling interest on the condensed consolidated statements of operations equal to the percentage of the ownership interest retained in such entities by the respective noncontrolling parties. We apply the variable interest model under ASC Topic 810, Consolidation , to any entity in which we hold an equity investment or to which we have the power to direct the entity’s most significant economic activities and the ability to participate in the entity’s economics. If the entity is within the scope of the variable interest model and meets the definition of a variable interest entity (“VIE”), we consider whether we must consolidate the VIE or provide additional disclosures regarding our involvement with the VIE. If we determine that we are the primary beneficiary of the VIE, we will consolidate the VIE. This analysis is performed at the initial investment in the entity or upon any reconsideration event. For entities we hold as an equity investment that are not consolidated under the VIE model, we consider whether our investment constitutes ownership of a majority of the voting interests in the entity and therefore should be considered for consolidation under the voting interest model. Unconsolidated equity investments in the common stock or in-substance common stock of an entity under which we are able to exercise significant influence, but not control, are accounted for using the equity method. Our ability to exercise significant influence is generally indicated by ownership of 20 % to 50 % interest in the voting securities of the entity. All other unconsolidated equity investments on which we are not able to exercise significant influence will be subsequently measured at fair value with unrealized holding gains and losses included in interest and investment income, net , on the condensed consolidated statements of operations. In the instance the equity investment does not have a readily determinable fair value and does not qualify for the practical expedient to estimate fair value in accordance with ASC Topic 820, Fair Value Measurement (“ASC 820”), we will apply the measurement alternative under ASC Topic 321, Investments—Equity Securities (“ASC 321”), pursuant to which we will measure the investment at its cost, less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer. 14 Table of Contents Prior to March 31, 2021, we owned non-marketable equity securities that were accounted for using the measurement alternative under ASC 321 because the preferred stock held by us was not considered in-substance common stock and such preferred stock did not have a readily determinable fair value. All investments are reviewed for possible impairment on a regular basis. If an investment’s fair value is determined to be less than its net carrying value, the investment is written down to its fair value. Such an evaluation is judgmental and dependent on specific facts and circumstances. Factors considered in determining whether an impairment indicator is present include: the investees’ earnings performance and clinical trial performance, change in the investees’ industry and geographic area in which it operates, offers to purchase or sell the security for a price less than the cost of the investment, issues that raise concerns about the investee’s ability to continue as a going concern, and any other information that we may be aware of related to the investment. Factors considered in determining whether an observable price change has occurred include: the price at which the investee issues equity instruments similar to those of our investment and the rights and preferences of those equity instruments compared to ours. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these financial statements. We base our estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the ongoing coronavirus pandemic could have on our significant accounting estimates. Actual results could differ from those estimates. Risks and Uncertainties In March 2020, the World Health Organization declared SARS‑CoV‑2 a pandemic. To date, our operations have not been significantly disadvantaged by the pandemic. However, we cannot at this time predict the specific extent, duration, or full impact that this pandemic may have on our financial condition and results of operations, including ongoing and planned clinical trials. More specifically, the pandemic may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist for the foreseeable future. The impact of the pandemic on our financial performance will depend on future developments, including the duration and spread of the outbreak, impact of potential variants and the related governmental advisories and restrictions. These developments and the impact of the ongoing pandemic on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected. Contingencies We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause a change in the potential amount of the liability recorded or of the range of potential losses disclosed. Moreover, we record gain contingencies only when they are realizable and the amount is known. Additionally, we record our rights to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and when receipt is deemed probable. This includes instances when our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund. 15 Table of Contents Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject us to concentrations of risk consist principally of cash and cash equivalents, marketable securities, and a convertible note receivable. Product candidates developed by us will require approvals or clearances from the FDA or international regulatory agencies prior to commercial sales. There can be no assurance that any of our product candidates will receive any of the required approvals or clearances. If we were to be denied approval or clearance or any such approval or clearance was to be delayed, it would have a material adverse impact on us. Common Control Transactions Transactions between us and entities where Dr. Soon-Shiong and his affiliates are the controlling stockholders are accounted for as common control transactions whereby the net assets acquired or transferred are accounted at their carrying value. Any difference between the carrying value and consideration recognized is treated as a capital transaction. Cash consideration up to the carrying value of the net assets acquired or transferred is presented as an investing activity in our condensed consolidated statement of cash flows. Cash consideration in excess of the carrying value of the net assets acquired or transferred is presented as a financing activity in our condensed consolidated statement of cash flows. Sale-leaseback Transaction A sale-leaseback transaction occurs when an entity sells an asset it owns and immediately leases the asset back from the buyer. The seller then becomes the lessee and the buyer becomes the lessor. When entering into a sale-leaseback transaction as a seller-lessee, the requirements in ASC Topic 606, Revenue from Contracts with Customers , and all related accounting standards updates to such Topic are applied in determining whether the transfer of an asset shall be accounted for as a sale of the asset by assessing whether it satisfies a performance obligation under the contract by transferring control of an asset. If the company transfers control of an asset to the buyer-lessor, the transfer is accounted for as a sale and the company derecognizes the transferred asset. The subsequent leaseback of the asset is accounted for in accordance with ASC Topic 842, Leases , in the same manner as any third-party lease. If the company does not transfer control of an asset to the buyer-lessor, the sale-leaseback transaction is accounted for as a financing arrangement. In September 2021, we entered into a sale transaction with Nant Capital, LLC (“Nant Capital”), a related party, for a building located at 557 South Douglas Street, El Segundo, California. We subsequently leased back the building for an initial seven-year lease term with an option to extend the lease for two additional seven-year periods. There is no purchase option at the end of the lease term. Since we transferred the legal title and all benefits and risks incidental to the ownership of the property to Nant Capital, we accounted for the transfer as a sale. We have classified the leaseback of the building as an operating lease and accordingly, a right-of-use asset and an operating lease liability were established on the lease commencement date that will be amortized through the end of the lease term. See Note 8 , Related-Party Agreements , for further information. Stock-Based Compensation We account for stock-based compensation under the provisions of ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). We measure the fair value of an equity-classified award at the grant date and recognize the stock-based compensation expense over the period of vesting on the straight-line basis for our outstanding share awards that do not contain a performance condition. For awards subject to performance-based vesting conditions, we assess the probability of the individual milestones under the award being achieved and stock-based compensation expense is recognized over the service period using the graded vesting method once management believes the performance criteria is probable of being met. For awards with service or performance conditions, we recognize the effect of forfeitures in compensation cost in the period that the award was forfeited. 16 Table of Contents Basic and Diluted Net Loss per Share of Common Stock Basic net loss per share is calculated by dividing the net loss attributable to ImmunityBio common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share is computed by dividing net loss attributable to ImmunityBio common stockholders by the weighted-average number of common shares, including the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive. The following table details those securities that have been excluded from the computation of potentially dilutive securities: As of September 30, 2021 2020 (Unaudited) Outstanding stock options 4,194,268 5,221,543 Outstanding RSUs 7,076,402 480,292 Outstanding related-party warrants 1,638,000 1,638,000 Total 12,908,670 7,339,835 Amounts in the table above reflect the common stock equivalents of the noted instruments, including awards issued under the NantKwest 2015 Equity Incentive Plan (the “2015 Plan”), the NantKwest 2014 Equity Incentive Plan (the “2014 Plan”), and awards issued under the NantCell, Inc. 2015 Stock Incentive Plan (the “NC 2015 Plan”) that, in the case of September 30, 2021, were outstanding immediately prior to the Effective Time of the Merger and in the case of September 30, 2020 have been adjusted to include the combined NC 2015 Plan and NantCell warrants then outstanding (in both cases adjusted using the Exchange Ratio of 0.8190 ). See Note 10 , Stock-Based Compensation , for further information. Recent Accounting Pronouncements Application of New or Revised Accounting Standards – Not Yet Adopted In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016‑13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The FASB subsequently issued amendments to ASU 2016‑13, which have the same effective date and transition dates as described below. The new guidance supersedes existing U.S. GAAP for measuring and recording of credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. For public business entities that meet the definition of an SEC filer, except entities that are eligible to be a smaller reporting company as defined by the SEC, the standard is effective for annual periods beginning after December 15, 2019, and interim periods therein. For all other entities, including us, the standard is effective for annual periods beginning after December 15, 2022, and interim periods therein. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018. With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption. We continue to evaluate the impact that this new standard and its related amendments will have on our consolidated financial statements. Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC during the three months ended September 30, 2021 did not, or are not expected to, have a material effect on our consolidated financial statements. 17 Table of Contents 3. Financial Statement Details Prepaid expenses and other current assets As of September 30, 2021 and December 31, 2020, prepaid expenses and other current assets consist of the following (in thousands): September 30, 2021 December 31, 2020 (Unaudited) Insurance premium financing asset $ 4,137 $ 1,421 Prepaid services 2,373 1,294 Prepaid insurance 2,208 1,365 Prepaid license fees 1,377 801 Prepaid preclinical and clinical trial services – with related party ( Note 8 ) 1,035 4,626 Prepaid rent 672 589 Prepaid property taxes 373 — Prepaid equipment maintenance 229 243 Insurance claims receivable 92 2,518 Interest receivable – marketable debt securities 25 473 Prepaid supplies – with related party ( Note 8) — 143 Equipment deposits — 66 Other 255 110 Prepaid expenses and other current assets $ 12,776 $ 13,649 We have reflected our right to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and receipt is deemed probable. This includes instances where our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund. Our insurance claims receivable as of September 30, 2021 and December 31, 2020 were the result of the recovery of legal costs, which had been previously charged in prior periods to s elling, general and administrative expense, on the condensed consolidated statements of operations. Property, plant and equipment, net As of September 30, 2021 and December 31, 2020, property, plant and equipment, net, consist of the following (in thousands): September 30, 2021 December 31, 2020 (Unaudited) Leasehold improvements $ 62,484 $ 52,251 Equipment 47,523 34,738 Construction in progress 6,730 1,333 Software 1,600 2,376 Furniture & fixtures 1,052 1,015 Building — 22,690 Gross property, plant and equipment 119,389 114,403 Less: Accumulated depreciation and amortization 49,511 41,862 Property, plant and equipment, net $ 69,878 $ 72,541 18 Table of Contents In September 2021, we entered into a sale transaction with Nant Capital, a related party, for a building located at 557 South Douglas Street, El Segundo, California. We subsequently leased back the building for an initial seven-year lease term with an option to extend the lease for two additional seven-year periods. The net proceeds from the transaction totaled $ 21.9 million and the net carrying value of the building was $ 20.5 million at the time of the transaction. We accounted for the transfer as a sale of an asset to an entity under common control, recorded the transfer at book value and recognized the excess of net consideration over carrying book value of $ 1.4 million as a capital contribution received from Nant Capital. See Note 8 , Related-Party Agreements , for further information. Depreciation and amortization expense related to property, plant and equipment totaled $ 10.6 million and $ 10.5 million for the nine months ended September 30, 2021 and 2020, respectively. Other assets As of September 30, 2021 and December 31, 2020, other assets consist of the following (in thousands): September 30, 2021 December 31, 2020 (Unaudited) Prepaid insurance $ 3,042 $ — Prepaid preclinical and clinical trial services – with related party ( Note 8 ) 1,549 92 Value-added tax (VAT) receivable 914 864 ERP system implementation costs 729 — Security deposits 483 634 Restricted cash 179 179 Prepaid software license fees 132 455 Due from related party 55 51 Other 359 323 Other assets $ 7,442 $ 2,598 Prepaid insurance consists of policies required by and associated with the Merger. Restricted cash is comprised of a certificate of deposit that serves as collateral for a letter of credit required by our landlord as a security deposit related to our facility in San Diego, California. 19 Table of Contents Accrued expenses and other liabilities As of September 30, 2021 and December 31, 2020, accrued expenses and other liabilities consist of the following (in thousands): September 30, 2021 December 31, 2020 (Unaudited) Accrued dissenting shares ( Note 7 ) $ 7,029 $ 6,769 Accrued bonus 5,560 5,288 Accrued preclinical and clinical trial costs 5,426 4,339 Accrued professional and service fees 4,785 7,668 Financing obligation – current portion 4,137 1,421 Accrued compensation 3,990 3,891 Accrued research and development costs 3,871 4,002 Accrued capital expenditures 1,585 337 Accrued laboratory equipment, supplies and related services 801 641 Accrued contingent consideration 397 856 Accrued franchise, sales, use and property taxes 199 103 Deferred revenue 145 270 Other 594 1,186 Accrued expenses and other liabilities $ 38,519 $ 36,771 Interest and investment (loss) income, net Interest and investment (loss) income, net consists of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) Unrealized (losses) gains from equity securities $ ( 6,008 ) $ ( 4 ) $ 2,383 $ 490 Interest income 101 536 552 1,199 Investment amortization expense, net ( 34 ) ( 381 ) ( 282 ) ( 474 ) Realized (losses) gains on investments — ( 2 ) 173 ( 2 ) Interest and investment (loss) income, net $ ( 5,941 ) $ 149 $ 2,826 $ 1,213 Interest income includes interest from marketable securities, convertible notes receivable, other assets, and interest from bank deposits. 20 Table of Contents 4. Financial Instruments Investments in Marketable Debt Securities As of September 30, 2021, the weighted-average remaining contractual life, amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands): September 30, 2021 (Unaudited) Weighted- Average Remaining Contractual Life (in years) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Current: Corporate debt securities 0.1 $ 1,805 $ — $ ( 1 ) $ 1,804 Foreign bonds 0.5 344 — ( 18 ) 326 Mutual funds 35 3 — 38 Current portion 2,184 3 ( 19 ) 2,168 Noncurrent: Foreign bonds 5.1 747 55 — 802 Noncurrent portion 747 55 — 802 Total $ 2,931 $ 58 $ ( 19 ) $ 2,970 As of December 31, 2020, the amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands): December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Current: Corporate debt securities $ 54,789 $ 2 $ ( 19 ) $ 54,772 Mutual funds 35 2 — 37 Current portion 54,824 4 ( 19 ) 54,809 Noncurrent: Foreign bonds 861 89 — 950 Noncurrent portion 861 89 — 950 Total $ 55,685 $ 93 $ ( 19 ) $ 55,759 21 Table of Contents Accumulated unrealized losses on marketable debt securities that have been in a continuous loss position for less than 12 months and more than 12 months as of September 30, 2021 and December 31, 2020 were as follows (in thousands): September 30, 2021 Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Corporate debt securities $ 1,804 $ ( 1 ) $ — $ — Foreign bonds 207 ( 1 ) — — Total $ 2,011 $ ( 2 ) $ — $ — December 31, 2020 Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Corporate debt securities $ 42,762 $ ( 19 ) $ — $ — Total $ 42,762 $ ( 19 ) $ — $ — We evaluated our securities for other-than-temporary impairment, and we did not recognize any other-than-temporary impairment losses for the nine months ended September 30, 2021 and 2020. Realized gains and losses on sales of available-for-sale marketable debt securities were not significant for the nine months ended September 30, 2021 and 2020. Marketable Equity Securities We held investments in marketable equity securities with readily determinable fair values of $ 13.7 million and $ 6.3 million as of September 30, 2021 and December 31, 2020, respectively. Unrealized gains recorded on these securities totaled $ 2.4 million and $ 0.5 million in interest and investment (loss) income, net , on the condensed consolidated statements of operations for the nine months ended September 30, 2021 and 2020, respectively. We recorded a realized gain totaling $ 0.2 million from sales of marketable equity securities in interest and investment (loss) income, net , on the condensed consolidated statements of operations for the nine months ended September 30, 2021. 5. Fair Value Measurements Fair value is defined as an exit price that would be received from the sale of an asset or 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. We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows: • Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation of these products does not entail a significant degree of judgment. Our Level 1 assets consist of bank deposits, money market funds, and marketable equity securities. 22 Table of Contents • Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities. Our Level 2 assets consist of corporate debt securities including commercial paper, government-sponsored securities and corporate bonds, as well as foreign municipal securities. • Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. We utilize a third-party pricing service to assist in obtaining fair value pricing for our investments in marketable debt securities. Inputs are documented in accordance with the fair value disclosure hierarchy. The fair values of financial instruments other than marketable securities and cash and cash equivalents are determined through a combination of management estimates and third-party valuations. Recurring Valuations Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of September 30, 2021 and December 31, 2020 (in thousands): Fair Value Measurements at September 30, 2021 (Unaudited) Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 64,524 (1) $ 62,710 $ 1,814 $ — Equity securities 13,680 (2) 13,680 — — Corporate debt securities 1,804 — 1,804 — Foreign bonds 326 326 — — Mutual funds 38 38 — — Noncurrent: Foreign bonds 802 802 — — Total assets measured at fair value $ 81,174 $ 77,556 $ 3,618 $ — Liabilities: Contingent consideration $ ( 419 ) (3) $ — $ — $ ( 419 ) Fair Value Measurements at December 31, 2020 Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 34,915 $ 34,915 $ — $ — Corporate debt securities 54,772 — 54,772 — Equity securities 6,337 6,337 — — Mutual funds 37 37 — — Noncurrent: Foreign bonds 950 950 — — Total assets measured at fair value $ 97,011 $ 42,239 $ 54,772 $ — Liabilities: Contingent consideration $ ( 972 ) (3) $ — $ — $ ( 972 ) 23 Table of Contents (1) Includes money market funds of $ 23.7 million and corporate debt securities of $ 1.8 million with original maturities of less than 90 days. (2) Our equity securities include a $ 12.5 million investment in Viracta Therapeutics, Inc. (“Viracta”), a clinical stage drug development company with whom we have an exclusive worldwide license to develop and commercialize one of their proprietary drug candidates. In February 2021, Viracta merged with Sunesis Pharmaceuticals, Inc. (“Sunesis”), a public company. In connection with this transaction, our preferred stock investment in Viracta was converted into 1,562,604 shares of Viracta common stock effective February 25, 2021. Prior to the acquisition by Sunesis, we accounted for our investment in Viracta by applying the measurement alternative under ASC 321. As of December 31, 2020, the carrying value of our investment in Viracta, which was reflected in non-marketable equity investment , on the condensed consolidated balance sheets, was $ 7.8 million. (3) Contingent consideration is recorded at estimated fair value and revalued each reporting period until the related contingency is resolved. The fair value measurement is based on inputs that are unobservable and significant to the overall fair value measurement (i.e., a Level 3 measurement within the fair value hierarchy) and are reviewed periodically by management. See Note 7 , Commitments and Contingencies, for further information. Changes in the carrying amount of contingent consideration were as follows (in thousands): Nine Months Ended September 30, 2021 2020 (Unaudited) Fair value, beginning of period $ ( 972 ) $ ( 1,725 ) Consideration paid 419 — Net decrease in fair value 134 797 Fair value, end of period $ ( 419 ) $ ( 928 ) Non-recurring Valuations Non-financial assets and liabilities are recognized at fair value subsequent to initial recognition when they are deemed to be other-than-temporarily impaired. There were no material non-financial assets and liabilities deemed to be other-than-temporarily impaired and measured at fair value on a non-recurring basis for the nine months ended September 30, 2021 and 2020. 6. Collaboration and License Agreements Collaboration Agreements National Cancer Institute 2015 NCI CRADA In May 2015, Etubics Corporation (“Etubics”) entered into a Cooperative Research and Development Agreement (“CRADA”) with the U.S. Department of Health and Human Services (“HHS”) as represented by the National Cancer Institute (“NCI”) of the National Institutes of Health (“NIH”) to collaborate on the preclinical and clinical development of an adenovirus technology expressing tumor-associated antigens for cancer immunotherapy. In January 2016, we acquired all of the outstanding equity interests in Etubics and Etubics became a wholly-owned subsidiary. Effective January 2018, our subsidiary NantCell assumed the CRADA and it was amended to cover a collaboration for the preclinical and clinical development of our proprietary yeast-based Tarmogens expressing tumor-associated antigens and proprietary adenovirus technology expressing tumor-associated antigens for cancer immunotherapy. Pursuant to the CRADA, the NCI provides scientific staff and other support necessary to conduct research and related activities as described in the CRADA. 24 Table of Contents During the term of the CRADA, we were required to make annual payments of $ 0.6 million to the NCI for support of research activities. We made payments of $ 0.6 million in each of the nine months ended September 30, 2021 and 2020, respectively, and recorded $ 0.5 million in research and development expense , on the condensed consolidated statements of operations for the nine months ended September 30, 2021 and 2020. In November 2021, NantCell entered into a third amendment to the CRADA, which was effective as of March 16, 2021. The principal changes effected by the third amendment are the following: (i) assignment of the CRADA from NantCell to ImmunityBio; (ii) modification of the research plan; (iii) extension of the CRADA term through May 2026; and (iv) an increase in funding for a total of $ 1.3 million per year, payable in semi-annual installments from 2022 through 2025. Pursuant to the updated CRADA research plan, NCI and ImmunityBio will collaborate on the preclinical and clinical development of ImmunityBio’s proprietary adenovirus platform expressing tumor-associated antigens; proprietary yeast platform expressing tumor-associated antigens; proprietary agent N-803 ( Anktiva™) and derivatives, agent N-808 and derivatives, and/or TxM product candidates; proprietary recombinant NK cells and monoclonal antibodies (“mAbs”); proprietary RNA vaccines and adjuvants; and other proprietary agents owned or controlled by ImmunityBio as contemplated in the research plan, for cancer immunotherapy. In accordance with the terms of the amended CRADA, the company is required to make an additional $ 0.7 million payment within 30 days of the execution date in addition to a $ 0.6 million payment to the NCI for support of research activities during 2021. We recorded an additional $ 0.4 million for the third amendment in research and development expense , on the condensed consolidated statement of operations for the nine months ended September 30, 2021. 2018 NCI CRADA In February 2018, we entered into an amendment to a CRADA with the NCI that was originally executed between the NCI and Amgen, Inc. (“Amgen”) in May 2012 and subsequently assigned by Amgen to us effective as of December 17, 2015. The research goal of this CRADA, as amended, is for the non-clinical and clinical development of ganitumab, our licensed monoclonal antibody targeting insulin-like growth factor one receptor, to evaluate its safety and efficacy in patients with hematological malignancies and solid tumors. The CRADA has a five-year term commencing on February 20, 2018 and expiring on February 20, 2023. During the term of the agreement, we are required to make minimum annual payments of $ 0.2 million to the NCI for support of research activities and additional payments for the clinical trials based on the scope and phase of the clinical trials. Unpaid research and development expense was estimated at $ 0.5 million and $ 0.6 million as of September 30, 2021 and December 31, 2020, respectively. National Institute of Deafness and Communication Disorders 2021 NIDCD CRADA In February 2021, we entered into a CRADA with HHS as represented by the National Institute of Deafness and Communication Disorders (“NIDCD”) of the NIH to conduct collaborative analysis of human clinical trial samples from clinical trials utilizing our proprietary recombinant NK cells and/or mAbs for preclinical development in monotherapy and in combination immunotherapies. The CRADA has a two-year term commencing on February 22, 2021 and expiring on February 22, 2023. During the term of the agreement, we are required to provide $ 0.1 million per year to the NIDCD for support of the research activities. We made a payment of $ 0.1 million during the nine months ended September 30, 2021. Under any of the CRADAs, any party may unilaterally terminate the agreement by providing timely advance written notice to the other party before the desired termination date. 25 Table of Contents Pursuant to the terms of the CRADAs, we have an option to elect to negotiate an exclusive or non-exclusive commercialization license to any inventions discovered in the performance of any of the CRADAs. The parties jointly own any inventions and materials that are jointly produced by employees of both parties in the course of performing activities under the CRADAs. License Agreements Infectious Disease Research Institute In May 2021, we entered into two license agreements with the Infectious Disease Research Institute (“IDRI”) pursuant to which we received a license to certain patents and know-how relating to IDRI’s (i) adjuvant formulations for the treatment, prevention and/or diagnosis of SARS-CoV-2 (the “IDRI Adjuvant Formulation License Agreement”) and (ii) RNA vaccine platform as further described below (the “IDRI RNA License Agreement”). Under both agreements, we were obligated to pay one-time, non-creditable, non-refundable upfront cash payments totaling $ 2.0 million. In addition, under the IDRI Adjuvant Formulation License Agreement we owe IDRI milestone payments to a total of up to $ 2.5 million based on the achievement of certain development and regulatory milestones for the first licensed product and royalties on annual net sales of licensed products on a country-by-country and product-by-product basis of a low-single digit percentage, subject to certain royalty-reduction provisions. Under these agreements, we made a $ 2.0 million upfront payment and recognized $ 2.0 million in research and development expense , on the condensed consolidated statement of operations, and no milestone fees were incurred for the nine months ended September 30, 2021. In September 2021, we amended and restated the IDRI RNA License Agreement, pursuant to which IDRI granted us an exclusive, worldwide, sublicensable license to IDRI’s rights to an RNA vaccine platform for the development and commercialization of certain therapeutic, diagnostic or prophylactic products for the prevention, treatment or diagnosis of any indication, other than those subject to pre-existing third-party license grants, including, without limitation, SARS-CoV-2. Pursuant to the terms of the amended and restated IDRI RNA License Agreement, we are required to make an additional one-time, non-creditable, non-refundable, upfront payment to IDRI of $ 1.5 million. The company is also required to pay license maintenance fees to IDRI as follows: $ 3.0 million in 2022 and $ 5.5 million annually from 2023 through 2030. The company may terminate the restated agreement without cause by paying IDRI a $ 10.0 million one-time early termination fee. In addition, the milestone payments to IDRI based on the achievement of certain development and regulatory milestones for the first licensed product were amended to a total of up to $ 4.0 million. We are required to pay royalties on annual net sales of licensed products on a country-by-country and product-by-product basis of a low to mid-single digit percentage. We accrued $ 1.5 million in research and development expense , on the condensed consolidated statements of operations for the three months ended September 30, 2021. In connection with the license agreements, in May 2021 we also entered into a Sponsored Research Agreement (“SRA”) with IDRI pursuant to which we will fund continued research of at least $ 2.0 million per year, payable in four equal quarterly installments each year until May 2024, or such year of earlier termination. For the three and nine months ended September 30, 2021, we recorded $ 0.2 million and $ 0.7 million, respectively, in research and development expense , on the condensed consolidated statements of operations related to the SRA. iosBio Ltd. Exclusive License Agreement In August 2020, we executed an exclusive license agreement with iosBio Ltd., formerly Stabilitech Biopharma Ltd. (“iosBio”), pursuant to which we and our affiliates will receive an exclusive, worldwide license to certain of iosBio’s intellectual property rights relating to the SARS-CoV-2 and successor vaccine candidates. In return, we are required to pay mid-to-high single-digit percentage royalties on net sales of the resulting licensed products. Concurrently we entered into a non-exclusive license agreement with iosBio, which grants iosBio and its affiliates a non-exclusive, worldwide license for the intellectual property and technology relating to our adenovirus constructs for the prevention and treatment of shingles and other infectious disease targets to be mutually agreed by the parties in good faith. As of September 30, 2021 and December 31, 2020, we accrued $ 0.2 million and $ 0.5 million payable, respectively, to iosBio for costs of supplies and reimbursable costs related to the clinical trial activities initiated by iosBio. 26 Table of Contents 7. Commitments and Contingencies Contingent Consideration Related to Business Combinations VivaBioCell, S.p.A. On April 10, 2015, NantWorks, LLC (“NantWorks”), a related party, acquired a 100 % interest in VivaBioCell, S.p.A. (“VivaBioCell”) through its wholly-owned subsidiary, VBC Holdings, LLC, (“VBC Holdings”) for $ 0.7 million, less working capital adjustments. On June 15, 2015, NantWorks contributed its equity interest in VBC Holdings to the company, in exchange for cash consideration equal to its cost basis in the investment. VivaBioCell develops bioreactors and products based on cell culture and tissue engineering in Italy. In connection with this transaction, we are obligated to pay the former owners up to $ 3.7 million upon the achievement of certain sales milestones relating to scaffold technology and certain clinical and regulatory milestones relating to the GMP-in-a-Box technology. A clinical milestone totaling $ 0.8 million was earned by the former owners of VivaBioCell in connection with the acquisition, of which $ 0.4 million was paid during the three months ended September 30, 2021. The remaining $ 0.4 million was accrued as of September 30, 2021. Altor BioScience Corporation In connection with our July 2017 acquisition of Altor BioScience Corporation (“Altor”), we issued contingent value rights (“CVRs”) under which we agreed to pay the prior stockholders of Altor approximately $ 304.0 million upon successful approval of the Biologics License Application (“BLA”) or foreign equivalent, for Anktiva™ by December 31, 2022 and approximately $ 304.0 million upon the first calendar year before December 31, 2026 in which worldwide net sales of Anktiva™ exceed $ 1.0 billion (with amounts payable in cash or shares of our common stock or a combination thereof). Dr. Soon-Shiong and his related party hold approximately $ 279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of the company’s common stock in satisfaction of their CVRs. As the transaction was recorded as an asset acquisition, future CVR payments will be recorded when the corresponding events are probable of achievement or the consideration becomes payable. Litigation From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints. If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Altor BioScience, LLC Litigation In 2017, NantCell announced it had entered into a definitive merger agreement to acquire Altor BioScience Corporation. An action captioned Gray v. Soon-Shiong, et al. was filed in Delaware Chancery Court by plaintiffs Clayland Boyden Gray (“Gray”) and Adam R. Waldman. The plaintiffs, two minority stockholders, asserted claims against the company and other defendants for (1) breach of fiduciary duty and (2) aiding and abetting breach of fiduciary duty and filed a motion to enjoin the merger. The court denied the motion and permitted the merger to close. Subsequent to the close of the merger, in 2017 the plaintiffs (joined by two additional minority stockholders, Barbara Sturm Waldman and Douglas E. Henderson (“Henderson”)) filed a second amended complaint, asserting claims for (1) appraisal; (2) quasi-appraisal; (3) breach of fiduciary duty; and (4) aiding and abetting breach of fiduciary duty. The defendants moved to dismiss the second amended complaint, raising grounds that included a “standstill” agreement under which defendants maintained that Gray and Adam R. Waldman and Barbara Strum Waldman (the “Waldmans”) agreed not to bring the lawsuit. In a second action, Dyad Pharmaceutical Corporation, or Dyad, filed a petition in Delaware Chancery Court for appraisal in connection with the merger. Respondent moved to dismiss the appraisal petition in 2018, arguing in part that the petition was barred by the same “standstill” agreement. In 2018, the court heard oral arguments on the motions to dismiss in both consolidated cases and converted the motions to dismiss into motions for summary judgment with regard to the “standstill” agreement argument, or the Converted Motions. 27 Table of Contents The court issued an oral ruling in 2019 that dismissed certain claims and dismissed Altor BioScience from the action. The following claims remain: (a) the appraisal claims by all plaintiffs and Dyad (against Altor BioScience, LLC), and (b) Henderson’s claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty. In 2019, the court issued a written order implementing its ruling on the Converted Motions (the “Implementing Order”). In the Implementing Order, the court confirmed that all fiduciary duty claims brought by Gray, both individually and as trustee of the Gordon Gray Trust f/b/o C. Boyden Gray, were dismissed. Gray and the Waldmans filed answers denying the counterclaims and asserting defenses. The plaintiffs moved for leave to file a third amended complaint to add two former Altor stockholders as plaintiffs and a fiduciary duty claim on behalf of a purported class of former Altor stockholders, which the defendants opposed. In 2020, the court granted the plaintiffs’ motion, and the plaintiffs filed a third amended complaint. In 2020, the defendants answered the third amended complaint and asserted counter claims against the plaintiffs. The defendants are seeking damages for attorneys’ fees and costs incurred as a result of these breaches. The plaintiffs filed an answer denying the counterclaims and asserting defenses. The trial has been set to commence on August 8, 2022. The shares of these former Altor stockholders met the definition of dissenting shares under the merger agreement and were not entitled to receive any portion of the merger consideration at the closing date. However, these dissenting shares will automatically be converted to receive the portion of the merger consideration they were entitled to, on the later of the closing date or when the stockholder withdraws or loses the right to demand appraisal rights. Payment for dissenting shares will be on the same terms and conditions originally stated in the merger agreement. As of September 30, 2021 and December 31, 2020, we had accrued $ 7.0 million and $ 6.8 million related to these obligations, respectively. The accrued amount represents the estimated low-end of the range of currently estimated payout amounts in accordance with ASC Topic 450, Contingencies , after considering the reasonable outcomes for settling the dissenting stockholder dispute along with any accrued statutory interest. We cannot reasonably estimate a range of loss or likelihood of loss beyond the amounts recorded for dissenting shares as of September 30, 2021, as the dissenting stockholders have not yet provided a quantified value of their claim and, therefore, an upper end of the range of loss cannot be determined. Discovery is ongoing, and class certification motions relating to the putative class have not yet been filed or decided. We reassess the reasonableness of the recorded amount at each reporting period. We believe the claims lack merit and intend to continue defending the case vigorously. Sorrento Therapeutics, Inc. Litigation Sorrento Therapeutics, Inc. (“Sorrento”), derivatively on behalf of NANTibody, LLC (“NANTibody”), filed an action in the Superior Court of California, Los Angeles County (the “Superior Court”) against the company, Dr. Soon-Shiong and Charles Kim. The action alleged that the defendants improperly caused NANTibody to acquire IgDraSol, Inc. from our affiliate NantPharma, LLC (“NantPharma”) and sought to have the transaction undone and the purchase amount returned to NANTibody. In 2019, we filed a demurrer to several causes of action alleged in the Superior Court action, and Sorrento filed an amended complaint, eliminating Mr. Kim as a defendant and dropping the causes of action we had challenged in our demurrer. Sorrento filed a related arbitration proceeding, the Cynviloq arbitration, against Dr. Soon-Shiong and NantPharma; the company is not named in the Cynviloq arbitration. In 2020, the Superior Court granted Dr. Soon-Shiong’s request for a preliminary injunction barring Sorrento from pursuing claims against him in the Cynviloq arbitration. Sorrento then filed the claims it had previously asserted in arbitration against Dr. Soon-Shiong in the Superior Court, and at Sorrento’s request, the arbitrator entered an order dismissing Sorrento’s claims against Dr. Soon-Shiong in the Cynviloq arbitration. The hearing in the Cynviloq arbitration commenced in June 2021, and continued with breaks until early October 2021. There may or may not be additional hearing days, depending on the outcome of a pending motion. Also in 2019, the company and Dr. Soon-Shiong filed cross-claims in the Superior Court action against Sorrento and its Chief Executive Officer Henry Ji, asserting claims for fraud, breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contract, unjust enrichment, and declaratory relief. Our claims allege that Dr. Ji and Sorrento breached the terms of an exclusive license agreement between the company and Sorrento related to Sorrento’s antibody library and that Sorrento did not perform its obligations under the exclusive license agreement. The Superior Court ruled that the company’s claims should be pursued in arbitration and that Dr. Soon-Shiong’s claims could be pursued in Superior Court. 28 Table of Contents In 2019, the company, along with NANTibody, filed an arbitration against Sorrento and Dr. Ji asserting our claims relating to the exclusive license agreement. In 2020, Sorrento sent letters purporting to terminate the exclusive license agreement with the company, and an exclusive license agreement with NANTibody and demanding the return of its confidential information and transfer of all regulatory filings and related materials. As required pursuant to the exclusive license agreements, both parties must engage in good-faith negotiations before attempting to invoke any termination provision contained in the agreement. Notwithstanding such negotiations, Sorrento sent a letter purporting to terminate the exclusive license agreements, maintaining the negotiations did not reach a successful resolution. We believe we have cured any perceived breaches during the 90-day contractual cure period provided under the agreements. Sorrento filed counterclaims against the company and NANTibody in the arbitration and requested leave to file a dispositive motion. The hearings in the antibody arbitration commenced in April 2021 and concluded in early August 2021. Post-hearing briefing has concluded and final arguments remain to be scheduled. We intend to prosecute our claims, and to defend the claims asserted against us, vigorously. An estimate of the possible loss or range of loss cannot be made at this time. Shenzhen Beike Biotechnology Corporation Litigation In 2020, we received a Request for Arbitration before the International Chamber of Commerce, International Court of Arbitration, served by Shenzhen Beike Biotechnology Corporation (“Beike”). The arbitration relates to a license, development, and commercialization agreement that Altor Bioscience Corporation (succeeded by our wholly-owned subsidiary Altor BioScience, LLC) entered into with Beike in 2014, which agreement was amended and restated in 2017, pursuant to which Altor granted to Beike an exclusive license to use, research, develop and commercialize products based on Anktiva™ in China for human therapeutic uses. In the arbitration, Beike is asserting a claim for breach of contract under the license agreement. Among other things, Beike alleges that we failed to use commercially reasonable efforts to deliver to Beike materials and data related to Anktiva™. Beike is seeking specific performance, or in the alternative, damages for the alleged breaches. On September 25, 2020, the parties entered into a standstill and tolling agreement under which, among other things, the parties affirmed they will perform certain of their obligations under the license agreement by specified dates and agreed that all deadlines in the arbitration are indefinitely extended. The standstill agreement may be terminated by any party on ten calendar days’ notice, and upon termination, the parties will have the right to pursue claims arising from the license agreement in any appropriate tribunal. The parties have been asked to provide an update to the International Chamber of Commerce by January 17, 2022 of any further developments. Given that this action remains at the pleading stage and no discovery has occurred, it remains too early to evaluate the likely outcome of the case or to estimate any range of potential loss. We believe the claims lack merit and intend to defend the case vigorously and that we may have counterclaims. Fox Chase Litigation On July 21, 2020, ImmunityBio filed a declaratory judgment lawsuit in the Superior Court for San Diego County, California, naming Fox Chase Cancer Center Foundation and Institute for Cancer Research as the defendants (hereafter collectively “Fox Chase”). This litigation relates to the license with Fox Chase and includes various intellectual property rights (the “2004 License”). Our initial court filing requested the Court to find that we have not breached material obligations under the 2004 License and that Fox Chase has not and cannot terminate the 2004 License. Fox Chase filed a Cross-Complaint raising a patent inventorship challenge and moved the case to federal court. On June 4, 2021, the federal court separated the parties’ claims, and returned ImmunityBio’s declaratory judgment claims back to the San Diego County court but retained the patent inventorship challenge. While the litigation is in the early stage, its outcome cannot be predicted. We do not consider the 2004 License or the patent inventorship challenge to be material to our business. 29 Table of Contents Litigation Related to the Merger with ImmunityBio, Inc. In connection with the Merger with NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company), a Delaware corporation, via a wholly-owned subsidiary of NantKwest (the “Merger Sub”), seven complaints have been filed as individual actions in United States District Courts. Three complaints have been filed in the United States District Court for the District of Delaware against NantKwest and its directors and are captioned Hargett v. NantKwest, Inc., et al. , 1:21‑cv‑00197 (filed February 11, 2021) (the “Hargett Complaint”), Franchi v. NantKwest, Inc., et al. , 1:21‑cv‑00218 (filed February 16, 2021) (the “Franchi Complaint”), and Gross v. NantKwest, Inc., et al. , 1:21‑cv‑00223 (filed February 17, 2021) (the “Gross Complaint”). One complaint has been filed in the United States District Court for the Southern District of New York and is captioned Leaman v. NantKwest, Inc., et al. , 1:21‑cv‑01351 (filed February 16, 2021) (the “Leaman Complaint”). Two complaints have been filed in the United States District Court for the Southern District of California and are captioned Weiss v. NantKwest, Inc., et al. , 3:21‑cv‑00280 (filed February 16, 2021) (the “Weiss Complaint”) and Carlisle v. NantKwest, Inc., et al. , 3:21‑cv‑00304 (filed February 19, 2021) (the “Carlisle Complaint”). One complaint has been filed in the United States District Court for the Eastern District of New York and was captioned Shenk v. NantKwest, Inc., et al. , 1:21‑cv‑00871 (filed February 18, 2021) (the “Shenk Complaint,” and collectively with the Hargett Complaint, the Franchi Complaint, the Gross Complaint, the Leaman Complaint, the Weiss Complaint, and the Carlisle Complaint, the “Merger Actions”). The Shenk Complaint was voluntarily dismissed on March 10, 2021. The Franchi Complaint was voluntarily dismissed on May 6, 2021. The Leaman Complaint was voluntarily dismissed on May 7, 2021. The Hargett Complaint and the Gross Complaint were both voluntarily dismissed on May 18, 2021. The Hargett Complaint and the Gross Complaint also brought claims against ImmunityBio, and Merger Sub. The Merger Actions generally allege that the Definitive Proxy Statement filed with the SEC on February 2, 2021 misrepresents and/or omits certain purportedly material information relating to financial projections, analysis performed by the financial advisor to NantKwest’s Special Committee, alleged past engagements of the Special Committee’s financial advisor and industry consultant, and the terms of the engagement of such consultant. The Merger Actions assert violations of Sections 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-9 promulgated thereunder against all defendants and violations of Section 20(a) of the Exchange Act against NantKwest’s directors. The Merger Actions seek, among other things, an injunction enjoining the stockholder vote on the Merger and the consummation of the Merger unless and until certain additional information is disclosed to NantKwest’s stockholders, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees, and other relief the Court may deem just and proper. Neither the stockholder vote on the Merger nor the Merger were enjoined and occurred on March 8 and March 9, 2021, respectively. The company cannot predict the outcome of the Merger Actions. The company believes the Merger Actions are without merit and the company and the individual defendants intend to vigorously defend against the Merger Actions and any subsequently filed similar actions. If additional similar complaints are filed, absent new or significantly different allegations, the company will not necessarily disclose such additional filings. Lease Arrangements Substantially all of our operating lease right-of-use assets and operating lease liabilities relate to facilities leases. We have leases in multiple facilities across the U.S. and Italy, including El Segundo, California (general corporate and administrative activities, research and development and regulatory from related parties); San Diego, California (research facility and office space); Culver City, California (research and manufacturing space from a related party); Torrance, California (a research facility from a related party); Miramar, Florida (clinical development); Seattle, Washington (research and development); Louisville, Colorado (research and development and manufacturing); Woburn, Massachusetts (research facility); and Udine and Tavangnacco, Italy (GMP-in-a-Box, research facility and office space). See Note 8 , Related-Party Agreements , for further information. Our leases generally have initial terms ranging from two to ten years and often include one or more options to renew. These renewal terms can extend the lease term from one to seven years , and are included in the lease term when it is reasonably certain that we will exercise the option. 30 Table of Contents Information regarding our leases is as follows: September 30, 2021 December 31, 2020 (Unaudited) Weighted average remaining lease term 7.7 years 3.9 years Weighted average discount rate 9 % 9 % The components of lease expense consist of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) Operating lease costs $ 1,546 $ 863 $ 5,410 $ 4,269 Variable lease costs 856 909 2,039 2,483 Total lease costs $ 2,402 $ 1,772 $ 7,449 $ 6,752 Cash paid for amounts included in the measurement of lease liabilities is as follows (in thousands): Nine Months Ended September 30, 2021 2020 (Unaudited) Cash paid for operating leases (excluding variable lease costs) $ 5,878 $ 4,222 Future minimum lease payments as of September 30, 2021, including $ 21.9 million related to options to extend lease terms that are reasonably certain of being exercised, are presented in the following table (in thousands). Common area maintenance costs and taxes are not included in these payments. Years ending December 31: Operating Leases 2021 (excluding the nine months ended September 30, 2021) $ 2,162 2022 8,952 2023 7,462 2024 6,892 2025 6,550 Thereafter 28,144 Total future minimum lease payments 60,162 Less: Interest 19,507 Less: Tenant improvement allowance receivable 2,941 Present value of operating lease liabilities $ 37,714 In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, LLC, a related party, for a facility primarily used for pharmaceutical development and manufacturing purposes. In May 2021, but effective on April 1, 2021, we entered into an amendment to our lease agreement with 605 Nash, LLC. See Note 8 , Related-Party Agreements , for further information. 31 Table of Contents In September 2021, we entered into a sale transaction with Nant Capital, a related party, for a building located at 557 South Douglas Street, El Segundo, California. We subsequently leased back the building for an initial seven-year lease term with an option to extend the lease for two additional seven-year periods. See Note 8 , Related-Party Agreements , for further information. In September 2021, we entered into a lease agreement with 420 Nash, LLC, a related party, for a property primarily used for the warehousing and storage of drug manufacturing supplies, products and equipment and ancillary office space. Future minimum lease payments totaling $ 5.2 million were not reflected in the operating lease table shown above since the lease term began on October 1, 2021. See Note 12 , Subsequent Events , for further information. There have been no other material changes related to our existing lease agreements from those disclosed in Note 8 of the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 to our Current Report on Form 8‑K/A filed with the SEC on April 22, 2021. Commitments We did not enter into any significant contracts during the nine months ended September 30, 2021, other than those disclosed in these condensed consolidated financial statements. In addition, we are also a party to various contracts with contract research organizations and contract manufacturers that generally provide for termination on notice, with the exact amounts in the event of termination to be based on the timing of the termination and the terms of the agreement. There have been no material changes in unconditional purchase commitments from those disclosed in Note 8 of the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 to our Current Report on Form 8‑K/A filed with the SEC on April 22, 2021. 8. Related-Party Agreements We conduct business with several affiliates under written agreements and informal arrangements. Below is a summary of outstanding balances and a description of significant relationships (in thousands): September 30, 2021 December 31, 2020 (Unaudited) Due from related party–NantBio, Inc. $ 1,294 $ 1,294 Due from related party–NantOmics LLC — 591 Due from related parties–Various 10 118 Total due from related parties $ 1,304 $ 2,003 Due to related party–NantWorks $ 4,974 $ 10,650 Due to related party–Duley Road, LLC 2,374 2,787 Due to related party–NantBio, Inc. 943 943 Due to related party–605 Nash, LLC 284 — Due to related party–Immuno-Oncology Clinic, Inc. 122 271 Due to related party–Various — 187 Total due to related parties $ 8,697 $ 14,838 32 Table of Contents Our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder founded and has a controlling interest in NantWorks, which is a collection of companies in the healthcare and technology space. As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new genetically modified NK cells for our product pipeline. Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman and Global Chief Scientific and Medical Officer. NantWorks Under the NantWorks shared services agreement executed in November 2015, but effective August 2015, NantWorks, a related party, provides corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy, and other support services. We are charged for the services at cost plus reasonable allocations of employee benefits, facilities and other direct or fairly allocated indirect costs that relate to the employees providing the services. For the three months ended September 30, 2021 and 2020, we recorded $ 1.2 million and $ 0.6 million, respectively, in selling, general and administrative expense, on the condensed consolidated statements of operations . For the three months ended September 30, 2021 and 2020, we recorded $ 0 million and $ 0.6 million of expense reimbursements under this arrangement in research and development expense , on the condensed consolidated statements of operations. For the nine months ended September 30, 2021 and 2020, we recorded $ 4.2 million and $ 4.5 million, respectively, in selling, general and administrative expense , and $ 0.4 million and $ 1.8 million, respectively, of expense reimbursements under this arrangement in research and development expense , on the condensed consolidated statements of operations. These amounts exclude certain general and administrative expenses provided by third-party vendors directly for our benefit, which were reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks. As of September 30, 2021 and December 31, 2020, we owed NantWorks a net amount of $ 5.0 million and $ 10.7 million, respectively, for all agreements between the two affiliates, which is included in due to related parties, on the condensed consolidated balance sheets. We also recorded $ 1.5 million and $ 1.1 million of prepaid expenses for services that have been passed through to the company from NantWorks as of September 30, 2021 and December 31, 2020, respectively, which are included in prepaid expenses and other current assets , on the condensed consolidated balance sheets. In November 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 square feet of office space in Culver City, California, which has been converted to a research and development laboratory and a current Good Manufacturing Practice (“cGMP”) manufacturing facility. The initial license was effective from May 2015 through December 2020. The base rent for the initial lease term was $ 47,000 per month, with annual increases of 3 % beginning in January 2017. In September 2020, we amended this agreement to extend the term of this lease through December 31, 2021. Commencing January 1, 2021, the base rent increased by 3 % to approximately $ 54,500 per month. Subsequent to December 31, 2021, the lease term will automatically renew on a month-to-month basis, terminable by either party with at least 30 days’ prior written notice to the other party. In addition, we have a one -time option to extend the lease term through December 31, 2022. If we exercise the option to extend the lease through December 31, 2022, or continue on a month-to-month basis, the base rent will increase by 3 % annually commencing on January 1 of each year. On the date of the amendment, we recorded an increase of $ 1.2 million in both operating lease right-of-use assets and operating lease liabilities , on the condensed consolidated balance sheets, reflecting our belief that we will extend the term of this lease through December 31, 2022. Lease expense for this facility totaling $ 0.5 million and $ 0.5 million for the nine months ended September 30, 2021 and 2020, respectively, was recorded in research and development expense , on the condensed consolidated statements of operations. Immuno-Oncology Clinic, Inc. Beginning in 2017, we entered into multiple agreements with Immuno-Oncology Clinic, Inc. (the “Clinic”) to conduct clinical trials related to certain of our product candidates. The Clinic is a related party as it is owned by an officer of the company and NantWorks manages the administrative operations of the Clinic. Prior to June 30, 2019, one of our officers was an investigator or sub-investigator for all of our trials conducted at the Clinic. 33 Table of Contents In July 2019, we entered into a new agreement with the Clinic (the “Clinic Agreement”), which became effective on July 1, 2019. The Clinic Agreement, as amended on March 31, 2020, covers clinical trial and research-related activities on a non-exclusive basis relating to existing clinical trials, commenced prior to July 1, 2019, and prospective clinical trials and research projects. The Clinic Agreement also specifies certain services and related costs that are excluded from the Clinic Agreement. Prior to commencing any work under the Clinic Agreement, the parties have agreed to execute written work orders setting forth the terms and conditions related to specific services to be performed, including financial terms. For clinical trials that commenced prior to July 1, 2019, excluding certain NantCell trials not covered by the agreement, fees incurred for services performed after July 1, 2019 are covered under the Clinic Agreement and applied towards the below-mentioned prepayments. The Clinic Agreement allows for automatic renewal and additional extensions beyond the initial one-year term. In consideration of the services to be performed under the Clinic Agreement, as amended on March 31, 2020, we agreed to make payments of up to $ 7.5 million to the Clinic, of which $ 3.8 million and $ 1.9 million were paid in July 2019 and October 2019, respectively. As amended, a conditional payment of $ 1.9 million shall be due and payable at such time, if any, that the payments made in July 2019 and October 2019 have been earned by the Clinic through the performance of services. On a quarterly basis, our prepayment is increased by a nominal interest credit computed in accordance with terms specified in the Clinic Agreement. To the extent any portion of the prepayments remain unearned by the Clinic on the third anniversary of the Clinic Agreement, we may elect at our sole discretion either to (i) not extend the term of the Clinic Agreement and have the Clinic reimburse us for the total amount of any remaining unused portion of the prepayments, or (ii) extend the term of the Clinic Agreement for up to three additional one-year periods, at which time the Clinic will reimburse us for the total amount of any remaining unused portion of the prepayments plus interest if reimbursement is not made within 60 days of expiration. The Clinic may terminate this agreement upon each anniversary date upon 60 days prior written notice and reimbursement in full to us of any outstanding unearned balance of the prepayments, provided that any such termination by the Clinic will not apply with respect to any work orders still in effect at the time of such termination. We executed a clinical trial work order under the Clinic Agreement for an open-label, Phase I study of PD‑L1.t‑haNK for infusion in subjects with locally advanced or metastatic solid cancers. In July 2020, but effective on June 22, 2020, we and NantCell executed a clinical trial work order under our existing master agreement with the Clinic for an open-label, randomized, comparative Phase II study of NantCell’s proprietary IL‑15 superagonist (“N‑803”) and aldoxorubicin hydrochloride (“Aldoxorubicin”) and our PD‑L1.t‑haNK with standard-of-care chemotherapy versus standard-of-care chemotherapy for patients with locally advanced or metastatic pancreatic cancer treated as first-line, second-line, or third-line or greater, in three separate cohorts, respectively. During the nine months ended September 30, 2021, ImmunityBio executed multiple work orders under an existing master agreement with the Clinic. Under these work orders, the parties agreed that the Clinic would serve as a site for the following multi-site clinical trials: • A Phase IB open-label study of the safety, reactogenicity, and immnogenicity of prophylactic vaccination with 2nd generation E1/E2B/E3-deleted adenoviral-COVID-19 in normal healthy volunteers; • A Phase IB open-label study of the safety, reactogenicity, and immunogenicity of subcutaneously and orally administered prophylactic vaccination with 2nd generation E1/E2B/E3-deleted adenoviral-COVID-19 in normal healthy volunteers; • A Phase I study of the safety, reactogenicity, and immunogenicity of subcutaneously- and orally-administered supplemental spike & nucleocapsid-targeted COVID‑19 vaccine to enhance T cell-based immunogenicity in participants who have already received a vaccine authorized for emergency use; • A Phase I study of the safety, reactogenicity, and immunogenicity of a supplemental spike & nucleocapsid-targeted COVID‑19 vaccine to enhance T cell-based immunogenicity in participants who have already received a vaccine authorized for emergency use; and • A Phase I open-label study of M‑ceNK cells in subjects with locally advanced or metastatic solid tumors. 34 Table of Contents Based on a review of our updated clinical trial programs post-Merger, we updated our estimates of the investigator fees for the clinical trials currently underway or planned at the Clinic. As certain programs costs are excluded from and certain services are subject to credit adjustments under the Clinic Agreement, we determined the expected future fees for services to be performed are less than the carrying value of the prepaid asset on the condensed consolidated balance sheets. As a result, we partially wrote down the value of our prepayments under the Clinic Agreement and recorded approximately $ 1.9 million in research and development expense , on the condensed consolidated statements of operations for the nine months ended September 30, 2021. In addition , we reclassified $ 0.8 million of prepaid assets from prepaid expenses and other current assets to other assets, on the condensed consolidated balance sheets during the three months ended September 30, 2021 based on the additional time expected for them to be realized than initially estimated . For the three months ended September 30, 2021 and 2020, we incurred $ 0.6 million and $ 0.2 million in research and development expense , on the condensed consolidated statements of operations related to the Clinic Agreement. For the nine months ended September 30, 2021 and 2020, we incurred $ 1.4 million and $ 0.4 million in research and development expense , on the condensed consolidated statements of operations related to the Clinic Agreement. As of September 30, 2021 and December 31, 2020, we owed the Clinic $ 0.1 million and $ 0.3 million, respectively, for services excluded from the Clinic Agreement. As of September 30, 2021 and December 31, 2020, we had prepaid balances related to the Clinic Agreement of $ 2.6 million and $ 4.7 million, respectively. NantBio, Inc. In March 2016, NantBio and the NCI entered into a CRADA. The initial five-year agreement covered NantBio and its affiliates, including us. Under the agreement, the parties collaborated on the preclinical and clinical development of proprietary recombinant NK cells and mAbs in monotherapy and combination immunotherapies. In each of the contractual years under the agreement, we paid $ 0.6 million to the NCI for services under the agreement. We recognized expenses related to this agreement ratably over a 12-month period for each funding year. This CRADA expired in March 2021. In November 2021, we entered into a third amendment to the 2015 NCI CRADA, which was effective as of March 16, 2021, and transferred the research plan from this expired CRADA into the research plan of the amended 2015 NCI CRADA. We accrued $ 0.4 million in research and development expense , on the condensed consolidated statements of operations related to the third amendment for the nine months ended September 30, 2021. See Note 6 , Collaboration and License Agreements—National Cancer Institute, for further information. In August 2018, we entered into a supply agreement with NantCancerStemCell, LLC (“NCSC”), a 60% owned subsidiary of NantBio (with the other 40% owned by Sorrento). Under this agreement, we agreed to supply VivaBioCell’s proprietary GMP-in-a-Box bioreactors and related consumables, made according to specifications mutually agreed to with both companies. The agreement has an initial term of five years and renews automatically for successive one-year terms unless terminated by either party in the event of material default upon prior written notice of such default and the failure of the defaulting party to remedy the default within 30 days of the delivery of such notice, or upon 90 days’ prior written notice by NCSC. We recognized revenue of $ 0.3 million for the nine months ended September 30, 2021 . We recorded $ 0.1 million and $ 0.3 million of deferred revenue for bioreactors that were delivered but not installed as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021 and December 31, 2020, we recorded $ 0.9 million in due to related parties , on the condensed consolidated balance sheets related to this agreement. In 2018, we entered into a shared service agreement pursuant to which we are charged for services at cost, without mark-up or profit by NantBio, but including reasonable allocations of employee benefits that relate to the employees providing the services. In April 2019, we agreed with NantBio to transfer certain NantBio employees and associated research and development projects, comprising the majority of NantBio’s business, to the company. After the transfer, NantBio continued to make payments on our behalf for certain employee benefits and vendor costs related to the research and development projects that were transferred to the company. In addition, we settled certain employee bonuses and benefits that were accrued by NantBio for 2018. As of September 30, 2021 and December 31, 2020, we recorded a net receivable from NantBio of $ 1.3 million, which included $ 1.0 million for employee bonuses and $ 0.3 million for vendor costs we paid on behalf of NantBio. 35 Table of Contents NantOmics, LLC In 2019, we made a strategic decision and transferred certain employees from NantOmics, a related party that is controlled by our Executive Chairman and Global Chief Scientific and Medical Officer, to the company. After the transfer, we settled certain employee bonuses and benefits that were accrued by NantOmics for the year ended December 31, 2020. We recorded no receivable and a $ 0.6 million receivable from NantOmics as of September 30, 2021 and December 31, 2020, respectively. 605 Doug St, LLC In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 24,250 rentable square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility. The lease runs from July 2016 through July 2023. We have the option to extend the lease for one additional three-year term through July 2026. The base rent is approximately $ 72,385 per month, with annual increases of 3 % that began in July 2017. Lease expense of $ 0.7 million for this facility for the nine months ended September 30, 2021 and 2020, respectively, was recorded in research and development expense , on the condensed consolidated statements of operations. The prepaid rent for this lease was $ 0.1 million, which was included in prepaid expenses and other current assets , and the security deposit for this lease was $ 0.1 million, which was included in other assets , on the condensed consolidated balance sheets as of September 30, 2021 . Duley Road, LLC In February 2017, Altor BioScience Corporation (succeeded by our wholly-owned subsidiary Altor BioScience, LLC), through its wholly-owned subsidiary, entered into a lease agreement with Duley Road, a related party that is indirectly controlled by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 12,000 rentable square feet of office and cGMP manufacturing facility space in El Segundo, California. The lease term is from February 2017 through October 2024. We have the option to extend the initial term for two consecutive five-year periods through July 2034. The base rent is approximately $ 40,700 per month, with annual increases of 3 % that began in November 2018. As of September 30, 2021 and December 31, 2020, we recorded rent payable to Duley Road of $ 1.2 million and $ 1.0 million, respectively. For the nine months ended September 30, 2021 and 2020, we recorded rent expense of $ 0.4 million and $ 0.4 million, respectively, which is reflected in research and development expense , on the condensed consolidated statements of operations. Effective in January 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California. The first lease is for the first floor of the building with approximately 5,650 rentable square feet. The lease has a seven-year term commencing in September 2019. The second lease is for the second floor of the building with approximately 6,488 rentable square feet. The lease has a seven-year term commencing in July 2019. Both floors of the building are used for research and development and office space. We have options to extend the initial terms of both leases for two consecutive five-year periods through 2036. The base rent for the two leases is approximately $ 35,800 per month that increases at a rate of 3 % per year. As of September 30, 2021 and December 31, 2020, we recorded $ 0.9 million and $ 0.7 million of leasehold improvement payables, respectively, and $ 0.3 million and $ 1.1 million of lease-related payables to Duley Road, which were included in due to related parties , on the condensed consolidated balance sheets. For the nine months ended September 30, 2021 and 2020, we recorded $ 0.3 million and $ 0.2 million of rent expense for the two leases, respectively, which was included in research and development expense , on the condensed consolidated statements of operations. The security deposits for the leases totaled $ 0.1 million as of September 30, 2021 , which were included in other assets , on the condensed consolidated balance sheets. 36 Table of Contents 605 Nash, LLC In February 2021 , but effective on January 1, 2021 , we entered into a lease agreement with 605 Nash, a related party, whereby we leased approximately 6,883 square feet (the “Initial Premises”) in a two story mixed use building containing approximately 64,643 rentable square feet on 605-607 Nash Street in El Segundo, California. This facility is used primarily for pharmaceutical development and manufacturing purposes. The lease term commenced in January 2021 and expires in December 2027 , and includes an option to extend the lease for one three-year term through December 2030 . The base rent is approximately $ 20,300 per month with an annual increase of 3 % on January 1 of each year during the initial term and, if applicable, during the option term. In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses. We will receive a rent abatement for the first seven months , and a tenant improvement incentive of $ 0.3 million from the landlord for costs and expenses associated with the construction of tenant improvements for the Initial Premises. During the nine months ended September 30, 2021, we recorded rent expense of $ 0.2 million, which is reflected in research and development expense, on the condensed consolidated statements of operations. In May 2021, but effective on April 1, 2021, we entered into an amendment to our Initial Premises lease with 605 Nash. The amendment expanded the leased square feet by approximately 57,760 rentable square feet (the “Expansion Premises”). The lease term of the Expansion Premises commenced in April 2021 and expires in March 2028, whereby the company has the option to extend the initial term for three years . Per the terms of the amendment, the term of the Initial Premises lease was extended for an additional three months and now expires on March 31, 2028. Base rent for the Expansion Premises is approximately $ 170,400 per month with annual increases of 3 % on April 1 of each year. We are responsible for the build out of the facility space and associated costs. The amended lease provides for a rent abatement for the first seven months , and for a tenant improvement allowance of approximately $ 2.6 million for costs and expenses related to improvements made by us to the Expansion Premises. During the nine months ended September 30, 2021, we incurred $ 1.0 million of rent expense related to the Expansion Premises lease agreement. The security deposits for the leases total $ 0.2 million as of September 30, 2021, which are included in other assets , on the condensed consolidated balance sheets. 557 Doug St, LLC On September 27, 2021, we entered into a Membership Interest Purchase Agreement with Nant Capital (the “Purchase Agreement”). Nant Capital is a related party controlled by Dr. Patrick Soon-Shiong. The Purchase Agreement transferred all outstanding membership interests in 557 Doug St, LLC from the company to Nant Capital. The only asset owned by 557 Doug St, LLC is the improved property located at 557 South Douglas Street, El Segundo, California with a building area of approximately 36,434 rentable square feet (the “Douglas Property”). The purchase price under the Purchase Agreement was $ 22.0 million, and after the offset prorated property taxes of $ 0.1 million, the net proceeds from the sale were $ 21.9 million. An independent appraisal of the Douglas Property (the “Appraisal”) assigned the Douglas Property a value of $ 22.0 million. The net carrying value of the property was $ 20.5 million as of the closing date. We accounted for the transfer as a sale of an asset to an entity under common control, recorded the transfer at book value and recognized the excess of net consideration over carrying book value of $ 1.4 million as a capital contribution received from Nant Capital in additional paid-in capital , on the condensed consolidated statements of stockholders’ deficit for the three and nine months ended September 30, 2021. In September 2021, we entered into a lease agreement with Nant Capital under which we leased back 557 South Douglas Street for an initial lease term of seven years , which commenced on September 27, 2021. The monthly base rent under the lease is approximately $ 81,976 per month with an annual increase of 3 % on October 1 of each year beginning in 2022 during the initial term and, if applicable, during the option term . For the first two years under the lease we will not be charged rent; we will begin paying rent on October 1, 2023 at the current monthly base rent. We will prepay the first month rent and security deposit totaling $ 0.2 million upon the execution of the lease. We have an option to extend the lease for two additional seven-year periods when the prior term expires. We have included the first option to extend the lease term for seven years as part of the initial lease term as it is reasonably certain that we will exercise the option, which implies lease expiration on September 30, 2035. The lease is classified as an operating lease, and as of September 30, 2021, future minimum lease obligations associated with the lease total $ 7.1 million, which will be recognized over the lease term. 37 Table of Contents Related-Party Notes Payable As of September 30, 2021 and December 31, 2020, related-party notes payable consist of the following (in thousands): Total Notes and Interest Payable Related-Party Notes Payable Note Year Outstanding Advances Interest Rate September 30, 2021 December 31, 2020 (Unaudited) Nant Capital (1) 2015 $ 55,226 5.0 % $ 60,632 (2) $ 58,482 (2) Nant Capital (1) 2020 50,000 6.0 % 53,009 (3) 50,764 (3) Nant Capital (4) 2021 40,000 6.0 % 40,000 (4) — NantMobile (1) 2019 55,000 3.0 % 57,930 (5) 56,660 (5) NantWorks (1) 2017 43,418 5.0 % 53,402 (6) 51,546 (6) NCSC (1) 2018 33,000 5.0 % 38,267 (7) 36,901 (7) Total related-party notes payable $ 276,644 $ 303,240 $ 254,353 (1) All outstanding advances and accrued and unpaid interest is due and payable on September 30, 2025. Interest on related-party notes payable is compounded annually. We may prepay the outstanding principal at any time without premium, penalty or the prior consent of the issuer. All outstanding amounts under the notes become due and payable upon certain bankruptcy and insolvency-related events. There are no equity or equity-linked convertible rights related to these promissory notes. (2) Accrued and unpaid interest on this note totaled $ 5.4 million and $ 3.3 million as of September 30, 2021 and December 31, 2020, respectively. (3) Accrued and unpaid interest on this note totaled $ 3.0 million and $ 0.8 million as of September 30, 2021 and December 31, 2020, respectively. (4) The outstanding principal is due and payable on September 30, 2025. Interest on this related-party note is compounded annually and payable quarterly commencing on June 30, 2021. We paid $ 1.4 million in interest on this loan during the nine months ended September 30, 2021. All outstanding amounts under the note become due and payable upon certain bankruptcy and insolvency-related events. There are no equity or equity-linked convertible rights related to this promissory note. (5) Accrued and unpaid interest on this note totaled $ 2.9 million and $ 1.7 million as of September 30, 2021 and December 31, 2020, respectively. (6) Accrued and unpaid interest on this note totaled $ 10.0 million and $ 8.1 million as of September 30, 2021 and December 31, 2020, respectively. (7) Accrued and unpaid interest on this note totaled $ 5.3 million and $ 3.9 million as of September 30, 2021 and December 31, 2020, respectively. 38 Table of Contents 9. Stockholders’ Deficit Merger with NantCell Under the terms of the Merger Agreement, at the Effective Time of the Merger, each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 newly issued shares of common stock , par value $ 0.0001 per share, resulting in the issuance of approximately 273.7 million shares of Company Common Stock. From and after the Effective Time, all of such NantCell shares ceased to be outstanding, were canceled and ceased to exist. At the Effective Time, each share of our common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. Since the Merger has been accounted for as a transaction between entities under common control, the outstanding shares presented on the condensed consolidated financial statements assume that NantCell outstanding common stock was converted into shares of Company Common Stock for all periods presented, and in connection with the conversion, those shares of common stock have been recorded at the company’s par value of $ 0.0001 per share. Stock Repurchases No shares of our common stock were repurchased during the nine months ended September 30, 2021 and 2020 under the company’s 2015 Share Repurchase Program. As of September 30, 2021, $ 18.3 million remained authorized for repurchase under the program. Common Stock Reserved for Future Issuance As of September 30, 2021, a total of approximately 11.3 million shares of common stock were reserved for issuance, including awards issued under the NC 2015 Plan that were outstanding immediately prior to the Effective Time of the Merger. At the Effective Time, all outstanding equity awards granted under the NC 2015 Plan to purchase NantCell common stock were converted into equity awards to purchase shares of Company Common Stock (using the Exchange Ratio of 0.8190 ), on the same terms and conditions as immediately prior to the Effective Time. As of September 30, 2021, there were approximately 5.8 million RSUs and 0.6 million stock options outstanding under the NC 2015 Plan, and there were no additional shares available for future grants. Open Market Sale Agreement On April 30, 2021, we entered into an Open Market Sale Agreement (the “Sale Agreement”) with respect to an ATM offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $ 500.0 million through our sales agent. We pay our sales agent a commission of up to 3.0 % of the gross sales proceeds of any shares of our common stock sold through them under the Sale Agreement, and also have provided them with customary indemnification and contribution rights. During the nine months ended September 30, 2021, we received net proceeds totaling $ 136.9 million from the issuance of 10,216,978 shares under the ATM, which we expect to use for general corporate purposes, including to progress our clinical development programs, fund other research and development activities, make capital expenditures and fund working capital. We may also use a portion of the net proceeds to license intellectual property or to make acquisitions or investments. As of September 30, 2021, we had $ 359.0 million available for future stock issuances under the ATM. We are not obligated to sell any shares and may at any time suspend solicitation and offers under the Sale Agreement. The Sale Agreement may be terminated by us at any time given written notice to the sales agent for any reason or by the sales agent at any time by giving written notice to us for any reason or immediately under certain circumstances, and shall automatically terminate upon the issuance and sale of all of the shares. 39 Table of Contents 10. Stock-Based Compensation 2015 Equity Incentive Plan In July 2015, the company’s board of directors adopted, and the company’s stockholders approved, the 2015 Plan. Pursuant to the Merger, we assumed 7,121,110 RSUs (adjusted for the Exchange Ratio of 0.8190 ) issued under NantCell’s equity incentive plan. As of September 30, 2021, the 2015 Plan is the only equity plan available for grant of equity awards to employees, directors and consultants of the company. As of September 30, 2021, a total of approximately 5.3 million shares were available for future grants under the 2015 Plan. Stock-based Compensation The following table presents stock-based compensation included on the condensed consolidated statements of operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) Stock-based compensation expense: Stock options $ 1,815 $ 548 $ 9,780 $ 876 RSUs 12,025 166 37,221 640 $ 13,840 $ 714 $ 47,001 $ 1,516 Stock-based compensation expense in operating expenses: Research and development $ 4,928 $ 78 $ 16,361 $ 186 Selling, general and administrative 8,912 636 30,640 1,330 $ 13,840 $ 714 $ 47,001 $ 1,516 On March 18, 2021, the Board of Directors approved to modify certain non-qualified stock options that were assumed in the Merger and otherwise would have expired during a period when the grantees were legally restricted from exercising these awards. The expiration date of these options was extended to thirty (30) days following the effective date of Post-Effective Amendment No. 1 on Form S-3 to our Form S-4 Registration Statement. We recorded an incremental stock-based compensation expense of approximately $ 2.7 million for this stock option modification. On March 29, 2021, in connection with the resignation of two former independent directors, the Board of Directors approved the acceleration of vesting of 83,333 shares of unvested stock options of the former directors on the date of their respective resignations. The modified options are exercisable for ninety ( 90 ) days after the date of the modification. We recorded an incremental stock-based compensation expense of approximately $ 2.3 million for this stock option modification. The stock option modifications were measured as the excess of the fair value of the modified awards over the fair value of the original awards immediately before the modifications. The incremental stock-based compensation was recorded in selling, general and administrative expense , on the condensed consolidated statements of operations during the nine months ended September 30, 2021. 40 Table of Contents Stock Options The following table summarizes stock option activity and related information for the nine months ended September 30, 2021: Number of Options Weighted- Average Exercise Price Aggregate Intrinsic Value (in thousands) Weighted- Average Remaining Contractual Life (in years) Outstanding at December 31, 2020 4,996,284 $ 9.96 $ 29,746 4.7 Granted 1,069,940 $ 21.38 Exercised ( 1,747,962 ) $ 3.90 Expired/forfeited ( 123,994 ) $ 10.07 Outstanding at September 30, 2021 4,194,268 $ 15.44 $ 10,434 5.5 Vested and exercisable at September 30, 2021 3,082,660 $ 13.78 $ 9,823 4.1 On February 5, 2021, the compensation committee of the board of directors of the company granted Richard Adcock, our chief executive officer, a stock option award (the “Option Grant”) to purchase 750,000 shares of our common stock pursuant to our 2015 Plan. The Option Grant has an exercise price of $ 23.72 per share, the closing price as reported on the Nasdaq on the date of grant. In addition, the Option Grant shall vest according to the following vesting schedule: one-third of the Option Grant (i.e., 250,000 options) shall vest in equal installments on each of the first, second, and third anniversaries of the date of grant, such that all shares shall be fully vested on the third anniversary of the date of grant, subject to Mr. Adcock remaining in continuous service as defined in the 2015 Plan through the applicable vesting dates. This grant of equity awards to Mr. Adcock was made in connection with his appointment as chief executive officer of the company, which was effective as of October 26, 2020, and was modified from the recommended equity grant described in Mr. Adcock’s offer of employment as of that date. On May 3, 2021, the compensation committee of the board of directors of the company granted each of our newly-appointed independent directors a non-qualified stock option award to purchase 21,873 shares of our common stock pursuant to the 2015 Plan at an exercise price of $ 17.24 per share, the closing price as reported on the Nasdaq on the date of grant. The shares subject to the award will vest in three ( 3 ) equal installments on each of the first, second and third anniversary date of their appointment to the board of directors, such that the award will be fully vested on the third anniversary date in 2024, subject to the director continuing to be a service provider as defined in the 2015 Plan through the applicable vesting dates. On June 10, 2021, the compensation committee of the board of directors of the company granted our Chairman and each of the independent members of our board of directors a non-qualified stock option award to purchase 26,064 shares of our common stock pursuant to the 2015 Plan at an exercise price of $ 14.91 per share, the closing price as reported on the Nasdaq on the date of grant. The shares subject to the award will vest 100 % on the earlier to occur of June 10, 2022 or the date immediately preceding the 2022 annual meeting of stockholders, subject to the recipient continuing to be a service provider as defined in the 2015 Plan through the applicable vesting date. These grants were made in connection with the re-election of our Executive Chairman and Global Chief Scientific and Medical Officer, and independent directors to the company’s board of directors at the 2021 annual meeting of stockholders. As of September 30, 2021, the unrecognized compensation cost related to outstanding stock options was $ 13.7 million, which is expected to be recognized over a remaining weighted-average period of 2.2 years. The total intrinsic value of stock options exercised during the nine months ended September 30, 2021 was $ 21.2 million. Cash proceeds received from stock option exercises during the nine months ended September 30, 2021 was $ 5.0 million. As of December 31, 2020, a total of 4,345,497 vested and exercisable shares were outstanding. 41 Table of Contents The fair value of stock options issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: Nine Months Ended September 30, 2021 (Unaudited) Expected term 5.9 years Risk-free interest rate 0.7 % Expected volatility 101.0 % Dividend yield 0.0 % Weighted-average grant date fair value $ 16.80 The expected term was estimated using the average of the contractual term and the weighted-average vesting term of the options. The risk-free interest rate was based on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The expected volatility was estimated based on the historical volatility of our common stock. The assumed dividend yield was based on our expectation of not paying dividends in the foreseeable future. Restricted Stock Units The following table summarizes RSU activity during the nine months ended September 30, 2021: Number of Units Weighted- Average Grant Date Fair Value Nonvested balance at December 31, 2020 466,842 $ 2.52 Granted 8,351,301 $ 23.93 Vested ( 621,364 ) $ 17.62 Forfeited/canceled ( 1,120,377 ) $ 24.72 Nonvested balance at September 30, 2021 7,076,402 $ 22.95 As of September 30, 2021, there was $ 134.3 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 3.7 years. The total intrinsic value of RSUs vested during the nine months ended September 30, 2021 was $ 10.7 million. We may grant RSUs to both employees and directors of the company and to employees of related parties that provide shared services to the company under our shared services agreement with NantWorks as discussed in Note 8 , Related-Party Agreements . On February 5, 2021, the compensation committee of the board of directors of the company granted Mr. Adcock two awards totaling 400,000 RSUs (each an “RSU Award” and collectively, the “RSU Awards”) of our common stock pursuant to the 2015 Plan. The RSU Awards are comprised of two separate awards, one settled by issuing 150,000 shares of our common stock and the other to be settled by issuing 250,000 shares of our common stock upon vesting. The first RSU Award vested immediately on the date of grant with the company retaining shares equal in value to the company’s tax withholding obligations. The second RSU Award will vest according to the following schedule: one-third (i.e. 83,333 ) of the shares subject to the RSU Award shall vest in equal annual installments on each of the first, second and third anniversaries of the date of grant, such that all shares shall be fully vested on the third anniversary of the date of grant, subject to Mr. Adcock remaining in continuous service as defined in the 2015 Plan through the applicable vesting dates. This grant of equity awards to Mr. Adcock was made in connection with his appointment as chief executive officer of the company, which was effective as of October 26, 2020, and was modified from the recommended equity grant described in Mr. Adcock’s offer of employment as of that date. 42 Table of Contents On March 4, 2021, prior to the Merger, NantCell awarded 7,121,110 RSUs (adjusted for the Exchange Ratio of 0.8190 ) to employees and consultants of NantCell and its affiliated companies, pursuant to the NC 2015 Plan. These RSU awards were subject to a performance condition in connection with a “Liquidity Event”, defined as either (i) NantCell’s registration of shares for issuance on a securities offering or (ii) the closing of a corporate transaction. In addition, the vesting of certain performance-based RSU grants accelerates upon obtaining approval by the FDA of a BLA or equivalent application for approval of Anktiva™ for use in the treatment of non-muscle-invasive bladder cancer. These performance-based RSUs are also subject to service conditions and are scheduled to cliff vest on the last date of each tranche as defined by the individual grant agreements. On March 9, 2021, we completed the Merger with NantCell, and the performance condition related to the Liquidity Event was met. The fair value of the RSUs was estimated based on a third-party valuation as of the grant date of March 4, 2021 and was derived primarily from the estimated probabilities of the Merger close on March 9, 2021 and the other exit assumptions. Once the liquidity event related performance condition was met as of March 9, 2021 due to the Merger, compensation expense for these RSUs began to be recognized on a graded vesting attribution approach over the requisite service period for each participant, which ranges from six -month to seventy ( 70 )-month vesting periods. During the nine months ended September 30, 2021, we recorded approximately $ 33.0 million of stock-based compensation expense related to these awards, of which approximately $ 16.6 million was recorded in research and development expense and approximately $ 16.4 million was recorded in selling, general and administrative expense , on the condensed consolidated statements of operations. The RSUs awarded to employees and consultants of affiliated companies were accounted for as stock-based compensation in accordance with ASU 2018-07, Compensation—Stock Compensation (Topic 718) , as the compensation was in exchange for continued support or services expected to be provided to the company over the vesting periods under the NantWorks shared services agreement discussed in Note 8 , Related-Party Agreements . We have evaluated the associated benefit of these awards to the affiliated companies under common control and determined that the benefit is limited to the retention of their employees. We estimated such benefit at the grant date fair value of $ 4.0 million and recorded $ 0.8 million of deemed dividends for the nine months ended September 30, 2021 in additional paid-in capital, on the condensed consolidated balance sheets, with a corresponding credit to stock compensation expense. Warrants In connection with the Merger, warrants issued to NantWorks, a related party, in connection with NantCell’s acquisition of Altor were assumed by the company. After applying the Exchange Ratio at the Effective Time of the Merger, a total of 1,638,000 warrants with an exercise price of $ 3.24 per share were outstanding as of September 30, 2021. The fair value of $ 18.0 million assigned to the warrants will be recognized in equity upon achievement of a performance-based vesting condition pertaining to building manufacturing capacity to support supply requirements for one of our product candidates. 11. Income Taxes On March 9, 2021, the company completed the Merger with NantCell. The Merger is accounted for as a transaction between entities under common control, and is considered a nontaxable transaction for U.S. income tax purposes, as it is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. The company is subject to taxation in the United States, various state, and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. No tax benefit was provided for losses incurred in the United States, Italy, and South Korea because those losses are offset by a full valuation allowance. The difference between the federal statutory tax rate of 21 % and the company’s 0 % tax rate is due to losses from which the company cannot benefit. The company is no longer subject to income tax examination by the U.S. federal, state or local tax authorities for years ended December 31, 2015 or prior; however, its tax attributes, such as net operating loss (“NOL”) carryforwards and tax credits, are still subject to examination in the year they are used. 43 Table of Contents 12. Subsequent Events 420 Nash, LLC On September 27, 2021, we entered into a lease agreement with 420 Nash, LLC, a related party, whereby we leased an approximately 19,125 rentable square foot property located at 420 Nash Street, El Segundo, California, to be used primarily for the warehousing and storage of drug manufacturing supplies, products and equipment and ancillary office space. Under the terms of the lease agreement, the lease term began on October 1, 2021 and expires on September 30, 2026. The base rent is approximately $ 38,250 per month with an annual increase of 3 % on October 1 of each year beginning in 2022 during the initial term. The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance and operating expenses during the term of the lease. We will receive a rent abatement for the first month of the lease, and a one-time improvement allowance of $ 15,000 from the landlord that will be credited against base rent obligations for the second month of the lease. The company has options to extend the lease term for two additional consecutive periods of five years each. At the beginning of each option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3 % during the option term. Joint Venture with Amyris, Inc. During the fourth quarter of 2021, the company signed a binding term sheet to pursue a 50:50 joint venture arrangement with Amyris, Inc., a leading synthetic biotechnology company, to accelerate the commercialization of a next-generation COVID-19 vaccine utilizing IDRI’s RNA vaccine platform to which Amyris holds a license. 44 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Forward-Looking Statements The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include, but are not limited to: • our ability to pioneer immunotherapy, harness the power of the innate immune system, implement precision cancer medicine and change the current paradigm of cancer care; • our ability to implement and support our COVID ‑ 19 vaccine and therapeutic programs; • any impact of the coronavirus pandemic, or responses to the pandemic, on our business, clinical trials or personnel; • our expectations regarding the potential benefits of our strategy and technology; • our expectations regarding the operation of our product candidates and related benefits; • our ability to utilize multiple modes to induce cell death; • our beliefs regarding the benefits and perceived limitations of competing approaches, and the future of competing technologies and our industry; • details regarding our strategic vision and planned product candidate pipeline, including that we eventually plan to advance therapies for virally induced infectious diseases; • our beliefs regarding the success, cost and timing of our product candidate development activities and current and future clinical trials and studies, including study design; • our expectations regarding our ability to utilize the Phase I and II aNK and haNK clinical trials data to support the development of our product candidates, including our haNK, taNK, t‑haNK, MSC and M-ceNK product candidates; • our expectations regarding the development, application, commercialization, marketing, prospects and use generally of our product candidates, including Anktiva™, hAd5 constructs and aldoxorubicin; • the timing or likelihood of regulatory filings or other actions and related regulatory authority responses, including any planned investigational new drug (“IND”), Biologics License Application (“BLA”) or New Drug Application (“NDA”) filings or pursuit of accelerated regulatory approval pathways or orphan drug status and Breakthrough Therapy designations; • our ability to implement an integrated discovery ecosystem and the operation of that planned ecosystem, including being able to regularly add neoepitopes and subsequently formulate new product candidates; • the ability and willingness of strategic collaborators, including certain affiliates of NantWorks, LLC (“NantWorks”) to share our vision and effectively work with us to achieve our goals; • the ability and willingness of various third parties to engage in research and development activities involving our product candidates, and our ability to leverage those activities; • our ability to attract additional third-party collaborators; • our expectations regarding the ease of administration associated with our product candidates; • our expectations regarding the patient compatibility associated with our product candidates; • our beliefs regarding the potential markets for our product candidates and our ability to serve those markets; • our ability to produce an “off-the-shelf” therapy; 45 Table of Contents • our beliefs regarding the potential manufacturing and distribution benefits associated with our product candidates, and our ability to scale up the production of our product candidates; • our plans regarding our manufacturing facilities and our belief that our manufacturing is capable of being conducted in‑house; • our belief in the potential of our antibody cytokine fusion proteins, vaccine technologies and NK-92 and M-ceNK cell therapy technology, and the fact that our business is based upon the success individually and collectively of our platforms; • our antibody cytokine fusion proteins, vaccine technologies and NK-92 and M-ceNK cell therapy technology along with other product candidate families, will require significant additional clinical testing; • even if we successfully develop and commercialize specific product candidates like our Anktiva™ or haNK and t‑haNK, our ability to develop and commercialize our other product candidates either alone or in combination with other therapeutic agents; • the ability to obtain and maintain regulatory approval of any of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate; • our ability to commercialize any approved products; • the rate and degree of market acceptance of any approved products; • our ability to attract and retain key personnel; • the accuracy of our estimates regarding our future revenue, as well as our future operating expenses, capital requirements and needs for additional financing; • our ability to obtain funding for our operations, including funding necessary to complete further development and any commercialization of our product candidates; • our ability to obtain, maintain, protect and enforce intellectual property protection for our product candidates and technology and not infringe upon, misappropriate or otherwise violate the intellectual property of others; • the terms and conditions of licenses granted to us and our ability to license additional intellectual property relating to our product candidates and technology; • the impact on us, if any, if the contingent value rights (“CVRs”) held by former Altor BioScience Corporation (“Altor”) stockholders become due and payable in accordance with their terms; and • regulatory developments in the United States (“U.S.”) and foreign countries. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. 46 Table of Contents Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. This Quarterly Report on Form 10-Q contains references to our trademarks and trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us, by any other companies. In this Quarterly Report on Form 10-Q, “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio, Inc. and its subsidiaries. Overview We established ImmunityBio to advance next-generation immunotherapies and address unmet needs within the clinical fields of oncology and infectious disease. We are developing treatments based on a proprietary immunotherapy platform that is designed to overcome limitations of the current standards of T cell-based immunotherapies, including checkpoint inhibitors and CAR-T cells. Our platform is based on four key modalities: (1) activating natural killer (“NK”), and T cells using antibody cytokine fusion proteins, (2) activating tumoricidal macrophages using low-dose synthetic immuno-modulators, (3) generating memory T cells using vaccine candidates developed with our second-generation adenovirus (“hAd5”), yeast and saRNA technologies, and (4) off-the-shelf NK cells from the NK‑92 cell line and memory-like cytokine-enriched NK cells (“M‑ceNK”) from allogenic and autologous donors. 47 Table of Contents ImmunityBio’s immunotherapy pipeline includes an antibody cytokine fusion protein (an IL-15 superagonist (N-803) known as Anktiva™), an albumin-associated anthracycline synthetic immuno-modulator (aldoxorubicin), hAd5 and yeast vaccine technologies (targeting the novel strain of coronavirus disease (“SARS‑CoV‑2”) , tumor-associated antigens and neoepitopes), off-the-shelf genetically engineered natural killer cell lines inducing cancer and virally infected cell death through a variety of concurrent mechanisms (including innate killing, antibody-mediated killing, and CAR-directed killing), patient specific NK cell product for cancer (M-ceNK), macrophage polarizing peptides, and bi-specific fusion proteins targeting CD20, PD-L1, TGF-b and IL -12. Our immunotherapy clinical pipeline consists of 20 actively recruiting clinical trials in Phase I, II, or III development. There are 13 active clinical trials in Phase II or III development across 12 indications in solid and liquid cancers (including bladder, pancreatic and lung cancers) and infectious diseases (including SARS‑CoV‑2 and the human immunodeficiency virus (“HIV”)). We have an expansive clinical-stage pipeline and intellectual property portfolio with 16 first-in-human assets. In December 2019, the U.S. Food and Drug Administration (“FDA”) granted Breakthrough Therapy designation to Anktiva™ for bacillus Calmette-Guérin (“BCG”) unresponsive non-muscle invasive bladder cancer carcinoma in situ (“CIS”). Based on patient readout data that was submitted with our application to obtain our Breakthrough Therapy designation, Anktiva™ achieved its primary endpoint of complete response rate at any time in the ongoing registrational Phase II/III trial. Other indications currently with registration-potential studies include BCG unresponsive papillary bladder cancer, lung cancer, and metastatic pancreatic cancer. The Merger On December 21, 2020 , we and NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) (“NantCell”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which we and NantCell agreed to combine our businesses. The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell (the “Merger”), with NantCell surviving the Merger as a wholly-owned subsidiary of the company. On March 9, 2021 , we completed the Merger pursuant to the terms of the Merger Agreement. Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of NantCell common stock , par value $0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 (the “Exchange Ratio”) newly issued shares of common stock, par value $0.0001 per share, of the company (“Company Common Stock”), with cash paid in lieu of any fractional shares. At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase NantCell common stock was converted using the Exchange Ratio into an option, warrant or restricted stock unit, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock. Immediately following the Effective Time, the former stockholders of NantCell held approximately 71.5% of the outstanding shares of Company Common Stock and the stockholders of the company as of immediately prior to the Merger held approximately 28.5% of the outstanding shares of Company Common Stock. As a result of the Merger and immediately following the Effective Time, Dr. Patrick Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, and his affiliates beneficially owned, in the aggregate, approximately 81.8% of the outstanding shares of Company Common Stock. Following the consummation of the Merger, shares of the company’s common stock were listed on the Nasdaq Global Select Market under the symbol “IBRX.” We incurred costs totaling $23.3 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, of which $13.0 million was recorded during the nine months ended September 30, 2021. 48 Table of Contents Accounting Treatment of the Merger The Merger represents a business combination pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 805-50, Mergers , which is accounted for as a transaction between entities under common control as Dr. Soon‑Shiong and his affiliates were the controlling stockholders of both the company and NantCell for all of the periods presented in this report. As a result, all of the assets and liabilities of NantCell were combined with ours at their historical carrying amounts on the closing date of the Merger. We have recast our prior period financial statements to reflect the conveyance of NantCell’s common shares as if the Merger had occurred as of the earliest date of the condensed consolidated financial statements presented in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. All material intercompany accounts and transactions have been eliminated in consolidation. Coronavirus Pandemic In March 2020, the World Health Organization declared COVID-19 a pandemic. To date, our operations have not been significantly disadvantaged by the pandemic. However, we cannot at this time predict the specific extent, duration, or full impact that this pandemic may have on our financial condition and results of operations, including ongoing and planned clinical trials. More specifically, the pandemic may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist for the foreseeable future. The impact of the pandemic on our financial performance will depend on future developments, including the duration and spread of the outbreak, impact of potential variants and the related governmental advisories and restrictions. These developments and the impact of the ongoing pandemic on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected. Given the unprecedented and continuously evolving nature of the pandemic, the future impact of these changes and potential changes on the company are unknown at this time. To date, we have seen no material adverse impact to our business from the pandemic. We anticipate, however, that enrollment of patients in certain studies will likely take longer than forecasted in prior Securities and Exchange Commission (“SEC”) filings and that our clinical trials may require additional time to complete which would in turn impact the timeline in which we were previously forecasting BLA submissions of our product candidates and subsequent revenue generation. These factors have been accounted for in the company’s anticipated upcoming milestones. During any such delays in our clinical trials, we will continue to incur fixed costs such as selling, general and administrative expenses and operating expenses related to our laboratory, Good Manufacturing Practice (“GMP”) manufacturing, and office facilities. Many of our office-based employees have been working from home since mid-March 2020. Essential staffing levels for our research and development operations remain in place, including maintaining key personnel in our laboratory and GMP manufacturing facilities. It is likely that the pandemic and resulting mitigation efforts could have an impact in the future on our third-party suppliers who manufacture laboratory supplies required for our in-house manufacturing process, which in turn could have an impact on having sufficient clinical product supply available for our clinical trials. We have addressed this in part by ensuring that we have sufficient supplies on hand to weather interruptions in our supply chain. There is significant uncertainty about the progression and ultimate impact of the pandemic on our business and operations. While the pandemic did not materially impact our results during the periods presented in this Quarterly Report on Form 10-Q, we anticipate that it could impact our business in the future due to factors such as fewer patients accessing treatment for cancer. Operating Results To date, we have generated minimal revenue from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables and grant programs. We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. We have incurred net losses in each year since our inception and, as of September 30, 2021, we had an accumulated deficit of $1.9 billion. Our net losses attributable to ImmunityBio common stockholders were $255.5 million and $154.1 million for the nine months ended September 30, 2021 and 2020, respectively. Substantially all of our net losses resulted principally from costs incurred in connection with our ongoing clinical trials and operations, our research and development programs, and from selling, general and administrative costs associated with our operations, including stock-based compensation expense. 49 Table of Contents As of September 30, 2021, we had 538 employees. Personnel of related companies who provide corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy and other support services under our shared services agreement with NantWorks are not included in this number. For additional information, see Note 8 , Related-Party Agreements, of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. In anticipation of the commercialization of select drug candidates, we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year. See “— Future Funding Requirements ” below for a discussion of our anticipated expenditures and sources of capital we expect to access to fund these expenditures. Collaboration Agreements As we continue the development of our pipeline, we anticipate that strategic collaborations with established biopharma companies and other research-based entities will become integral to our operations and the development of novel combination therapies. These collaborations would provide ImmunityBio with a range of opportunities to leverage our partners’ expertise and capabilities to further expand the potential of our technologies and product candidates. We are currently pursuing this aspect of our business in seven clinical trials studying our IL-15 receptor agonist Anktiva™ in combination with complementary, approved therapies to determine if Anktiva™ may have broad potential to enhance the activity of those therapies, including therapeutic monoclonal antibodies and other standard-of-care therapeutics across a wide range of tumor types. We believe we are well positioned to become a leader in immunotherapy through the combined strength of our broad and vertically integrated platform and complementary strategic partnerships. We may also enter into supply arrangements for various investigational agents to be used in our clinical trials. See Note 6 , Collaboration and License Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our existing collaboration and license agreements. Agreements with Related Parties We conduct business with several affiliates under written and informal arrangements. Our Executive Chairman, Global Chief Scientific and Medical Officer and our principal stockholder, founded and has a controlling interest in NantWorks, which is a collection of companies in the healthcare and technology space. We have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline. Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman and Global Chief Scientific and Medical Officer. Related-Party Notes Payable As of September 30, 2021, we have outstanding promissory notes with certain entities affiliated with Dr. Soon-Shiong in an aggregate amount of $303.2 million, including accrued interest. The notes bear interest at a per annum rate ranging from 3.0% to 6.0%. As of September 30, 2021, the notes provide that all outstanding principal is due and payable on September 30, 2025, and accrued and unpaid interest is payable on either the maturity date or, with respect to one of the notes, on a quarterly basis beginning June 30, 2021. We may prepay the outstanding amount of any advance under such notes, together with accrued and unpaid interest, at any time, in whole or in part, without premium or penalty. Immuno-Oncology Clinic, Inc. We entered into multiple agreements with Immuno-Oncology Clinic, Inc. (the “Clinic”) to conduct clinical trials related to certain of our product candidates. The Clinic is a related party as it is owned by an officer of the company and NantWorks manages the administrative operations of the Clinic. B ased on a review of our updated clinical trial programs post-Merger, we updated our estimates of the investigator fees for the clinical trials currently underway or planned at the Clinic. As certain programs costs are excluded from and certain services are subject to credit adjustments under the Clinic Agreement, we determined the expected future fees for services to be performed are less than the carrying value of the prepaid asset on the condensed consolidated balance sheets. As a result, we partially wrote down the value of our prepayments under the Clinic Agreement and recorded approximately $1.9 million in research and development expense , on the condensed consolidated statements of operations for the nine months ended September 30, 2021 . In addition, we reclassified $0.8 million of prepaid assets from prepaid expenses and other current assets to other current assets , on the condensed consolidated balance sheets during the three months ended September 30, 2021 based on the additional time expected for them to be realized than initially estimated. 50 Table of Contents 605 Nash, LLC In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, LLC, a related party, for a facility primarily used for pharmaceutical development and manufacturing purposes. In May 2021, but effective on April 1, 2021, we entered into an amendment to our lease agreement with 605 Nash, LLC. 557 Doug St, LLC In September 2021, we entered into a sale transaction with Nant Capital, a related party, for a real estate property located at 557 South Douglas Street, El Segundo, California. We subsequently leased back the building for an initial seven-year lease term with an option to extend the lease for two additional seven-year periods. See Note 8 , Related-Party Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed discussion regarding our related-party agreements. Components of our Results of Operations Revenue To date, we have generated minimal revenue from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables and grant programs. We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. If we fail to complete the development of our product candidates in a timely manner or fail to obtain regulatory approval for them, we may never be able to generate substantial future revenue. Operating Expenses We generally classify our operating expenses into research and development, and selling, general and administrative expenses. Personnel costs, including salaries, benefits, bonuses, and stock-based compensation expense comprise a significant component of our research and development, and selling, general and administrative expense categories. We allocate expenses associated with our facilities and information technology costs between these two categories, primarily based on the nature of each cost. Research and Development Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our technology and product candidates. This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expenses primarily consist of: • clinical trial and regulatory-related costs; • expenses incurred under agreements with investigative sites and consultants that conduct our clinical trials; • expenses incurred under collaborative agreements; • manufacturing and testing costs and related supplies and materials; • employee-related expenses, including salaries, benefits, travel and stock-based compensation; and • facility expenses dedicated to research and development. We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or development programs. We expect our research and development expenses to continue to increase significantly for the foreseeable future as we advance our product candidates through clinical development, including the conduct of our ongoing and any future clinical trials. 51 Table of Contents The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates. The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following: • per patient trial costs; • the number of sites included in the clinical trials; • the countries in which the clinical trials are conducted; • the length of time required to enroll eligible patients; • the number of patients that participate in the clinical trials; • the number of doses that patients receive; • the cost of comparative agents used in clinical trials; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring or other studies requested by regulatory agencies; • the duration of patient follow-up; and • the efficacy and safety profile of the product candidate. We do not expect any of our product candidates to be commercially available for the foreseeable future, if ever. Selling, General and Administrative Selling, general and administrative expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-based compensation, for employees performing functions other than research and development. This includes personnel in executive, finance, human resources, information technology, legal, and administrative support functions. Other selling, general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, professional fees for auditing, tax and legal services, advertising costs, expenses associated with strategic business transactions and business development efforts, obtaining and maintaining patents, consulting costs, royalties and licensing costs, and costs of our information systems. We expect that our selling, general and administrative expenses will increase for the foreseeable future as we expand operations, build out information systems and increase our headcount to support continued research activities and the development of our clinical programs. We have incurred and expect that we will continue to incur in the future, additional costs associated with operating as a public company, including costs to comply with stock exchange listing and SEC requirements, future funding efforts, corporate governance, internal controls, investor relations, disclosure and similar requirements applicable to public companies. Additionally, if and when we believe that a regulatory approval of a product candidate appears likely, we expect to incur significant increases in our selling, general and administrative expenses relating to the sales and marketing of the approved product candidate. Other Income and Expense Other income and expense consists primarily of interest income, interest expense, unrealized gains and losses on investments in equity securities, realized gains and losses on both debt and equity securities, and gains and losses on foreign currency transactions. Income Taxes The company is subject to taxation in the United States, various state, and foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. To date, we have not been required to pay U.S. federal income taxes or foreign income taxes because of our or our subsidiaries’ current and accumulated net operating losses. 52 Table of Contents Results of Operations Comparison of the three months ended September 30, 2021 and 2020 Three Months Ended September 30, $ Change % Change 2021 2020 (Unaudited, $ in thousands) Revenue $ 66 $ 151 $ (85) (56 %) Operating expenses: Research and development (including amounts with related parties) 49,277 35,772 13,505 38 % Selling, general and administrative (including amounts with related parties) 29,625 19,596 10,029 51 % Impairment of intangible assets — 10,660 (10,660) (100 %) Total operating expenses 78,902 66,028 12,874 19 % Loss from operations (78,836) (65,877) (12,959) 20 % Other expense, net: Interest and investment (expense) income, net (5,941) 149 (6,090) (4087 %) Interest expense (including amounts with related parties) (3,614) (2,226) (1,388) 62 % Other (expense) income, net (including amounts with related parties) (38) 84 (122) (145 %) Total other expense, net (9,593) (1,993) (7,600) 381 % Loss before income taxes and noncontrolling interests (88,429) (67,870) (20,559) 30 % Income tax expense — 1,700 (1,700) (100 %) Net loss $ (88,429) $ (66,170) $ (22,259) 34 % Research and Development Expense Research and development expense increased $13.5 million during the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. The increase in research and development expense was primarily driven by a $9.7 million increase in compensation expense, including a $4.9 million increase in personnel costs due to higher headcount to support our continued research and development efforts and a $4.8 million increase in stock compensation expense as a result of awards granted to new hires, a $2.5 million increase in license and research agreement costs, primarily driven by new license agreements entered into in the third quarter of 2021, a $1.9 million increase in facilities expense, primarily related to the expansion of our manufacturing facility in El Segundo, California during 2021, and a $1.5 million increase in consulting costs. These increases were partially offset by a $1.9 million reduction in laboratory supply expenses related to our COVID-19 programs and a $0.2 million decrease in other research and development costs. We expect our research and development expense to increase significantly for the foreseeable future as we advance our product candidates through clinical development and conduct our ongoing and planned clinical trials. Selling, General and Administrative Expense Selling, general and administrative expense increased $10.0 million during the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. The increase in selling, general and administrative expense was primarily attributable to a $ 9.5 million increase in compensation expense, including an $8.3 million increase in stock compensation expense driven awards granted to new hires and a $1.2 million increase in personnel costs related to higher headcount to support our business growth, and a $0.5 million increase in shared services needs with our growth. 53 Table of Contents Impairment of Intangible Assets During the three months ended September 30, 2020, the company recorded an impairment charge totaling $10.7 million to write down the carrying value of indefinite-lived in-process research and development intangible assets associated with the acquisition of Receptome, LLC to zero in connection with the decision to discontinue certain programs based on results gathered from preclinical data. Other Expense, Net Other expense, net increased $7.6 million during the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. The increase in other expense, net was mainly due to a $6.1 million increase in net unrealized losses related to our marketable equity securities, a $1.4 million increase in interest expense driven by higher related-party borrowings and a $0.1 million reduction in other income. Comparison of the nine months ended September 30, 2021 and 2020 Nine Months Ended September 30, $ Change % Change 2021 2020 (Unaudited, $ in thousands) Revenue $ 544 $ 752 $ (208) (28 %) Operating expenses: Research and development (including amounts with related parties) 144,205 96,151 48,054 50 % Selling, general and administrative (including amounts with related parties) 107,345 47,436 59,909 126 % Impairment of intangible assets — 10,660 (10,660) (100 %) Total operating expenses 251,550 154,247 97,303 63 % Loss from operations (251,006) (153,495) (97,511) 64 % Other expense, net: Interest and investment income, net 2,826 1,213 1,613 133 % Interest expense (including amounts with related parties) (10,359) (6,238) (4,121) 66 % Other income, net (including amounts with related parties) 252 1,269 (1,017) (80 %) Total other expense, net (7,281) (3,756) (3,525) 94 % Loss before income taxes and noncontrolling interests (258,287) (157,251) (101,036) 64 % Income tax expense (8) 1,637 (1,645) (100 %) Net loss $ (258,295) $ (155,614) $ (102,681) 66 % Research and Development Expense Research and development expense increased $48.1 million during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The increase in research and development expense was primarily driven by a $25.0 million increase in compensation expense, including a $16.2 million increase in stock compensation expense due to new grants issued to new hires and executives and an $8.8 million increase in personnel costs due to higher headcount in support of our continued research and development efforts, a $4.6 million increase in license and research agreement costs, a $4.5 million increase in clinical trial expenses and regulatory costs related to our Anktiva™ and COVID ‑ 19 programs, including a $1.9 million expense associated with the write down of a prepaid asset with the Clinic, a $4.5 million increase in quality control and research and development-related technology expense, a $4.3 million increase in facilities expense, primarily related to the expansion of our manufacturing facility in El Segundo, California during 2021 and increased maintenance costs at our various facilities, a $2.8 million increase in consulting costs, a $1.5 million increase in shared services to support our growth, and a $0.9 million increase in laboratory supply expenses related to our COVID-19 programs ramp up and NK-92 and M-ceNK cell therapy research. 54 Table of Contents We expect our research and development expense to increase significantly for the foreseeable future as we advance our product candidates through clinical development and conduct our ongoing and planned clinical trials. Selling, General and Administrative Expense Selling, general and administrative expense increased $59.9 million during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The increase in selling, general and administrative expense was primarily attributable to a $31.9 million increase in compensation expense, including a $29.3 million increase in stock compensation expense driven by awards granted to new hires and executives and option modifications resulting in incremental stock-based compensation expense in 2021 and a $2.6 million increase in salaries and bonuses related to higher headcount needed to support our business activities, a $24.9 million increase in professional services fees related to merger costs, SOX compliance, combined company audit, recruitment and business growth strategy, various legal matters, and new system implementations, and a $3.3 million increase in insurance costs, primarily due to higher directors’ and officers’ insurance renewal rates and increased insurance coverage. These increases were partially offset by a $0.2 million decrease in other general and administrative expenses. Impairment of Intangible Assets During the nine months ended September 30, 2020, the company recorded an impairment charge totaling $10.7 million to write down the carrying value of indefinite-lived in-process research and development intangible assets associated with the acquisition of Receptome, LLC to zero in connection with the decision to discontinue certain programs based on results gathered from preclinical data. Other Expense, Net Other expense, net increased $3.5 million during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. The increase was due to a $4.1 million increase in interest expense driven primarily by higher related-party borrowings and a $1.0 million increase in other expense, which were partially offset by a $1.6 million increase in interest and investment income, driven primarily by a $1.9 million increase in net unrealized gains related to our marketable equity securities, a $0.5 million decrease in interest income, and a $0.2 million increase in realized gains from the sale of equity investments. Liquidity and Capital Resources Sources of Liquidity Our principal sources of liquidity are our existing cash, cash equivalents, and marketable securities. We have historically invested our cash primarily in investment grade short- to intermediate-term corporate debt securities, commercial paper, government-sponsored securities, U.S. treasury securities, and foreign government bonds and classify these investments as available-for-sale. Certain of these investments are subject to general credit, liquidity and other market risks. The general condition of the financial markets and the economy may increase those risks and may affect the value and liquidity of investments and restrict our ability to access the capital markets. As of September 30, 2021, we had cash and cash equivalents, and marketable securities of $81.2 million compared to $97.0 million as of December 31, 2020. On April 30, 2021, we entered into an Open Market Sale Agreement (the “Sale Agreement”) with respect to an at-the-market (the “ATM”) offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $500.0 million through our sales agent. For the nine months ended September 30, 2021, we received net proceeds totaling $136.9 million from the issuance of 10,216,978 shares under the ATM, which we expect to use for general corporate purposes, including to progress our clinical development programs, fund other research and development activities, make capital expenditures and fund working capital. We may also use a portion of the net proceeds to license intellectual property or to make acquisitions or investments. As of September 30, 2021, we had $359.0 million available for future stock issuances under the ATM. 55 Table of Contents In order to complete the development of our current product candidates, and implement our business plan, we will require substantial additional funding. Furthermore, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to raise even greater amounts of funds sooner if we choose to expand more rapidly than we presently anticipate. Moreover, our fixed expenses such as rent and other contractual commitments are substantial and are expected to increase in the future. Uses of Liquidity In addition to the cash used to fund our operating activities discussed in “ —Future Funding Requirements ” below, we will require cash to settle the following obligations: As of September 30, 2021, we had related-party notes payable together with accrued interest thereon of $303.2 million compared to $254.4 million as of December 31, 2020. During the nine months ended September 30, 2021, we received a $40.0 million advance pursuant to a related-party promissory note. Such notes bear interest at 3.0% to 6.0% per year and may be prepaid by us without penalty. The notes allow for additional advances as we may request with the consent of the applicable lender. With the exception of interest on the recent $40.0 million advance, all outstanding principal and accrued and unpaid interest on these notes are due and payable on September 30, 2025. In connection with our acquisition of Altor, we issued CVRs under which we have agreed to pay the prior stockholders of Altor approximately $304.0 million upon successful approval of the BLA, or foreign equivalent, for Anktiva™ by December 31, 2022 and approximately $304.0 million upon the first calendar year prior to December 31, 2026 in which worldwide net sales of Anktiva™ exceed $1.0 billion (with payments payable in cash or shares of our common stock or a combination thereof). Dr. Soon-Shiong and his related party hold approximately $279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of common stock in satisfaction of their CVRs. We may need to seek additional sources of capital to satisfy the CVR obligations if they are achieved. Cash Flows The following table sets forth our primary sources and uses of cash for periods indicated: Nine Months Ended September 30, 2021 2020 (Unaudited, in thousands) Cash (used in) provided by: Operating activities $ (202,780) $ (114,120) Investing activities 52,916 (27,357) Financing activities 179,490 150,434 Effect of exchange rate changes on cash, cash equivalents, and restricted cash (17) (73) Net change in cash, cash equivalents, and restricted cash $ 29,609 $ 8,884 56 Table of Contents Operating Activities For the nine months ended September 30, 2021, net cash used in operating activities of $202.8 million consisted of a net loss of $258.3 million and $12.3 million of cash used in net working capital changes, partially offset by $67.8 million in adjustments for non-cash items. The changes in net working capital consisted primarily of decreases of $4.8 million in other assets, $4.7 million with related parties, $3.6 million in operating lease liabilities and $0.2 million in accounts payable, partially offset by increases of $0.6 million in accrued expenses and other liabilities and $0.4 million in prepaid and other current assets. Adjustments for non-cash items primarily consisted of $47.0 million in stock compensation expense, $10.6 million in depreciation and amortization expense, $9.1 million in non-cash interest related primarily to related-party promissory notes, $3.5 million in non-cash lease expense related to operating lease right-of-use assets, and $0.3 million in amortization of net premiums and discounts on marketable debt securities, reduced by $2.4 million in unrealized gains on equity securities driven primarily by an increase in the value of our investments, $0.2 million in realized gains on sales of equity securities, and a $0.1 million change in the fair value of contingent consideration. For the nine months ended September 30, 2020, net cash used in operating activities of $114.1 million consisted of a net loss of $155.6 million, partially offset by $28.2 million in adjustments for non-cash items and $13.3 million of cash provided by net working capital changes. Adjustments for non-cash items primarily consisted of an impairment of intangible assets totaling $10.7 million, $10.5 million in depreciation and amortization, $5.7 million in non-cash interest items, $3.4 million in non-cash lease expense related to operating lease right-of-use assets, $1.5 million in stock compensation expense and $0.4 million in amortization of net premiums and discounts on marketable debt securities, partially offset by a $2.7 million change in deferred tax liability, an $0.8 million change in the fair value of contingent consideration and a $0.5 million unrealized gain on equity securities. The changes in net working capital consisted primarily of increases related to $11.2 million in accrued expenses and other liabilities, $7.3 million in accounts payable and $4.7 million with related parties, partially offset by decreases related to $6.8 million in prepaid expenses and other current assets and $3.1 million in operating lease liabilities. We have historically experienced negative cash flows from operating activities, with such negative cash flows likely to continue for the foreseeable future. Investing Activities For the nine months ended September 30, 2021, net cash provided by investing activities was $52.9 million, which included cash inflows of $58.3 million from maturities and sales of marketable debt and equity securities and $20.5 million in net proceeds from sales of property, plant and equipment, mainly due to the sale of 557 Doug St, LLC, partially offset by $23.2 million of purchases of property, plant and equipment and $2.7 million of purchases of marketable debt securities. Our investments in property, plant and equipment are primarily related to acquisitions of equipment that will be used for the manufacturing of our product candidates and expenditures related to the build out of our manufacturing facilities. For the nine months ended September 30, 2020, net cash used in investing activities was $27.4 million, which included $85.7 million of purchases of marketable debt securities and $2.4 million of purchases of property, plant and equipment, partially offset by cash inflows of $60.7 million from maturities and sales of marketable debt securities. We expect to accelerate our capital spending as we scale our GMP manufacturing capabilities, which will require significant capital for the foreseeable future. Financing Activities For the nine months ended September 30, 2021, net cash provided by financing activities was $179.5 million, which consisted of $137.0 million in net proceeds from the ATM offering, $40.0 million in proceeds from issuances of related-party promissory notes, $5.1 million in proceeds from exercises of stock options and a $1.4 million capital contribution related to the sale of 557 Doug St, LLC to an entity under common control. Net cash used in financing activities consisted of $3.6 million related to net share settlement of vested RSUs for payment of payroll tax withholding and a $0.4 million payment for contingent consideration. 57 Table of Contents For the nine months ended September 30, 2020, net cash provided by financing activities was $150.4 million, which consisted primarily of $86.3 million in net proceeds from an equity offering, $63.7 million in proceeds from issuances of related-party promissory notes and $0.9 million in proceeds from exercises of stock options, partially offset by $0.5 million related to net share settlement of vested RSUs for payment of payroll tax withholding. Future Funding Requirements To date, we have generated minimal revenue, and we have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development. We do not expect to generate significant revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, this will occur. In addition, we expect our expenses to significantly increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We have also incurred and expect that we will continue to incur in the future additional costs associated with operating as a public company as well as costs related to future fundraising efforts. In addition, subject to obtaining regulatory approval of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. We expect that our expenses will increase substantially if and as we: • continue research and development, including preclinical and clinical development of our existing product candidates; • potentially seek regulatory approval for our product candidates; • seek to discover and develop additional product candidates; • establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval; • seek to comply with regulatory standards and laws; • maintain, leverage and expand our intellectual property portfolio; • hire clinical, manufacturing, scientific and other personnel to support our product candidates’ development and future commercialization efforts; • add operational, financial and management information systems and personnel; and • incur additional legal, accounting and other expenses in operating as a public company. As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support. However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including the ATM) and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the condensed consolidated financial statements based primarily upon our Executive Chairman and Global Chief Scientific and Medical Officer’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt. We may also seek to sell additional equity, through one or more follow-on public offerings, or in separate financings, or obtain a credit facility. However, we may not be able to secure such financing in a timely manner or on favorable terms. Without additional funds, we may choose to delay or reduce our operating or investment expenditures. Further, because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we may need additional funds to meet our needs sooner than planned. We will need to obtain additional financing to fund our future operations, including completing the development and commercialization of our product candidates. Changing circumstances may cause us to increase our spending significantly faster than we currently anticipate and we may need to raise additional funds sooner than we presently anticipate. Moreover, research and development and our operating costs and fixed expenses such as rent and other contractual commitments, including those for our research collaborations, are substantial and are expected to increase in the future. 58 Table of Contents Our future funding requirements will depend on many factors, including, but not limited to: • progress, timing, number, scope and costs of researching and developing our product candidates and our ongoing, planned and potential clinical trials; • time and cost of regulatory approvals; • our ability to successfully commercialize any product candidates, if approved and the costs of such commercialization activities; • revenue from product candidates that we may commercialize, if any, including the selling prices for such potential products and the availability of adequate third-party coverage and reimbursement for patients; • cost of building, staffing and validating our own manufacturing facilities in the United States, including having a product candidate successfully manufactured consistent with FDA and European Medicines Agency regulations; • terms, timing and costs of our current and any potential future collaborations, business or product acquisitions, CVRs, milestones, royalties, licensing or other arrangements that we have established or may establish; • time and cost necessary to respond to technological, regulatory, political and market developments; and • costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights. Unless and until we can generate a sufficient amount of revenues, we may finance future cash needs through public or private equity offerings, license agreements, debt financings, collaborations, strategic alliances and marketing or distribution arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, or at all, including but not limited to the offering, issuance and sale by us of up to a maximum aggregate amount of $500.0 million of our common stock that may be issued and sold under the ATM. See Note 9 , Stockholders’ Deficit , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. To the extent that we raise additional capital through the sale of equity or convertible debt securities including through the ATM or other offerings, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts. Our current license and collaboration agreements may also be terminated if we are unable to meet the payment obligations under those agreements. As a result, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Contractual Obligations, Commitments and Contingencies Contractual Obligations and Commitments See Note 7 , Commitments and Contingencies – Lease Arrangements , and Note 8 , Related-Party Agreements , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q. Contingencies From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a 59 Table of Contents material adverse effect on our business. We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints. If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules. Critical Accounting Policies and Significant Judgments In the Notes to Combined Consolidated Financial Statements included in the Combined Consolidated Financial Statements of ImmunityBio, Inc. as of December 31, 2020 and December 31, 2019 (including NantCell, Inc.) filed as Exhibit 99.2 and the Management’s Discussion and Analysis of Financial Condition and Results of Operations of ImmunityBio, Inc. filed as Exhibit 99.3 to our Current Report on Form 8-K/A filed with the SEC on April 22, 2021, we have disclosed those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of our Current Report on Form 8-K/A on April 22, 2021. The accounting principles used in preparing our condensed consolidated financial statements conform in all material respects with accounting principles generally accepted in the United States of America (“U.S. GAAP”) . Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these financial statements. We base our estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the ongoing coronavirus pandemic could have on our significant accounting estimates. Actual results could differ from those estimates. Stock-Based Compensation We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). We measure the fair value of an equity-classified award at the grant date and recognize the stock-based compensation expense over the period of vesting on the straight-line basis for our outstanding share awards that do not contain a performance condition. For awards subject to performance-based vesting conditions, we assess the probability of the individual milestones under the award being achieved and stock-based compensation expense is recognized over the service period using the graded vesting method once management believes the performance criteria is probable of being met. For awards with service or performance conditions, we recognize the effect of forfeitures in compensation cost in the period that the award was forfeited. Recent Accounting Pronouncements Refer to Note 2 , Summary of Significant Accounting Policies , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appears in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to us. 60 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Financial market risks related to interest rates, equity investments, foreign currency exchange rates and inflation are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations of ImmunityBio, Inc. filed as Exhibit 99.3 to our Current Report on Form 8-K/A filed with the SEC on April 22, 2021. There have been no material changes to such financial market risks as of the date of this Quarterly Report on Form 10-Q. We do not currently anticipate any other near-term changes in the nature of our financial market risk exposures or in management’s objectives and strategies with respect to managing such exposures. ITEM 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. Management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) of the Exchange Act means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our CEO and CFO have concluded that, as of September 30, 2021, our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, as a result of the Merger, our internal control over financial reporting may change. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process. As of December 31, 2021, we will no longer qualify as a “non-accelerated filer.” We have initiated the process of engaging and coordinating with our independent registered public accounting firm to perform an audit of, and give an opinion on, our internal control over financial reporting for the annual period ending December 31, 2021. Inherent Limitations on Effectiveness of Controls Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 61 Table of Contents PART II—OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints. If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. See Note 7 , Commitments and Contingencies—Litigation , of the “Notes to Unaudited Condensed Consolidated Financial Statements” included in Part I, Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of legal matters. ITEM 1A. RISK FACTORS. Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, any of which may be relevant to decisions regarding an investment in or ownership of our stock. The occurrence of any of these risks could have a significant adverse effect on our reputation, business, financial condition, results of operations, growth and ability to accomplish our strategic objectives. We have organized the description of these risks into groupings in an effort to enhance readability, but many of the risks interrelate or could be grouped or ordered in other ways, so no special significance should be attributed to the groupings or order below. On March 9, 2021, we completed the merger with ImmunityBio, Inc., a private company referred to below as “ImmunityBio.” After the completion of this merger, we (formerly known as NantKwest, Inc.) changed our name to ImmunityBio, Inc., and references below to “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio, Inc. and its subsidiaries. Risk Factor Summary Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements • We will need additional financing to fund our operations and complete the development and commercialization of our various product candidates, and if we are unable to obtain such financing when needed, or on acceptable terms, we may be unable to complete the development and commercialization of our product candidates. Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates. • Our debt could adversely affect our cash flows and limit our flexibility to raise additional capital. • Our businesses may not be integrated successfully, or such integration may be more difficult, time consuming or costly than expected. Operating costs, customer loss and business disruption, including difficulties in maintaining relationships with employees, customers, suppliers or vendors, may be greater than expected for the combined company. Revenues may be lower than expected for the combined company. • We are a clinical-stage biopharmaceutical company with a limited operating history and no products approved for commercial sale. We have a history of operating losses, and we expect to continue to incur losses and may never be profitable, which together with our limited operating history, makes it difficult to assess our future viability. • We invest our cash on hand in various financial instruments, which are subject to risks that could adversely affect our business, results of operations, liquidity and financial condition. 62 Table of Contents Risks Related to Our Business and Industry • We will be substantially dependent on the success of our product candidates and cannot guarantee that these product candidates will successfully complete development, receive regulatory approval or be successfully commercialized. • We may develop product candidates in combination with other therapies, which exposes us to additional risks. • Due to the significant resources required for the development of our product candidates, and depending on our ability to access capital, we must prioritize among many different opportunities. We may expend our limited resources on programs that do not yield successful product candidates as opposed to indications that may be more profitable or for which there is a greater likelihood of success. • Our clinical trial costs may be higher than for more conventional therapeutic technologies or drug products. • Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory approval and commercialization. • Interim, initial, “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. • We have limited experience conducting clinical trials and have relied and will rely on third parties and related parties to conduct many of our preclinical studies and clinical trials and to manufacture products. Any failure by a third party, related party, or by us to conduct the clinical trials according to Good Clinical Practice (“GCP”) regulations, and in a timely manner may delay or prevent our ability to seek or obtain regulatory approval for or commercialization of our product candidates. • Our clinical trials may not be initiated or completed when we expect, or at all, they may take longer and cost more to complete than we project, and we may be required to conduct additional clinical trials or modify current or future clinical trials based on feedback we receive from the United States (“U.S.”) Food and Drug Administration (“FDA”). • We will be unable to commercialize our product candidates if our trials are not successful. • Even if one of our product candidates is approved and commercialized, we may not become profitable. • We use Immuno-Oncology Clinic, Inc. (the “Clinic”), a related party, in some of our clinical trials which may expose us to significant regulatory risks. If our data for this site is not sufficiently robust or if there are any data integrity issues, we may be required to repeat such studies or required to contract with other clinical trial sites, and our clinical development plans will be significantly delayed, and we will incur additional costs. • If we encounter delays or difficulties enrolling and/or maintaining patients in our clinical trials, our clinical development activities and receipt of necessary marketing approvals could be delayed or otherwise adversely affected. • Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences. • The manufacture of our product candidates is complex, and we may encounter difficulties in production, particularly with respect to process development, quality control, or scaling-up of our manufacturing capabilities. If we or our related parties, or any of our third-party manufacturers encounter such difficulties, our ability to provide adequate supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure. • Cell-based therapies and biologics rely on the availability of reagents, specialized equipment and other specialty materials, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products, if approved. • Our ability to use net operating losses and research and development credits to offset future taxable income may be subject to certain limitations. 63 Table of Contents • Changes in tax law could adversely affect our business and financial condition. Negative or unexpected tax consequences could adversely affect our results of operations. • Our transfer pricing policies may be subject to challenge by the Internal Revenue Service (“IRS”) or other taxing authorities. • We could be subject to additional income tax liabilities and to examinations of our tax returns by the IRS and other domestic and foreign tax authorities. An adverse outcome of any such audit or examination by the IRS or other tax authority could have a material adverse effect on our operating results and financial condition. • Our projections regarding the market opportunities for our product candidates may not be accurate, and the actual market for our products, if approved, may be smaller than we estimate. • Because our current product candidates represent, and our other potential product candidates will represent novel approaches to the treatment of disease, there are many uncertainties regarding the development, market acceptance, third-party reimbursement coverage and the commercial potential of our product candidates. • If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates. • We will face significant competition from other biotechnology and pharmaceutical companies and from non-profit institutions. • Public opinion and scrutiny of immunotherapy approaches may impact public perception of us and our product candidates, which may adversely affect our ability to conduct our business and implement our business plans. • We may seek orphan drug status or Fast Track or Breakthrough Therapy designations or other designation for one or more of our product candidates, but even if any such designation or status is granted, it may not lead to faster development or a faster regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval and we may be unable to maintain any benefits associated with such designations or status, including market exclusivity. • As a condition of approval, the FDA may require that we implement various post-marketing requirements and conduct post-marketing studies, any of which would require a substantial investment of time, effort, and money, and which may limit our commercial prospects. • We have never commercialized a product candidate before, and we may lack the necessary expertise, personnel and resources to successfully commercialize any products on our own or together with suitable collaborators. We may be unable to establish effective marketing and sales capabilities or enter into agreements with third parties or related parties to market and sell our product candidates, if they are approved, and as a result, we may be unable generate product revenues. • We expect to rely on third parties to perform many essential services for any products that we commercialize, including services related to distribution, government price reporting, customer service, accounts receivable management, cash collection and adverse event reporting. If these third parties fail to perform as expected or to comply with legal and regulatory requirements, our ability to commercialize our current or future product candidates will be significantly impacted and we may be subject to regulatory sanctions. • If our product candidates do not achieve broad market acceptance, the revenues that we generate from their sales will be limited. • Our product candidates may face competition sooner than anticipated. • We will need to obtain FDA approval of any proposed branded product names, and any failure or delay associated with such approval may adversely affect our business. • Our internal computer systems, or those used by our contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), clinical sites or other contractors or consultants, may fail or suffer security breaches. 64 Table of Contents • Our business could be adversely affected by the effects of health epidemics, pandemics or contagious diseases, including the recent COVID-19 pandemic, in regions where we or third parties on which we rely have significant manufacturing facilities, concentrations of clinical trial sites or other business operations. • We have formed, and may in the future form or seek, strategic alliances or enter into collaborations with third parties or additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements. If we fail to enter into such strategic alliances, collaborations or licensing arrangement, or such strategic alliances, collaborations or licensing arrangements are not successful, we may not be able to capitalize on the market potential of our product candidates. • If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies. • We will be heavily dependent on our senior management, particularly Dr. Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, and a loss of a member of our senior management team in the future, even if only temporary, could harm our business. • We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth. • If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks. • We may become involved in securities litigation or stockholder derivative litigation in connection with our recent merger, and this could divert the attention of our management and harm our business, and insurance coverage may not be sufficient to cover all related costs and damages. • A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business. Risks Related to Government Regulation • We may be unable to obtain U.S. or foreign regulatory approval and, as a result, be unable to commercialize our product candidates. We are, and if we receive regulatory approval of our product candidates, will continue to be subject to ongoing extensive regulation, regulatory obligations and continued regulatory review, which may result in significant additional expense. • Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions. • If we fail to comply with U.S. and foreign regulatory requirements, regulatory authorities could limit or withdraw any marketing or commercialization approvals we may receive and subject us to other penalties that could materially harm our business. • Results for any patient who receives compassionate use access to our product candidates should not be viewed as representative of how the product candidate will perform in a well-controlled clinical trial, and cannot be used to establish safety or efficacy for regulatory approval. • Our GMP-in-a-Box will be regulated by the FDA as a medical device, and regulatory compliance for medical devices is expensive, complex and uncertain, and a failure to comply could lead to enforcement actions against us and other negative consequences for our business. • We will be subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws. • We are subject to U.S. and foreign anti-corruption and anti-money laundering laws with respect to our operations and non-compliance with such laws can subject us to criminal and/or civil liability and harm our business. • Our failure to comply with state, national and/or international data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results. 65 Table of Contents • If we, or any third party contract manufacturers or suppliers that we engage, fail to comply with environmental, health, and safety laws and regulations, including regulations governing the handling, storage or disposal of hazardous materials, we could become subject to fines or penalties or incur costs that could harm our business. • Disruptions at the FDA, the Securities and Exchange Commission (“SEC”) and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business. • If we fail to comply with federal and state healthcare and promotional laws, including fraud and abuse and information privacy and security laws, we could face substantial penalties and our business, financial condition, results of operations, and prospects could be adversely affected. • Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably. • We may face difficulties from changes to current regulations and future legislation. • Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any. • Our employees, independent contractors, consultants, commercial partners, principal investigators, CROs, suppliers and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. Risks Related to Intellectual Property • If we are unable to obtain, maintain, protect and enforce patent protection and other proprietary rights for our product candidates and technologies, we may not be able to compete effectively or operate profitably and our ability to prevent our competitors from commercializing similar or identical technology and product candidates would be adversely affected. • If any of our owned or in-licensed patent applications do not issue as patents in any jurisdiction, we may not be able to compete effectively. • We or our licensors, collaborators, or any future strategic partners may become subject to third party claims or litigation alleging infringement of patents or other proprietary rights or seeking to invalidate patents or other proprietary rights, and we may need to resort to litigation to protect or enforce our patents or other intellectual property or the patents or other intellectual property of our licensors, all of which could be expensive, time-consuming and unsuccessful, may delay or prevent the development and commercialization of our product candidates, or may put our patents and other proprietary rights at risk. • The use of our technology and product candidates could potentially conflict with the rights of others, and third-party claims of intellectual property infringement, misappropriation or other violation against us, our licensors or our collaborators may prevent or delay the development and commercialization of our product candidates and technologies. • Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. • Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates. • Our rights to develop and commercialize our product candidates and technologies are subject, in part, to the terms and conditions of licenses granted to us by others. 66 Table of Contents • If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we may be required to pay damages and we could lose license rights that are important to our business. • We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world. • We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed trade secrets or other confidential information of third parties or claims asserting ownership of what we regard as our own intellectual property. • We may not be able to license or acquire new or necessary intellectual property rights or technology from third parties. • If we do not obtain patent term extension and data exclusivity for any product candidates we may develop, our business may be materially harmed. • We may be subject to claims challenging rights in our patents and other intellectual property. • If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. • If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. • Intellectual property rights do not necessarily address all potential threats. Risks Related to Our Common Stock • Dr. Patrick Soon-Shiong, our Executive Chairman, Global Chief Scientific and Medical Officer and our principal stockholder, has significant interests in other companies which may conflict with our interests. • Dr. Soon-Shiong, through his voting control of the company, has the ability to control actions that require stockholder approval. • The market price of our common stock has been and may continue to be volatile, and investors may have difficulty selling their shares. • Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plan, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. • We have incurred and will continue to incur costs as a result of operating as a public company and our management has been and will be required to devote substantial time to compliance initiatives and corporate governance practices, including maintaining an effective system of internal control over financial reporting. • If a restatement of our financial statements were to occur, our stockholders’ confidence in the company’s financial reporting in the future may be affected, which could in turn have a material adverse effect on our business and stock price. • We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock. • Because we are relying on the exemptions from corporate governance requirements as a result of being a “controlled company” within the meaning of the Nasdaq listing standards, you do not have the same protections afforded to stockholders of companies that are subject to such requirements. • We are a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting companies could make our common stock less attractive to investors. • If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline. 67 Table of Contents • We are not subject to the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”), which could negatively affect your investment. • Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management. • Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us. Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements We will need additional financing to fund our operations and complete the development and commercialization of our various product candidates, and if we are unable to obtain such financing when needed, or on acceptable terms, we may be unable to complete the development and commercialization of our product candidates. The development of biopharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. Our operations have consumed substantial amounts of cash since inception. A significant portion of our funding had been in the form of promissory notes representing $303.2 million in indebtedness, including interest thereon, as of September 30, 2021 held by entities affiliated with Dr. Soon-Shiong with a maturity date of September 30, 2025. As of September 30, 2021, we held cash, cash equivalents and marketable securities totaling $81.2 million. We will need to obtain additional financing to fund our future operations, including completing the development and commercialization of our product candidates. Changing circumstances may cause us to increase our spending significantly faster than we currently anticipate and we may need to raise additional funds sooner than we presently anticipate. Moreover, research and development and our operating costs and fixed expenses such as rent and other contractual commitments, including those for our research collaborations, are substantial and are expected to increase in the future. Our future funding requirements will depend on many factors, including, but not limited to: • progress, timing, number, scope and costs of researching and developing our product candidates and our ongoing, planned and potential clinical trials; • time and cost of regulatory approvals; • our ability to successfully commercialize any product candidates, if approved and the costs of such commercialization activities; • revenue from product candidates that we may commercialize, if any, including the selling prices for such potential products and the availability of adequate third-party coverage and reimbursement for patients; • cost of building, staffing and validating our own manufacturing facilities in the United States, including having a product candidate successfully manufactured consistent with FDA and European Medicines Agency regulations; • terms, timing and costs of our current and any potential future collaborations, business or product acquisitions, contingent value rights (“CVRs”), milestones, royalties, licensing or other arrangements that we have established or may establish; • time and cost necessary to respond to technological, regulatory, political and market developments; and • costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights. Unless and until we can generate a sufficient amount of revenues, we may finance future cash needs through public or private equity offerings, license agreements, debt financings, collaborations, strategic alliances and marketing or distribution arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, or at all, including but not limited to the offering, issuance and sale by us of up to a maximum aggregate amount of $500.0 million of our common stock that may be issued and sold under an “at-the-market” sales agreement with Jefferies LLC (the “ATM”). 68 Table of Contents To the extent that we raise additional capital through the sale of equity or convertible debt securities including through the ATM or other offerings, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts. Our current license and collaboration agreements may also be terminated if we are unable to meet the payment obligations under those agreements. As a result, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our debt could adversely affect our cash flows and limit our flexibility to raise additional capital. We have a significant amount of debt and may need to incur additional debt to support our growth. As of September 30, 2021, our indebtedness was $303.2 million, consisting of related-party promissory notes and interest thereon, all held by entities affiliated with Dr. Soon-Shiong, with a maturity date of September 30, 2025. Our substantial amount of debt could have important consequences and could: • require us to dedicate a substantial portion of our cash and cash equivalents to make interest and principal payments on our debt, reducing the availability of our cash and cash equivalents and cash flow from operations to fund future capital expenditures, working capital, execution of our strategy and other general corporate requirements; • increase our cost of borrowing and even limit our ability to access additional debt to fund future growth; • increase our vulnerability to general adverse economic and industry conditions and adverse changes in governmental regulations; • limit our flexibility in planning for, or reacting to, changes in our business and industry, which may place us at a disadvantage compared with our competitors; and • limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity, which would also limit our ability to further expand our business. The occurrence of any of the foregoing factors could have a material adverse effect on our business, results of operations and financial condition. We may also need to refinance a portion of our outstanding debt as it matures. We may not be able to refinance existing debt or the terms of any refinancing may not be as favorable as the terms of our existing debt. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. These risks could materially adversely affect our financial condition, cash flows and results of operations. Our businesses may not be integrated successfully, or such integration may be more difficult, time consuming or costly than expected. Operating costs, customer loss and business disruption, including difficulties in maintaining relationships with employees, customers, suppliers or vendors, may be greater than expected for the combined company. Revenues may be lower than expected for the combined company. The combination of two businesses is complex, costly and time-consuming and may divert significant management attention and resources to combining our prior businesses. This process may disrupt our businesses. The failure to meet the challenges involved in combining the two businesses and to realize the anticipated benefits of the merger could cause an interruption of, or a loss of momentum in, the activities of the combined company and could adversely affect the results of operations of the combined company. Our ability to realize the anticipated benefits of the merger will depend, to a large extent, on our ability to integrate our businesses in a manner that facilitates growth opportunities and achieves the projected synergies 69 Table of Contents identified by each company without adversely affecting current revenues and investments in future growth. The overall combination of our businesses may also result in material unanticipated problems, expenses, liabilities, competitive responses, and loss of customer and other business relationships. The difficulties of combining the operations of the companies include, among others: • the diversion of management attention to integration matters; • difficulties in integrating operations and systems, including intellectual property and communications systems, administrative and information technology infrastructure and financial reporting and internal control systems; • challenges in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies; • difficulties in integrating employees and attracting and retaining key personnel, including talent; • difficulties in achieving anticipated cost savings, synergies, accretion targets, business opportunities, financing plans and growth prospects from the combination; • difficulties in managing the expanded operations of a significantly larger and more complex company; • contingent liabilities that are larger than expected; and • potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the merger. Many of these factors are outside of our control, and any one of them could result in lower revenues, higher costs and diversion of management time and energy, which could materially impact the business, financial condition and results of operations of the combined company. In addition, even if the operations of our businesses are integrated successfully, the full benefits of the merger may not be realized, including, among others, the synergies or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame or at all. Further, additional unanticipated costs may be incurred in the integration of our businesses. All of these factors could negatively impact the company’s operations and/or the price of the company’s common stock. As a result, it cannot be assured that the combination of our businesses will result in the realization of the full benefits expected from the merger within the anticipated time frames or at all. Accordingly, holders of the combined company’s common stock may experience a loss as a result of a decline in the market price of such common stock. In addition, a decline in the market price of the combined company’s common stock could adversely affect the company’s ability to issue additional securities and to obtain additional financing in the future. We are a clinical-stage biopharmaceutical company with a limited operating history and no products approved for commercial sale. We have a history of operating losses, and we expect to continue to incur losses and may never be profitable, which together with our limited operating history, makes it difficult to assess our future viability. We are a clinical stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects, and now that the merger has been completed, we have a much broader portfolio of product candidates at various stages of development. None of our products have been approved for commercial sale and we have not generated any revenue from product sales, although we have generated revenues from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables and grant programs. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry, including in connection with obtaining marketing approvals, manufacturing a commercial-scale product or arranging for a third party to do so on our behalf or conducting sales and marketing activities necessary for successful product commercialization. Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict when we may become profitable, if at all. Since the commencement of our operations, we have incurred significant losses in each year and, as of September 30, 2021 we had an accumulated deficit of $1.9 billion. We expect to continue to incur significant expenses as we seek to expand our business, including in connection with conducting research and development across multiple therapeutic areas, participating in clinical trial activities, continuing to acquire or in-license technologies, maintaining, protecting and expanding our intellectual property, seeking regulatory approvals, increasing our manufacturing capabilities and, upon successful receipt of FDA approval, commercializing our products. Moreover, we do not expect to have significant product sales or revenue for the foreseeable future. 70 Table of Contents If our research and development efforts are successful, we may also face the risks associated with the shift from development to commercialization of new products based on innovative technologies. Our ability to achieve profitability is dependent upon obtaining regulatory approvals for our product candidates and successfully commercializing our product candidates alone or with third parties. However, our operations may not be profitable even if one or more of our product candidates under development are successfully developed and produced and thereafter commercialized. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis. As a result, it may be more difficult for you to assess our future viability than it could be if we had a longer operating history. We invest our cash on hand in various financial instruments which are subject to risks that could adversely affect our business, results of operations, liquidity and financial condition. We invest our cash in a variety of financial instruments, principally commercial paper, corporate debt securities and foreign government bonds. All of these investments are subject to credit, liquidity, market and interest rate risk. Such risks, including the failure or severe financial distress of the financial institutions that hold our cash, cash equivalents and investments, may result in a loss of liquidity, impairment to our investments, realization of substantial future losses, or a complete loss of the investments in the long-term, which may have a material adverse effect on our business, results of operations, liquidity and financial condition. In order to manage the risk to our investments, we maintain an investment policy that, among other things, limits the amount that we may invest in any one issue or any single issuer and requires us to only invest in high credit quality securities to preserve liquidity. Risks Related to Our Business and Industry We will be substantially dependent on the success of our product candidates and cannot guarantee that these product candidates will successfully complete development, receive regulatory approval or be successfully commercialized. Other than our proprietary GMP-in-a-Box bioreactors for which we have received nominal revenue to date, we currently have no products approved for commercial sale or for which regulatory approval to market has been sought. We have invested a significant portion of our efforts and financial resources in the development of our main product candidates, an antibody cytokine fusion protein (an IL-15 superagonist (N-803) known as Anktiva™) , aldoxorubicin and second-generation adenovirus (“hAd5”) vaccine candidates, some or all of which are used in combination with our natural killer cells. Our product candidates will require additional clinical and non-clinical development, regulatory approval, commercial manufacturing arrangements, establishment of a commercial organization, significant marketing efforts, and further investment before we can generate any revenues from product sales. We expect to invest heavily in these product candidates as well as in our other existing product candidates and in any future product candidates that we may develop. Our business and our ability to generate revenues in the future substantially depends on the successful development, regulatory approval and commercialization of such product candidates, each of which may never occur. Our product candidates will be susceptible to the risks of failure inherent at any stage of product development, including the appearance of unexpected adverse events or failure to achieve primary endpoints in clinical trials. Furthermore, we cannot assure you that we will meet our timelines for current or future clinical trials, which may be delayed or not completed for a number of reasons. Additionally, our ability to generate revenues from our combination therapy products will also depend on the availability of the other therapies with which our products are intended to be used. We currently generate no meaningful revenues from the sale of any product candidates, and we may never be able to develop or commercialize a product. We may develop product candidates in combination with other therapies, which exposes us to additional risks. We may develop product candidates in combination with one or more other therapies. We are studying Anktiva™ therapy along with other product candidates, such as aldoxorubicin and hAd5 product candidates. The development of product candidates for use in combination with another product may present challenges. The FDA may require us to use more complex clinical trial designs in order to evaluate the contribution of each product and product candidate to any observed effects. To the extent that we do not have rights to already approved products, this may require us to work with another company to satisfy such a requirement. It is possible that the results of these trials could show that any positive results are attributable to the already approved product. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in 71 Table of Contents combination with other existing therapies, we would continue to be subject to the risks that the FDA or comparable foreign regulatory authorities could revoke approval of the therapy used in combination with our product or that safety, efficacy, manufacturing or supply issues could arise with any of those existing therapies. Following product approval, the FDA may require that products used in conjunction with each other be cross labeled for combined use. If the therapies we use in combination with our product candidates are replaced as the standard of care for the indications we choose for any of our product candidates, the FDA or comparable foreign regulatory authorities may require us to conduct additional clinical trials. The occurrence of any of these risks could result in our own products, if approved, being removed from the market or being less successful commercially. We also may evaluate product candidates in combination with one or more therapies that have not yet been approved for marketing by the FDA or comparable foreign regulatory authorities. We will not be able to market and sell any product candidate in combination with an unapproved therapy if that unapproved therapy does not ultimately obtain marketing approval. In addition, unapproved therapies face the same risks described with respect to our product candidates currently in development and clinical trials, including the potential for serious adverse effects, delays in clinical trials and lack of FDA approval. If the FDA or comparable foreign regulatory authorities do not approve or revoke their approval of these other therapies, or if safety, efficacy, quality, manufacturing or supply issues arise with, the therapies we choose to evaluate in combination with any of our product candidates, we may be unable to obtain approval of or market such combination therapy. Due to the significant resources required for the development of our product candidates, and depending on our ability to access capital, we must prioritize among many different opportunities. We may expend our limited resources on programs that do not yield successful product candidates as opposed to indications that may be more profitable or for which there is a greater likelihood of success. We do not have sufficient resources to pursue development of all or even a substantial portion of the potential opportunities that we believe will be afforded to us by our product candidates. Because we have limited resources and access to capital to fund our operations, our management must make significant prioritization decisions as to which product candidates and indications to pursue and how much of our resources to allocate to each. Our management must also evaluate the benefits of developing in-licensed or jointly owned technologies, which in some circumstances we may be contractually obligated to pursue, relative to developing other product candidates, indications or programs. Our management has broad discretion to suspend, scale down, or discontinue any or all of these development efforts, or to initiate new programs to treat other diseases. If we select and commit resources to opportunities that we are unable to successfully develop, or we forego more promising opportunities, our business, financial condition and results of operations will be adversely affected. Our clinical trial costs may be higher than for more conventional therapeutic technologies or drug products. Because our product candidates include, and we expect our future product candidates to include, candidates based on advanced therapy technologies, we expect that they will require extensive research and development and have substantial manufacturing costs. In addition, costs to treat patients and to treat potential side effects that may result from our product candidates can be significant. Some clinical trial sites may not bill, or obtain coverage from Medicare, Medicaid, or other third-party payors for some or all of these costs for patients enrolled in our clinical trials, and clinical trial sites outside of the United States may not reimburse for costs typically covered by third-party payors in the United States, and as a result we may be required by those trial sites to pay such costs. Accordingly, our clinical trial costs are likely to be significantly higher per patient than those of more conventional therapeutic technologies or drug products. Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory approval and commercialization. The clinical trials of our product candidates as well as the manufacturing and marketing of our product candidates will be subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective. Because most of our product candidates will be subject to 72 Table of Contents regulation as biological drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. The risk/benefit profile required for product licensure will vary depending on these factors and may include not only the ability to show tumor shrinkage, but also adequate duration of response, a delay in the progression of the disease, and/or an improvement in survival. For example, response rates from the use of our product candidates may not be sufficient to obtain regulatory approval unless we can also show an adequate duration of response. Regulatory authorities may ultimately disagree with our chosen endpoints or may find that our studies or study results do not support product approval. Preclinical studies may reveal unfavorable product candidate characteristics, including safety concerns. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Moreover, should there be a flaw in a clinical trial or cross-site variation that are not properly addressed, it may not become apparent until the clinical trial is well advanced or until data from different sites become available. For example, our current clinical trials are, and we expect our clinical trials to be, conducted at multiple sites in different geographies, with different levels of experience and expertise by medical professionals, and these professionals may make mistakes or introduce site-specific variation that could have an impact on clinical trials by disqualifying patients or impacting patient ability to continue in a study or on the clinical data. Further, because we currently plan to test our product candidates for use with other oncology products, the design, implementation and interpretation of the clinical trials necessary for marketing approval may be more complex than if we were developing our product candidates alone. In addition, even if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. We have reported preliminary results for clinical trials of our product candidates, including Anktiva™. These preliminary results, which include assessments of efficacy, are subject to substantial risk of change due to small sample sizes and may change as patients are evaluated or as additional patients are enrolled in these clinical trials. These outcomes may be unfavorable, deviate from our earlier reports, and/or delay or prevent regulatory approval or commercialization of our product candidates, including candidates for which we have reported preliminary efficacy results. Further, certain of our hypotheses regarding the potential benefits of our product candidates compared to alternative therapies and treatments are based on cross-trial comparisons of results that were not derived from head-to-head clinical trials. Such clinical trial data may not be directly comparable due to differences in study protocols, conditions and patient populations. Accordingly, these cross-trial comparisons may not be reliable predictors of the relative efficacy or other benefits of our product candidates compared to other product candidates that may have been approved previously. We do not have data on possible harmful long-term effects of our product candidates and do not expect to have this data in the near future. As a result, our ability to generate clinical safety and effectiveness data sufficient to support submission of a marketing application or commercialization of our product candidates is uncertain and is subject to significant risk. 73 Table of Contents Interim, initial, “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. From time to time, we may publicly disclose preliminary, interim or top-line data from our preclinical studies and clinical trials, which are based on preliminary analyses of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. We also may make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, top-line or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, top-line data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is typically selected from a more extensive amount of available information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. If the interim, top-line or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition. We have limited experience conducting clinical trials and have relied and will rely on third parties and related parties to conduct many of our preclinical studies and clinical trials and to manufacture products. Any failure by a third party, related party, or by us to conduct the clinical trials according to GCP regulations, and in a timely manner, may delay or prevent our ability to seek or obtain regulatory approval for or commercialization of our product candidates. Large-scale clinical trials require significant financial and management resources. We expect to be heavily reliant on third and related parties, including medical institutions, academic institutions, clinical investigators or CROs to conduct, supervise or monitor some or all aspects of our clinical trials, and in some cases, CMOs to manufacture products. We have entered into agreements with the Clinic, a related party, to continue to conduct and oversee certain of our clinical trials. Our CROs, the Clinic and other third parties must communicate and coordinate with one another in order for our trials to be successful. We have a limited history of conducting clinical trials and have no experience as a company in filing and supporting the applications necessary to gain marketing approvals. Our relative lack of experience conducting clinical trials may contribute to our planned clinical trials not beginning or completing on time, if at all. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trial sites by, applicable regulatory authorities. Relying on third-party clinical investigators, CROs or CMOs may force us to encounter delays and challenges that are outside of our control. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable trial protocol and legal, regulatory and scientific standards, and our reliance on CROs, clinical trial sites, and other third parties does not relieve us of these responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial and for ensuring that our preclinical studies are conducted in accordance with Good Laboratory Practice (“GLP”) regulations, as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require us and the third parties upon which we intend to rely for conducting our clinical trials to comply with GCP for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. 74 Table of Contents Regulatory authorities enforce these requirements through periodic inspections (including pre-approval inspections once a Biologics License Application (“BLA”) or New Drug Application (“NDA”) is filed with the FDA) of trial sponsors, clinical investigators, trial sites and certain third parties including CMOs. If we, our CROs, clinical trial sites, or other third parties fail to comply with applicable GCP or other regulatory requirements, we or they may be subject to enforcement or other legal actions, the clinical data generated in our clinical trials may be deemed unreliable and have to be repeated, and our submission of marketing applications may be delayed or the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. Our clinical trials will need to be conducted with product candidates and materials that were produced under current Good Manufacturing Practices (“cGMP”) and/or Good Tissue Practice regulations, which are enforced by regulatory authorities. Our failure to comply or our CMOs’ failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We may not be able to demonstrate sufficient comparability between products manufactured at different facilities to allow for inclusion of the clinical results from patients treated with products from these different facilities, in our product registrations. We also are required to register certain clinical trials and post the results of certain completed clinical trials on a government sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so could result in enforcement actions and adverse publicity. We rely on third parties to manufacture, package, label and ship some of our product candidates for the clinical trials that we conduct. Any performance failure on the part of these third parties could delay clinical development or marketing approval of our product candidates or commercialization of our product candidates, if approved, producing additional losses and depriving us of potential product revenues. Our CROs, the Clinic, clinical trial sites and other third parties may also have relationships with other entities, some of which may be our competitors, for whom they may also be conducting clinical trials or other therapeutic development activities that could harm our competitive position. In addition, these third parties are not our employees, and except for remedies available to us under our agreements with them, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and preclinical programs. If these third parties conducting our clinical trials (i) do not successfully carry out their contractual duties, (ii) do not meet expected deadlines, (iii) experience work stoppages, (iv) do not conduct our clinical trials in accordance with regulatory requirements or our stated protocols, (v) need to be replaced, (vi) experience financial hardships or (vii) terminate their agreements with us or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical trial protocols, GCP or other regulatory requirements or for other reasons, our trials may need to be repeated, extended, delayed or terminated, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates, we will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates or we or they may be subject to regulatory enforcement actions. Additionally, we may need to conduct additional clinical trials or enter into new arrangements with alternative CROs, clinical investigators or other third parties. We may be unable to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. Switching or adding additional contractors involves additional cost and time and requires management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays could occur, which could compromise our ability to meet our desired development timelines. Furthermore, if any of the third parties conducting our clinical trials experience any financial hardships due to difficulties relating to the operation of their business, if could damage our business, financial condition, results of operations and prospects. In addition, if an agreement with any of our collaborators terminates, our access to technology and intellectual property licensed to us by that collaborator may be restricted or terminate entirely, which may delay the continued development of our product candidates utilizing the collaborator’s technology or intellectual property or require us to stop development of those product candidates completely. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of third-party service providers in the future, our business may be materially and adversely affected. 75 Table of Contents Our reliance on third and related parties can also present intellectual property-related risks. For example, collaborators may not properly obtain, maintain, enforce or defend intellectual property or proprietary rights relating to our product candidates or technology or may use our proprietary information in such a way as to expose us to potential litigation or other intellectual property-related proceedings, including proceedings challenging the scope, ownership, validity and enforceability of our intellectual property. Collaborators may also own or co-own intellectual property covering our product candidates or technology that results from our collaboration with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property or such product candidates or technology. Collaborators may also gain access to our trade secrets or formulations and impact our ability to commercialize proprietary technology. We may also need the cooperation of our collaborators to enforce or defend any intellectual property we contribute to or that arises out of our collaborations, which may not be provided to us. We also anticipate that part of our strategy for pursuing the wide range of indications potentially addressed by Anktiva™ will involve further investigator-initiated clinical trials. While these trials generally provide us with valuable clinical data that can inform our future development strategy, we generally have less control over not only the conduct but also the design of these clinical trials. Third-party investigators may design clinical trials involving our product candidates with clinical endpoints that are more difficult to achieve or in other ways that increase the risk of negative clinical trial results compared to clinical trials we may design on our own. Negative results from investigator-initiated clinical trials, regardless of how the clinical trial was designed or conducted, could have a material adverse effect on our business and the perception of our product candidates. Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Our clinical trials may not be initiated or completed when we expect, or at all, they may take longer and cost more to complete than we project, and we may be required to conduct additional clinical trials or modify current or future clinical trials based on feedback we receive from the FDA. We cannot guarantee that any current or future clinical trials will be conducted as planned or completed on schedule, if at all, or that any of our product candidates will receive regulatory approval. A failure of one or more clinical trials can occur at any stage of the clinical trial process, other events may cause us to temporarily or permanently stop a clinical trial, and our future clinical trials may not be successful. We may also experience delays in completing planned clinical trials for a variety of reasons, including delays related to: • regulators or Institutional Review Boards (“IRBs”) may (i) not authorize us or our investigators to commence a clinical trial, conduct a clinical trial at a prospective trial site, or amend trial protocols, or (ii) require that we modify or amend our clinical trial protocols; • delays in reaching, or a failure to reach, a consensus with regulatory authorities on trial design or eligibility criteria for patient enrollment; • the FDA or comparable foreign regulatory authorities may (i) disagree with our intended indications, or our interpretation of data from preclinical studies and clinical trials, (ii) find that a product candidate’s benefits do not outweigh its safety risks, (iii) not accept data from trials with clinical trial sites in foreign countries, (iv) fail to approve or subsequently find fault with the manufacturing processes or our manufacturing facilities for clinical and future commercial supplies or (v) take longer than we anticipate when making a decision on our product candidates; • the FDA may not allow us to use the clinical trial data from a research institution to support an investigational new drug (“IND”) application if we cannot demonstrate the comparability of our product candidates with the product candidate used by the relevant research institution in its clinical trials; • delays in or failure to reach an agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; • imposition of a temporary or permanent clinical hold, such as the clinical hold on the Phase II/III clinical trial in the U.S. for our hAd5 COVID-19 vaccine candidate pending modifications to the protocol and the FDA’s review of additional information, including immunogenicity and safety data from the Phase I portion of the study; • delays in adding new investigators or clinical trial sites, or withdrawal of clinical trial sites from a trial, including scheduling conflicts with participating clinicians and clinical institutions; 76 Table of Contents • difficulties in identifying and enrolling patients who meet trial eligibility criteria and who remain in the study until its conclusion; • failure by our CROs, clinical trial sites or patients, or other third parties, or us to adhere to clinical trial requirements, including regulatory, contractual or protocol requirements; • failure to perform in accordance with the GCP requirements, or applicable regulatory guidelines in other countries; • occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits; • changes in regulatory requirements and guidance that require amending or submitting new clinical protocols to regulatory authorities and IRBs, and which may cause delays in our development programs, or changes to regulatory review times; • there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may emerge regarding our product candidates; • changes in the standard of care on which a clinical development plan was based, which may require new or additional trials; • the availability of financial resources to commence and complete the planned trials; • ambiguous or negative interim results, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials, or preclinical studies, or abandon product development programs; • obtaining sufficient supply of therapies that may be used in combination with our molecular agents or as comparative agents in clinical trials or interruption of, or delays in receiving, supplies of our product candidates or other drugs or components of our therapies due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; • early results from our clinical trials of our product candidates may be negatively affected by changes in efficacy measures such as overall response rate and duration of response as more patients are enrolled in our clinical trials or as new cohorts of our clinical trials are tested, and overall response rate and duration of response may be negatively affected by the inclusion of unconfirmed responses in preliminary results that we report if such responses are not later confirmed; • we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or current or future competitive therapies in development; • there may be changes to the therapeutics or their regulatory status which we are administering in combination with our product candidates; • transfer of our manufacturing processes to our CMOs or other larger-scale facilities operated by a CMO or by us and delays or failure by our CMOs or us to commence, make any necessary changes to or complete such manufacturing process; • our use of different manufacturing processes within our clinical trials, and any effects that may result from the use of different processes on the clinical data that we have reported and will report in the future; • delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates for use in clinical trials or the inability to do any of the foregoing, including as a result of any quality issues associated with the contract manufacturer; and • delays and additional costs associated with business disruptions, new regulatory requirements, social distancing and other restrictions imposed by governmental or regulatory agencies and clinical trial sites due to the COVID ‑ 19 pandemic, which may include enrollment delays or failures to follow trial protocols. Collaborations with other entities may be subject to additional delays because of the management of the trials, contract negotiations, the need to obtain agreement from multiple parties and the necessity of obtaining additional approvals for therapeutics used in the combination trials. These combination therapies will require additional testing and clinical trials will require additional FDA regulatory approval and will increase our future costs. 77 Table of Contents Any inability to successfully complete preclinical and clinical development could result in additional costs to us, slow down our product development and approval process or impair our ability to commence product sales and generate revenues. In addition, if we make manufacturing changes to our product candidates, we may be required to, or we may elect to, conduct additional trials to bridge our modified product candidates to earlier versions. These changes may require FDA approval or notification and may not have their desired effect. The FDA may also not accept data from prior versions of the product to support an application, delaying our clinical trials or programs or necessitating additional clinical trials or preclinical studies. We may find that this change has unintended consequences that necessitates additional development and manufacturing work, additional clinical and preclinical studies, or that results in refusal to file or non-approval of a BLA and/or NDA. Clinical trial delays could shorten any periods during which our product candidates have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our stock price and our ability to conduct our business as currently planned could be harmed. We will be unable to commercialize our product candidates if our trials are not successful. Our research and development programs are each at an early stage and our current product candidates are in the early stages of development. We currently have ongoing clinical trials to evaluate our product candidates. We must demonstrate our product candidates’ safety and efficacy in humans through extensive clinical testing. Success in early clinical trials does not ensure that large-scale clinical trials will be successful, nor does it predict final results. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of our product candidates, including but not limited to the following: • safety and efficacy results in various human clinical trials reported in scientific and medical literature may not be indicative of results we obtain in our clinical trials; • after reviewing test results, we or our collaborators may abandon projects that we might previously have believed to be promising; • we, our collaborators or regulators may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks; • the standard of care may change as the result of new technology or therapies in our target clinical indications, precluding regulatory approval or limited commercial use if approved; • the effects our potential products have may not be the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use if approved; • manufacturers may not meet the necessary standards for the production of the product candidates or may not be able to supply the product candidates in a sufficient quantity; and • regulatory authorities may find that our clinical trial design or conduct does not meet the applicable approval requirements. Clinical testing is very expensive, can take many years and the outcome is uncertain. It could take as much as 12 months or more before we learn the results from any clinical trial using Anktiva™, aldoxorubicin, adenovirus and yeast technologies or other therapy. The data collected from our clinical trials may not be sufficient to support approval by the FDA of our Anktiva™ product candidate for the treatment of bladder cancer or of other therapies, including our hAd5 COVID‑19 vaccine candidate. Anktiva™ and many of our other product candidates have only been tested in a small number of patients. Results from these clinical trials may not necessarily be indicative of the safety and tolerability or efficacy of our product candidates as we expand into larger clinical trials. The clinical trials for our product candidates under development may not be completed on schedule and the FDA may not ultimately approve any of our product candidates for commercial sale. We may not ultimately be able to provide the FDA with substantial clinical evidence to support a claim of safety, purity and potency sufficient to enable the FDA to approve our product candidate for any indication. This may be because later clinical trials fail to reproduce favorable data obtained in earlier clinical trials, because the FDA disagrees with how we interpret the data from these clinical trials or because the FDA does not accept these therapeutic effects as valid endpoints in pivotal clinical trials necessary for market approval. If we fail to adequately demonstrate the safety and efficacy of any product candidate under development, we may not receive regulatory approval for those product candidates, which would prevent us from generating revenues or achieving profitability. 78 Table of Contents Even if one of our product candidates is approved and commercialized, we may not become profitable. If approved for marketing by applicable regulatory authorities, our ability to generate revenues from our product candidates will depend on our ability to: • price our product candidates competitively such that third-party and government reimbursement leads to broad product adoption; • prepare a broad network of clinical sites for administration of our product; • create market demand for our product candidates through our own marketing and sales activities, and any other arrangements to promote these product candidates that we may otherwise establish; • receive regulatory approval for the targeted patient population(s) and claims that are necessary or desirable for successful marketing; • manufacture product candidates through CMOs or in our own, or our affiliates’, manufacturing facilities in sufficient quantities and at acceptable quality and manufacturing cost to meet commercial demand at launch and thereafter; • establish and maintain agreements with wholesalers, distributors, pharmacies, and group purchasing organizations on commercially reasonable terms; • obtain, maintain, protect and enforce patent and other intellectual property protection and regulatory exclusivity for our product candidates; • successfully commercialize any of our product candidates that receive regulatory approval; • maintain compliance with applicable laws, regulations, and guidance specific to commercialization including interactions with health care professionals, patient advocacy groups, and communication of health care economic information to payors and formularies; • achieve market acceptance of our product candidates by patients, the medical community, and third-party payors; • achieve appropriate reimbursement for our product candidates; • maintain a distribution and logistics network capable of product storage within our specifications and regulatory guidelines, and further capable of timely product delivery to commercial clinical sites; • effectively compete with other therapies or competitors; and • following launch, assure that our product will be used as directed and that additional unexpected safety risks will not arise. Even if the FDA approves Anktiva™ for certain indications, and even if we obtain significant market share for it, because the potential target population may be small, we may never achieve profitability without obtaining regulatory approval for additional indications. The FDA often approves new therapies initially only for use in patients with relapsed or refractory metastatic disease, which may limit our patient population. Additionally, we may not be able to obtain the labeling claims necessary or desirable for the promotion of our product candidates. Additionally, in connection with the merger with ImmunityBio, we assumed the obligation to issue CVRs to the former stockholders of Altor BioScience Corporation (succeeded by Altor BioScience LLC) (“Altor”) in connection with the acquisition of Altor. These CVRs become payable upon the attainment of certain regulatory and sales milestones related to Anktiva™. The former Altor stockholders have the ability to choose to receive these payments either in cash, in an equivalent value of our common stock or in a combination of both cash and stock at the time such payments are due, except that Dr. Soon-Shiong and his related party, as prior stockholders of Altor, have irrevocably elected to receive all payments in respect of their CVRs in the form of our common stock. Such CVR payments to Dr. Soon-Shiong and his related party aggregate to approximately $279.5 million. 79 Table of Contents We may, however, still be required to pay the other prior Altor stockholders up to $164.2 million for the CVRs relating to the regulatory milestone and up to $164.2 million for the CVRs relating to the sales milestone should they choose to have these CVRs paid in cash instead of common stock. If this were to occur, we may need to seek additional sources of capital, and we may not be able to achieve profitability or positive cash flow. We plan to collaborate with governmental, academic and corporate partners, including affiliates, to improve and develop Anktiva™, hAd5 and other therapies for new indications for use in combination with other therapies and to improve and develop other product candidates, which may expose us to additional risks, or we may not realize the benefits of such collaborations. We use the Clinic, a related party, in some of our clinical trials which may expose us to significant regulatory risks. If our data for this site is not sufficiently robust or if there are any data integrity issues, we may be required to repeat such studies or required to contract with other clinical trial sites, and our clinical development plans will be significantly delayed, and we will incur additional costs. The Clinic has conducted, is currently conducting, and in the future may conduct, clinical trials involving our product candidates. The Clinic is a related party as it is owned by an officer of the company and additionally, NantWorks, LLC (“NantWorks”) manages the administrative operations of the Clinic. Prior to June 30, 2019, one of the company’s officers was an investigator or sub-investigator for certain of the company’s trials conducted at the Clinic. NantWorks, which is wholly owned by our Executive Chairman and Global Chief Scientific and Medical Officer, Dr. Soon‑Shiong, provides certain administrative services (and has loaned money) to the Clinic. Under certain circumstances, we may be required to report some of these relationships to the FDA. Relying on a related party clinical site to develop data that is used as the basis to support regulatory approval can expose us to significant regulatory risks. The FDA may conclude that a financial relationship between us, the Clinic and/or a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable regulatory authorities may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. If any data integrity, or regulatory non-compliance issues occur during the study, we may not be able to use the data for our regulatory approval. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of regulatory approval of one or more of our product candidates. If we encounter delays or difficulties enrolling and/or maintaining patients in our clinical trials, our clinical development activities and receipt of necessary marketing approvals could be delayed or otherwise adversely affected. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties or delays in patient enrollment and retention in our clinical trials for a variety of reasons, including: • the size and nature of the patient population; • the severity of the disease under investigation; • the patient eligibility criteria defined in the protocol; • the proximity of patients to trial sites; • our ability to recruit clinical trial investigators with the appropriate competencies and experience; • the efforts to facilitate timely enrollment in clinical trials and the effectiveness of recruiting publicity; • the patient referral practices of physicians; • patients that enroll in our studies may misrepresent their eligibility or may otherwise not comply with the clinical trial protocol or clinical investigators may enroll patients who do not meet the enrollment criteria, resulting in the need to drop such patients from the study or clinical trial, increase the needed enrollment size for the study or clinical trial or extend the study’s or clinical trial’s duration; • clinicians’ and patients’ perceptions as to the potential advantages and side effects of the product candidate being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating; 80 Table of Contents • amendments to our clinical protocols, including amendments we have made to further define the patient population to be studied; • ability to obtain and maintain patient consents; • the impact of the current COVID‑19 pandemic or other material adverse events, which may affect the conduct of a clinical trial, including by slowing potential enrollment or reducing the number of eligible patients for clinical trials; and • the risk that patients enrolled in clinical trials will not complete a clinical trial, return for post-treatment follow-up, or follow the required study procedures. In addition, we expect that our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators is limited, we may need to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for cancer and/or viral disease treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and approved immunotherapies that have established safety and efficacy profiles, rather than enroll patients in any future clinical trial. Even if we are able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment or small population size may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates. Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects, adverse events or unexpected characteristics. Combination immunotherapy that includes our current product candidates may be associated with more frequent adverse events or additional adverse events. Undesirable side effects or unacceptable toxicities caused by our product candidates could cause us, IRBs, Drug Safety Monitoring Boards, the FDA or comparable foreign regulatory authorities to interrupt, delay or halt clinical trials or order our clinical trials to be placed on clinical hold, and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities for any or all targeted indications. For example, we currently have a clinical hold on the Phase II/III clinical trial in the U.S. for our hAd5 COVID-19 vaccine candidate pending modifications to the protocol and the FDA’s review of additional information, including immunogenicity and safety data from the Phase I portion of the study. In addition, the FDA or comparable foreign regulatory authorities may also require additional data, clinical studies, or preclinical studies should unacceptable toxicities arise. We may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk/benefit perspective. Toxicities associated with our clinical trials and product candidates may also negatively impact our ability to conduct clinical trials using tumor-infiltrating lymphocyte therapy in larger patient populations, such as in patients that have not yet been treated with other therapies or have not yet progressed on other therapies. Even if we were to receive product approval, such approval could be contingent on inclusion of unfavorable information in our product labeling, such as limitations on the indicated uses for which the products may be marketed or distributed, a label with significant safety warnings, including boxed warnings, contraindications, and precautions, a label without statements necessary or desirable for successful commercialization, or requirements for costly post marketing testing and surveillance, or other requirements, including a Risk Evaluation and Mitigation Strategy (“REMS”) to monitor the safety or efficacy of the products, and in turn prevent us from commercializing and generating revenues from the sale of our current or future product candidates. In addition, these serious adverse effects may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from our product candidates are not normally encountered in the general patient population and by medical personnel. Any of these occurrences may materially harm our business, financial condition and prospects. 81 Table of Contents The manufacture of our product candidates is complex, and we may encounter difficulties in production, particularly with respect to process development, quality control, or scaling-up of our manufacturing capabilities. If we or our related parties, or any of our third-party manufacturers encounter such difficulties, our ability to provide adequate supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure. The manufacture of our product candidates involves complex processes, especially for our biologics, vectors and cell therapy product candidates, which are complex, highly regulated and subject to multiple risks. As a result of the complexities, the cost to manufacture biologics, vectors and cell therapies is generally higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and is more difficult to reproduce. The manufacture of cell therapy products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of cell therapy products often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, shortages of qualified personnel and compliance with strictly enforced federal, state, local and foreign regulations. We may also find that the manufacture of our product candidates is more difficult than anticipated, resulting in an inability to produce a sufficient amount of our product candidates for our clinical trials or, if approved, commercial supply. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects, and other supply disruptions. Currently, our product candidates are manufactured using processes developed or modified by us, our affiliates or by our third-party research institution collaborators that we may not utilize for more advanced clinical trials or commercialization. Currently we manufacture our product candidates or we may use third-party CMOs or some of our related parties to manufacture our product candidates. Our product candidates may compete with other products and product candidates for access to manufacturing facilities. Moreover, because of the complexity and novelty of our manufacturing process, there are only a limited number of manufacturers that operate under cGMP regulations and that are both capable of manufacturing our product candidates for us and willing to do so. If our CMOs should cease manufacturing for us, we would experience delays in obtaining sufficient quantities of our product candidates for clinical trials and, if approved, commercial supply. Further, our CMOs may breach, terminate, or not renew our agreements with them. If we were to need to find alternative manufacturing facilities it may take us significant time to find a replacement, if we are able to find a replacement at all and it would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. The commercial terms of any new arrangement could be less favorable than our existing arrangements and the expenses relating to the transfer of necessary technology and processes could be significant. Reliance on third-party manufacturers entails exposure to risks to which we would not be subject if we manufactured the product candidate ourselves, including: • inability to negotiate manufacturing and quality agreements with third parties under commercially reasonable terms; • reduced day-to-day control over the manufacturing process for our product candidates as a result of using third-party manufacturers for all aspects of manufacturing activities; • reduced control over the protection of our trade secrets, know-how and other proprietary information from misappropriation or inadvertent disclosure or from being used in such a way as to expose us to potential litigation; • termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that may be costly or damaging to us or result in delays in the development or commercialization of our product candidates; and • disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier. Moreover, any problems or delays we or our CMOs experience in preparing for commercial scale manufacturing of a product candidate may result in a delay in the FDA approval of the product candidate or may impair our ability to manufacture commercial quantities or such quantities at an acceptable cost, which could result in the delay, prevention, or impairment of clinical development and commercialization of our product candidates and could adversely affect our business. Furthermore, if we or our CMOs fail to deliver the required commercial quantities of our product candidates on a timely basis and at reasonable costs, we would likely be unable to meet demand for our products and we would lose potential revenues. We may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are commercialized. 82 Table of Contents In addition, the manufacturing process and facilities for any products that we may develop are subject to FDA and foreign regulatory authority approval processes, and we or our CMOs will need to meet all applicable FDA and foreign regulatory authority requirements, including cGMP, on an ongoing basis. The cGMP requirements include quality control, quality assurance and the maintenance of records and documentation. The FDA and other regulatory authorities enforce these requirements through facility inspections. Manufacturing facilities must submit to pre-approval inspections by the FDA that will be conducted after we submit our marketing applications, including our BLAs and NDAs, to the FDA. Manufacturers are also subject to continuing FDA and other regulatory authority inspections following marketing approval. Further, we and our third-party CMOs must supply all necessary chemistry, manufacturing and quality control documentation in support of a BLA or NDA on a timely basis. Our or our CMOs’ manufacturing facilities may be unable to comply with our specifications, cGMP, and with other FDA, state, and foreign regulatory requirements, and there is no guarantee that we or our CMOs will be able to successfully pass all aspects of a pre-approval inspection by the FDA or other foreign regulatory authorities. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of product candidates that may not be detectable in final product testing. If microbial, viral, environmental or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination which could delay clinical trials and adversely harm our business. If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, or in accordance with the strict regulatory requirements, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Deviations from manufacturing requirements may further require remedial measures that may be costly and/or time-consuming for us or a third party to implement and may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. As product candidates progress through preclinical and clinical trials to marketing approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize yield and manufacturing batch size, minimize costs and achieve consistent quality and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability to commercialize our product candidates, if approved, and generate revenues. To the extent we use CMOs, we are ultimately responsible for the manufacture of our products, if approved, and product candidates. A failure to comply with these requirements may result in regulatory enforcement actions against our manufacturers or us, including fines and civil and criminal penalties, which could result in imprisonment, suspension or restrictions of production, injunctions, delay or denial of product approval or supplements to approved products, clinical holds or termination of clinical trials, warning or untitled letters, regulatory authority communications warning the public about safety issues with the biologic, refusal to permit the import or export of the products, product seizure, detention, or recall, operating restrictions, suits under the federal civil False Claims Act (“FCA”), corporate integrity agreements, consent decrees, or withdrawal of product approval. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and have a material adverse effect on our business, financial condition, results of operations and growth prospects. 83 Table of Contents Cell-based therapies and biologics rely on the availability of reagents, specialized equipment and other specialty materials, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products, if approved. Manufacturing our product candidates will require many reagents, which are substances used in our manufacturing processes to bring about chemical or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies with limited resources and experience to support commercial biologics production. For some of these reagents, equipment and materials used in the manufacture of our product candidates, we rely, and we may in the future rely, on sole source vendors or a limited number of vendors. Some of these suppliers may not have the capacity to support clinical trials and commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise be ill-equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to obtain supply contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials and equipment to support clinical or commercial manufacturing. An inability to continue to source product from any of these suppliers, which could be due to a number of issues, including regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business. As we seek to develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain materials and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have a material adverse effect on our business. Even if we are able to alter our process so as to use other materials or equipment, such a change may lead to a delay in our clinical development and/or commercialization plans. If such a change occurs for a product candidate that is already in clinical testing, the change may require us to perform both ex vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. Our ability to use net operating losses and research and development credits to offset future taxable income may be subject to certain limitations. In general, under Sections 382 and 383 of the Internal Revenue Code (“Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses or tax credits (“NOLs”) or credits, to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. We have not conducted a complete study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If we have experienced a change of control, as defined by Section 382, at any time since inception (including as a result of the merger), utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. In addition, our NOLs or credits may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or credits. Since we will need to raise substantial additional funding to finance our operations, we may experience further ownership changes in the future, some of which may be outside of our control. Limits on our ability to use our pre-change NOLs or credits to offset U.S. federal taxable income could potentially result in increased future tax liability to us if we earn net taxable income in the future. In addition, under the legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (“TCJA”), as modified by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the amount of NOLs generated in taxable periods beginning after December 31, 2017, that we are permitted to deduct in any taxable year beginning after December 31, 2020 is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. The TCJA allows post-2017 unused NOLs to be carried forward indefinitely. Similar rules may apply under state tax laws. 84 Table of Contents Changes in tax law could adversely affect our business and financial condition. Negative or unexpected tax consequences could adversely affect our results of operations. New tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our domestic and international business operations, and our business and financial performance. The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us and our stockholders. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, the TCJA significantly reformed the Code. We have generally accounted for such changes in accordance with our understanding of the TCJA and guidance available as of the date of this filing as described in more detail in our condensed consolidated financial statements. Additionally, on March 27, 2020, the CARES Act was enacted, which, among other things, suspends the 80% limitation on the deduction for net operating losses in taxable years beginning before January 1, 2021, permits a 5-year carryback of net operating losses arising in taxable years beginning after December 31, 2017 and before January 1, 2021, and generally caps the limitation on the deduction for net interest expense at 50% of adjusted taxable income for taxable years beginning in 2019 and 2020. It cannot be predicted whether, when, in what form, or with what effective dates, new tax laws may be enacted, or regulations and rulings may be enacted, promulgated or issued under existing or new tax laws, which could result in an increase in our tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof. In addition, adverse changes in the financial outlook of our operations or further changes in tax laws or regulations could lead to changes in our valuation allowances against deferred tax assets on our consolidated balance sheets, which could materially affect our results of operations. Our transfer pricing policies may be subject to challenge by the IRS or other taxing authorities. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the value of assets sold or acquired or income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations. We believe that our financial statements reflect adequate reserves to cover such a contingency, but there can be no assurances in that regard. We could be subject to additional income tax liabilities and to examinations of our tax returns by the IRS and other domestic and foreign tax authorities. An adverse outcome of any such audit or examination by the IRS or other tax authority could have a material adverse effect on our operating results and financial condition. We are a U.S.-based company subject to tax in the U.S. and certain foreign tax jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets or liabilities, and in evaluating our tax positions on a worldwide basis. We may become subject to regular review and audit by the IRS and other tax authorities in various domestic and foreign jurisdictions. As a result, we may in the future receive assessments in multiple jurisdictions on various tax-related assertions. Taxing authorities may in the future challenge our tax positions and methodologies on various matters, including our positions regarding the collection of sales and use taxes, the determination and payment of value added taxes and the jurisdictions in which we are subject to taxes, which could expose us to additional taxes. We regularly assess the likelihood of adverse outcomes resulting from future tax examinations to determine the adequacy of our provision for income taxes. These assessments can require considerable estimates and judgments. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a variety of jurisdictions. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, there can be no assurance that our tax positions and methodologies or calculation of our tax liabilities are accurate or that the outcomes from ongoing and future tax examinations will not have an adverse effect on our operating results and financial condition. 85 Table of Contents Our projections regarding the market opportunities for our product candidates may not be accurate, and the actual market for our products, if approved, may be smaller than we estimate. We do not have verifiable data regarding the potential size of the commercial markets for our current product candidates or any future product candidates. Since our current product candidates and any future product candidates will represent novel approaches to treating various conditions, it may be difficult, in any event, to accurately estimate the potential revenues from these product candidates. Accordingly, we may spend significant capital trying to obtain approval for product candidates that have an uncertain commercial market. Our projections of addressable patient populations that may benefit from treatment with our product candidates are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, or market research by third parties, and may prove to be incorrect. Further, new studies or approvals of new therapeutics may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates and may also be limited by the cost of our treatments and the reimbursement of those treatment costs by third-party payors. Even if we obtain significant market share for our product candidates, because the potential target populations may be small, we may never achieve profitability without obtaining regulatory approval for additional indications. Because our current product candidates represent, and our other potential product candidates will represent novel approaches to the treatment of disease, there are many uncertainties regarding the development, market acceptance, third-party reimbursement coverage and the commercial potential of our product candidates. Human immunotherapy products are a new category of therapeutics. Because this is a relatively new and expanding area of novel therapeutic interventions, there are many uncertainties related to development, marketing, reimbursement and the commercial potential for our product candidates. There can be no assurance as to the length of the trial period, the number of patients the FDA will require to be enrolled in the trials in order to establish the safety, efficacy, purity and potency of immunotherapy products, or that the data generated in these trials will be acceptable to the FDA to support marketing approval. The FDA may take longer than usual to come to a decision on any BLA and/or NDA that we submit and may ultimately determine that there is not enough data, information, or experience with our product candidates to support an approval decision. The FDA may also require that we conduct additional post-marketing studies or implement risk management programs, such as REMS, until more experience with our product candidates is obtained. Finally, after increased usage, we may find that our product candidates do not have the intended effect, do not work with other combination therapies or have unanticipated side effects, potentially jeopardizing initial or continuing regulatory approval and commercial prospects. There is no assurance that the approaches offered by our product candidates will gain broad acceptance among doctors or patients or that governmental agencies or third-party medical insurers will be willing to provide reimbursement coverage for our proposed product candidates. The market for any products that we successfully develop will also depend on the cost of the product. We do not yet have sufficient information to reliably estimate what it will cost to commercially manufacture our current product candidates, and the actual cost to manufacture these products could materially and adversely affect the commercial viability of these products. Our goal is to reduce the cost of manufacturing and providing our therapies. However, unless we can reduce those costs to an acceptable amount, we may never be able to develop a commercially viable product. If we do not successfully develop and commercialize products based upon our approach or find suitable and economical sources for materials used in the production of our potential products, we will not become profitable, which would materially and adversely affect the value of our common stock. Our Anktiva™ therapies and our other therapies may be provided to patients in combination with other agents provided by third parties or our affiliates. The cost of such combination therapy may increase the overall cost of therapy and may result in issues regarding the allocation of reimbursements between our therapy and the other agents, all of which may affect our ability to obtain reimbursement coverage for the combination therapy from governmental or private third-party medical insurers. 86 Table of Contents If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates. We face an inherent risk of product liability as a result of the clinical development, testing and manufacturing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. Large judgements have been awarded in class action lawsuits based on therapeutics that had unanticipated side effects. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in a regulatory investigation of the safety and effectiveness of our products, our third-party manufacturer’s manufacturing processes and facilities or our marketing programs and potentially a recall of our products or more serious enforcement action, including limitations on the approved indications for which our product candidates may be used or suspension or withdrawal of approvals, decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s time and our resources, substantial monetary awards to trial participants or patients and a decline in our stock price. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we may develop, alone or with corporate collaborators. Our insurance policies may also have various exclusions, and we may be subject to product liability claims for which we have no coverage. While we have obtained clinical trial insurance for our clinical trials, we may have to pay amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise. We will face significant competition from other biotechnology and pharmaceutical companies and from non-profit institutions. Competition in the field of cancer and viral infectious disease therapy is intense and is accentuated by the rapid pace of technological development. Based on the breadth and depth of our platforms, we believe our competitors include large pharmaceutical and biotechnology companies, and specialized pharmaceutical and biotechnology firms acting either independently or together with other such companies. Furthermore, academic institutions, government agencies and other public and private organizations conducting research in the U.S. and Europe are also potential competitors and may seek patent protection or may establish collaborative arrangements for competitive products or programs. These competitors have developed, may develop and are developing product candidates and processes competitive with our product candidates. Research and discoveries by others may result in breakthroughs which may render our product candidates obsolete even before they generate any revenues. We believe that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which we are developing product candidates. Many of our competitors have several therapeutic products that have already been developed, approved and successfully commercialized, or are in the process of obtaining regulatory approval for their therapeutic products in the United States and internationally. Many of our potential competitors have substantially greater research and development capabilities and scientific, regulatory, manufacturing, marketing, sales, financial, managerial, and human resources and experience than we do. Our competitors may be more successful than us in obtaining regulatory approval for their treatments and products, often more rapidly than we may obtain approval for ours, and achieving widespread market acceptance and a strong market position, rendering our treatments obsolete or non-competitive, possibly even before we are able to enter the market. Accelerated merger and acquisition activity in the biotechnology and biopharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. 87 Table of Contents Our competitors may: • develop safer, more convenient or more effective immunotherapies and other therapeutic products; • develop therapies that are less expensive or have better reimbursement from private or public payors; • reach the market more rapidly, reducing the potential sales of our product candidates; or • establish superior proprietary positions. Even if we obtain regulatory approval for our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our therapies. The level of generic competition and the availability of reimbursement from government and other third-party payors will also significantly affect the pricing and competitiveness of our products. A large number of companies, government agencies and academic centers around the world are developing COVID ‑ 19 vaccines, and many of these entities are in more advanced stages of development than we are, including some that have started Phase II and/or III clinical trials or have already obtained emergency regulatory approval in the United States and internationally. Even if our COVID ‑ 19 vaccine candidate is ultimately approved for marketing, the value of our opportunity will be adversely impacted by other COVID ‑ 19 vaccines that have obtained emergency regulatory approval, obtain full regulatory approval, or demonstrate better efficacy or safety than our COVID ‑ 19 vaccine candidate. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from other methods of treatment to our product, or if physicians switch to other new therapies, drugs or biologic products or choose to reserve our product candidates for use in limited circumstances. We may be adversely impacted if any of these competitors gain market share as a result of new technologies, commercialization strategies or otherwise. Public opinion and scrutiny of immunotherapy approaches may impact public perception of us and our product candidates, which may adversely affect our ability to conduct our business and implement our business plans. We use relatively novel technologies involving the Anktiva™, aldoxorubicin, hAd5 and yeast technologies and cell-based therapies and our natural killer cell platform utilizes a relatively novel technology involving the genetic modification of human cells and utilization of those modified cells in other individuals. Public perception may be influenced by claims, such as claims that our technologies are unsafe, unethical or immoral and, consequently, our approach may not gain the acceptance of the public or the medical community. Negative public reaction to cell-based immunotherapy in general could result in greater government regulation and stricter labeling requirements of immunotherapy products, including our product candidates, and could cause a decrease in the demand for any products we may develop. Adverse public attitudes may adversely impact our ability to enroll patients in clinical trials. Moreover, our success will depend upon physicians specializing in the treatment of those diseases that our product candidates target prescribing, and their patients being willing to receive treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments they are already familiar with and for which greater clinical data may be available. More restrictive government regulations or negative public opinion could have an adverse effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop. Adverse events in our clinical trials, even if not ultimately attributable to our product candidates, and the resulting publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. 88 Table of Contents We may seek orphan drug status or Fast Track or Breakthrough Therapy designations or other designation for one or more of our product candidates, but even if any such designation or status is granted, it may not lead to faster development or a faster regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval and we may be unable to maintain any benefits associated with such designations or status, including market exclusivity. In 2012, the FDA established a Breakthrough Therapy designation, which is intended to expedite the development and review of products that treat serious or life-threatening conditions. We have received, and may seek in the future, Fast Track or Breakthrough Therapy designation for current or future product candidates. Receipt of a designation to facilitate product candidate development is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for a designation, the FDA may disagree. In any event, the receipt of such a designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures and does not assure ultimate marketing approval by the FDA. In addition, the FDA may later decide that the product candidates no longer meet the designation conditions. Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition or for which there is no reasonable expectation that the cost of developing and making available the drug or biologic will be recovered from sales in the U.S. If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full BLA to market the same drug or biologic for the same indication for seven years, except in limited circumstances. We may seek orphan drug status for one or more of our product candidates, but exclusive marketing rights in the U.S. may be lost if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. As a condition of approval, the FDA may require that we implement various post-marketing requirements and conduct post-marketing studies, any of which would require a substantial investment of time, effort, and money, and which may limit our commercial prospects. As a condition of biologic licensing, the FDA is authorized to require that sponsors of approved BLAs implement various post-market requirements, including REMS and Phase IV trials. For example, in connection with FDA approval of another company’s drug, the FDA required significant post-marketing commitments, including a Phase IV trial, revalidation of a test method, and a substantial REMS program that included, among other requirements, the certification of hospitals and their associated clinics that dispensed the drug, including the implementation of a training program and limited distribution only to certified hospitals and their associated clinics. If we receive approval of our product candidates, the FDA may determine that similar or additional or more burdensome post-approval requirements are necessary to ensure that our product candidates are safe, pure and potent. To the extent that we are required to establish and implement any post-approval requirements, we will likely need to invest a significant amount of time, effort and money. Such post-approval requirements may also limit the commercial prospects of our product candidates. We have never commercialized a product candidate before, and we may lack the necessary expertise, personnel and resources to successfully commercialize any products on our own or together with suitable collaborators. We may be unable to establish effective marketing and sales capabilities or enter into agreements with third parties or related parties to market and sell our product candidates, if they are approved, and as a result, we may be unable to generate product revenues. We have little to no prior experience in, and currently do not have a commercial infrastructure for, the marketing, sale and distribution of biopharmaceutical products. To achieve commercial success for the product candidates, which we may license to others, we will rely on the assistance and guidance of those collaborators. For product candidates for which we retain commercialization rights and marketing approval, if approved, in order to commercialize our product candidates, we must build our marketing, sales and distribution capabilities, including a comprehensive healthcare compliance program, or arrange with third parties to perform these services, which will take time and require significant financial expenditures and could delay any product launch and we may not be successful in doing so. There are significant risks involved with building and managing a 89 Table of Contents commercial infrastructure. We, or our collaborators, will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train, manage and retain medical affairs, marketing, sales and commercial support personnel. Recruiting, training and retaining a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have incurred these commercialization expenses prematurely or unnecessarily. These efforts may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In the event we are unable to develop a commercial infrastructure, we may not be able to commercialize our current or future product candidates, which would limit our ability to generate product revenues. Even if we are able to effectively establish a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing our current or future product candidates. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we would have less control over their sales efforts and could be held liable if they failed to comply with applicable legal or regulatory requirements. Factors that may inhibit our efforts to commercialize our current or future product candidates and generate product revenues include: • if the COVID‑19 pandemic continues or reoccurs it may negatively impact our ability to establish commercial operations, educate and interact with healthcare professionals, and successfully launch our product on a timely basis; • the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe our current or future product candidates; • our inability to effectively oversee a geographically dispersed sales and marketing team; • the costs and time associated with the initial and ongoing training of sales and marketing personnel on legal and regulatory compliance matters and monitoring their actions; • an inability to secure adequate coverage and reimbursement by government and private health plans; • the clinical indications for which the products are approved and the claims that we may make for the products; • limitations or warnings, including distribution or use restrictions, contained in the products’ approved labeling; • any distribution and use restrictions imposed by the FDA or to which we agree as part of a mandatory REMS or voluntary risk management plan; • liability for sales or marketing personnel who fail to comply with the applicable legal and regulatory requirements; • the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and • unforeseen costs and expenses associated with creating an independent sales and marketing organization or engaging a contract sales organization. We expect to rely on third parties to perform many essential services for any products that we commercialize, including services related to distribution, government price reporting, customer service, accounts receivable management, cash collection and adverse event reporting. If these third parties fail to perform as expected or to comply with legal and regulatory requirements, our ability to commercialize our current or future product candidates will be significantly impacted and we may be subject to regulatory sanctions. We expect to retain third-party service providers to perform a variety of functions related to the sale of our current or future product candidates, key aspects of which will be out of our direct control. These service providers may provide key services related to distribution, customer service, accounts receivable management, and cash collection. If we retain a service provider, we would substantially rely on it as well as other third-party providers that perform services for us, including entrusting our inventories of products to their care and handling. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected deadlines or otherwise do not carry out their contractual duties to us, or encounter physical or natural damage at their facilities, our ability to deliver product to meet commercial demand would be significantly impaired and we may be subject to regulatory enforcement action. 90 Table of Contents In addition, we may engage in the future with third parties to perform various other services for us relating to adverse event reporting, safety database management, fulfillment of requests for medical information regarding our product candidates and related services. If the quality or accuracy of the data maintained by these service providers is insufficient, or these third parties otherwise fail to comply with regulatory requirements related to adverse event reporting, we could be subject to regulatory sanctions. Additionally, we may contract in the future with a third party to calculate and report pricing information mandated by various government programs. If a third party fails to timely report or adjust prices as required or errs in calculating government pricing information from transactional data in our financial records, it could impact our discount and rebate liability, and potentially subject us to regulatory sanctions or FCA lawsuits. If our product candidates do not achieve broad market acceptance, the revenues that we generate from their sales will be limited. We have not commercialized a product candidate for any indication. Even if our product candidates are approved by the appropriate regulatory authorities for marketing and sale, they may not gain acceptance among physicians, patients, third-party payors and others in the medical community. If any product candidate for which we obtain regulatory approval does not gain an adequate level of market acceptance, we may not generate significant product revenues or become profitable. Market acceptance of our product candidates by the medical community, patients and third-party payors will depend on a number of factors, some of which are beyond our control. For example, physicians are often reluctant to switch their patients, and patients may be reluctant to switch from, existing therapies even when new and potentially more effective or safer treatments enter the market. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. Even if the medical community accepts that our product candidates are safe and effective for their approved indications, physicians and patients may not immediately be receptive to such product candidates and may be slow to adopt them as an accepted treatment of the approved indications. If any of our product candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of any of our product candidates will depend on a number of factors, including: • the continued safety and efficacy of our product candidates; • the prevalence and severity of adverse events associated with such product candidates; • the clinical indications for which the products are approved and the approved claims that we may make for the products; • limitations or warnings contained in the product’s FDA-approved labeling, including potential limitations or warnings for such products that may be more restrictive than other competitive products or distribution and use restrictions imposed by the FDA with respect to such product candidates or to which we agree as part of a mandatory REMS or voluntary risk management plan; • changes in the standard of care for the targeted indications for such product candidates; • the relative difficulty of administration of such product candidates; • our ability to offer such product candidates for sale at competitive prices, including the cost of treatment versus economic and clinical benefit in relation to alternative treatments or therapies; • the availability of adequate coverage or reimbursement by third parties, such as insurance companies and other healthcare payors, and by government healthcare programs, including Medicare and Medicaid; • the extent and strength of our marketing and distribution of such product candidates; • the safety, efficacy and other potential advantages over, and availability of, alternative treatments already used or that may later be approved for any of our intended indications; • the timing of market introduction of such product candidates, as well as competitive products; • the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; • the extent and strength of our third-party manufacturer and supplier support; 91 Table of Contents • adverse publicity about the product or favorable publicity about competitive products; and • potential product liability claims. If any product candidate we commercialize fails to achieve market acceptance, it could have a material and adverse effect on our business, financial condition, results of operations and prospects. Our product candidates may face competition sooner than anticipated. The enactment of the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) created an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, the FDA cannot make an approval of an application for a biosimilar product effective until 12 years after the original branded product was approved under a BLA. Certain changes, however, and supplements to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest or other related entity do not qualify for the 12-year exclusivity period. Our product candidates may qualify for the BPCIA’s 12-year period of exclusivity. However, there is a risk that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Additionally, this period of regulatory exclusivity does not block companies pursuing regulatory approval via their own traditional BLA, rather than via the abbreviated pathway. Changes may also be made to this exclusivity period as a result of future legislation as there have been ongoing efforts to reduce the period of exclusivity. Even if we receive a period of BPCIA exclusivity for our first licensed product, if subsequent products do not include a modification to the structure of the product that impacts safety, purity, or potency, we may not receive additional periods of exclusivity for those products. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference product candidates in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. Medicare Part B encourages use of biosimilars by paying the provider the same percentage of the reference product average sale price as a mark-up, regardless of which product is reimbursed. It is also possible that payors will give reimbursement preference to biosimilars even over reference biologics absent a determination of interchangeability. For our small molecular product candidates, if qualified, the regulatory exclusivity period is less than for our biologic product candidates. The Federal Food, Drug, and Cosmetic Act (“FDCA”) provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a drug where the FDA has not previously approved any other new drug containing the same active molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application or a 505(b)(2) NDA submitted by another company for a generic version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. As such, we may face competition from generic versions of our small molecule product candidates, which will negatively impact our long-term business prospects and marketing opportunities. We will need to obtain FDA approval of any proposed branded product names, and any failure or delay associated with such approval may adversely affect our business. Any name we intend to use for our product candidates in the United States will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office (“USPTO”). The FDA typically conducts a review of proposed product names, including an evaluation of the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies medical claims or contributes to an overstatement of efficacy. If the FDA objects to any of our proposed product names, we may be required to adopt alternative names for our product candidates. If we adopt alternative names, we would lose the benefit of any existing 92 Table of Contents trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe or otherwise violate the existing rights of third parties, and be acceptable to the FDA. We may be unable to build a successful brand identity for a new product name in a timely manner or at all, which would limit our ability to commercialize our product candidates. Our internal computer systems, or those used by our CROs, CMOs, clinical sites or other contractors or consultants, may fail or suffer security breaches. We will be dependent upon information technology systems, infrastructure and data. In the ordinary course of our business, we will directly or indirectly collect, store and transmit sensitive data, including intellectual property, confidential information, preclinical and clinical trial data, proprietary business information, personal data and personally identifiable health information of our clinical trial subjects and employees, in our data centers and on our networks, or on those of third parties. The secure processing, maintenance and transmission of this information is critical to our operations. The multitude and complexity of our computer systems and those of our CROs, CMOs, clinical sites or other contractors or consultants make them inherently vulnerable to service interruption or destruction, malicious intrusion and random attack. Data privacy or security breaches by third parties, employees, contractors or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, patients, or other business partners may be exposed to unauthorized persons or to the public. Despite the implementation of security measures, our internal computer systems and those of our CROs, CMOs, clinical sites and other contractors and consultants are vulnerable to failure or damage from computer viruses and other malware, employee error, unauthorized and authorized access or other cybersecurity attacks, natural disasters, terrorism, war, fire and telecommunication and electrical failures. Cyberattacks are increasing in their frequency, sophistication and intensity. The techniques used by cyber criminals change frequently, may not be recognized until launched and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments or agencies. Cyberattacks could include the deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. While we and our shared services partner, NantWorks, have invested, and continue to invest, in the protection of our data and information technology infrastructure, there can be no assurance that our efforts, or the efforts of our partners, vendors, CROs, CMOs, clinical sites and other contractors and consultants will prevent service interruptions, or identify breaches in our or their systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches. If any such event were to occur and cause interruptions in our operations, it could result in a disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for a product candidate could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data, or may limit our ability to effectively execute a product recall, if required. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development and commercialization of any product candidates could be delayed. Any such event could also result in legal claims or proceedings, liability under laws that protect the privacy of personal information and significant regulatory penalties, and damage to our reputation and a loss of confidence in us and our ability to conduct clinical trials. Our business could be adversely affected by the effects of health epidemics, pandemics or contagious diseases, including the recent COVID‑19 pandemic, in regions where we or third parties on which we rely have significant manufacturing facilities, concentrations of clinical trial sites or other business operations. Outbreaks of epidemic, pandemic or contagious diseases, such as the COVID ‑ 19 pandemic, may significantly disrupt our operations and adversely affect our business, financial condition and results of operations. In March 2020, the World Health Organization declared the outbreak of COVID ‑ 19 as a pandemic as the novel coronavirus continues to spread throughout the world. The spread of this pandemic has caused significant volatility and uncertainty in the U.S. and international markets and has resulted in increased risks to our operations. The COVID ‑ 19 pandemic and any actions we have taken in response, could 93 Table of Contents materially affect our operations, including at our headquarters and at our manufacturing facilities, which have been and may in the future be subject to state executive orders and shelter-in-place orders, and at our clinical trial sites, as well as the business or operations of our CROs, CMOs, clinical sites or other third parties with whom we conduct business. Any such epidemic or pandemic may heighten the risk that a significant portion of our workforce could suffer illness or otherwise not be permitted or be unable to work, and may require that certain of our employees work remotely, which heightens certain risks, including those related to cybersecurity and internal controls. We are monitoring a number of risks related to this pandemic, including the following: • Financial : We anticipate that the pandemic could have an adverse financial impact in the short-term and potentially beyond. We expect to continue spending on research and development during the year ending December 31, 2021 and beyond, and we could also have unexpected expenses related to the pandemic. The short-term continued expenses, as well as the overall uncertainty and disruption caused by the pandemic, will likely cause a delay in our ability to commercialize a product and adversely impact our financial results. • Manufacturing : The pandemic has impacted, and may continue to impact, our manufacturing locations, including through the effects of facility closures, reductions in operating hours and other social distancing efforts. For example, if even a small number of our employees in our working clusters related to manufacturing, analytical, process development, or translational research, tested positive for COVID‑19, it would require us to temporarily close a number of our offices or manufacturing facilities and temporarily suspend operations in order to conduct a deep clean of the facilities in order to ensure the safety of our employees. Additionally, we cannot predict whether these conditions and concerns will continue or whether we will experience more significant or frequent disruptions in the future, including the complete closure of one or more of our facilities. • Supply Chain : An extended duration of this pandemic could result in significant disruptions in our respective supply chains and distribution channels in the future. For example, quarantines, shelter-in-place and similar government orders, travel restrictions and health impacts of the COVID ‑ 19 pandemic, could impact the availability or productivity of personnel at third-party laboratory supply manufacturers, distributors, freight carriers and other necessary components of our supply chain. In addition, there may be unfavorable changes in the availability or cost of raw materials, intermediates and other materials necessary for production, which may result in disruptions in our supply chain and adversely affect our ability to have manufactured certain product candidates for clinical supply. • Clinical Trials : This pandemic may adversely affect certain of our clinical trials, including our ability to initiate and complete our clinical trials within the anticipated timelines. Due to site and participant availability during the pandemic, new subject enrollment is expected to slow, at least in the short-term, for most of our clinical trials. For ongoing trials, we have seen an increasing number of clinical trial sites imposing restrictions on patient visits to limit risks of possible COVID ‑ 19 exposure, and we may experience issues with participant compliance with clinical trial protocols as a result of quarantines, travel restrictions and interruptions to healthcare services. The current pressures on medical systems and the prioritization of healthcare resources toward the COVID ‑ 19 pandemic have also resulted in interruptions in data collection and submissions for certain clinical trials and delayed starts for certain planned studies. As a result, our anticipated filing and marketing timelines may be adversely impacted. • Overall Economic and Capital Markets Environment : The impact of the COVID ‑ 19 pandemic could result in a prolonged recession or depression in the United States or globally that could harm the banking system, limit demand for all products and services and cause other seen and unforeseen events and circumstances, all of which could negatively impact us. The continued spread of COVID ‑ 19 has led to and could continue to lead to severe disruption and volatility in the United States and global capital markets, which could result in a decline in stock price, increase our cost of capital and adversely affect our ability to access the capital markets in the future. In addition, trading prices on the public stock market have been highly volatile as a result of the COVID ‑ 19 pandemic. • Regulatory Reviews : The operations of the FDA or other regulatory agencies may be adversely affected. In response to COVID ‑ 19, federal, state and local governments are issuing new rules, regulations, orders and advisories on a regular basis. These government actions can impact us, our members and our suppliers. There is also the possibility that we may experience delays with obtaining approvals for our IND applications, BLAs, and/or NDAs. 94 Table of Contents We have formed, and may in the future form or seek, strategic alliances or enter into collaborations with third parties or additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements. If we fail to enter into such strategic alliances, collaborations or licensing arrangements, or such strategic alliances, collaborations or licensing arrangements are not successful, we may not be able to capitalize on the market potential of our product candidates. We have formed, and may in the future form or seek, strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third and related parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. For example, we have entered into an agreement whereby Viracta Therapeutics, Inc. (“Viracta”) granted to us exclusive world-wide rights to Viracta’s Phase II drug candidate, VRx-3996, for use in combination with our platform of NK cell therapies. However, if Viracta fails to raise sufficient capital to complete their pivotal Phase II trial, if their trial is unsuccessful, or if our future clinical trial of NK cell therapy in combination with VRx-3996 fails, the value of the Viracta license would be adversely affected. We plan to collaborate with governmental, academic and corporate partners, including affiliates, to improve and develop Anktiva™, hAd5 and other therapies for new indications for use in combination with other therapies and to improve and develop other product candidates, which may expose us to additional risks, or we may not realize the benefits of such collaborations. Because some of our collaborations are conducted at outside laboratories, and we do not have complete control over how the studies are conducted or reported or over the manufacturing methods used to manufacture our Anktiva™ product candidate, the results of such studies, which we may use as the basis for our conclusions, projections or decisions with respect to our current or future product candidates, may be incorrect or unreliable, or may have a negative impact on us if the results of such studies are imputed to our product candidates or proposed indications, even if such imputation is improper. Additionally, we may use third-party data to analyze, reach conclusions or make predictions or decisions with respect to our product candidates that may be incomplete, inaccurate or otherwise unreliable. Further, collaborations involving our product candidates will be subject to numerous risks, which may include the following: • collaborators, including their related or affiliated companies, may be entitled to receive exclusive rights for or involving our products; • collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration; • collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization of our product candidates based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; • collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; • collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates; • a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and distribution; • collaborators may not properly maintain, defend or enforce our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; • disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources; 95 Table of Contents • collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; • if an agreement with any collaborator terminates, our access to technology and intellectual property licensed to us by that collaborator may be restricted or terminate entirely, which may delay our continued development of our product candidates utilizing the collaborator’s technology or intellectual property or require us to stop development of those product candidates completely; and • collaborators may own or co-own intellectual property covering our product candidates or technology that results from our collaborating with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property. As a result, if we enter into collaboration agreements and strategic partnerships or license our product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, which could delay our timelines or otherwise adversely affect our business. Additionally, exclusive rights that we may grant in connection with collaboration agreements may limit our ability to enter into new or additional collaboration agreements or strategic partnerships if we experience issues with existing collaborations. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If conflicts arise between us and our collaborators or strategic partners, these parties may act in a manner adverse to us and could limit our ability to implement our strategies. If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in a manner adverse to us and could limit our ability to implement our strategies. Some of our existing academic collaborators and strategic partners are conducting multiple product development efforts. Such current or future collaborators or strategic partners could become our competitors in the future and could develop competing products, preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with us prematurely or fail to devote sufficient resources to the development and commercialization of our product candidates. Competing product candidates, either developed by the collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of our collaborator’s or partner’s support for our product candidates. For example, in May 2019, Sorrento Therapeutics, Inc. (“Sorrento”) with which we jointly established a new entity called Immunotherapy NANTibody, LLC (“NANTibody”) as a stand-alone biotechnology company, commenced litigation against us and certain of our officers and directors, alleging that we improperly caused NANTibody to acquire IgDraSol, Inc. and in January 2020 and April 2020, Sorrento sent letters purporting to terminate an exclusive license agreement with us and an exclusive license agreement with NANTibody. Additionally, in July 2020, we received a Request for Arbitration before the International Chamber of Commerce, International Court of Arbitration, served by Shenzhen Beike Biotechnology Co. Ltd. asserting breach of contract under our subsidiary Altor’s license agreement with them. For more information regarding these disputes, see Note 7 , Commitments and Contingencies—Litigation , of the “Notes to Unaudited Condensed Consolidated Financial Statements” that appear in Part 1. Item 1. “Financial Statements” of this Quarterly Report on Form 10‑Q. Any of these developments could harm our product development efforts. 96 Table of Contents We will be heavily dependent on our senior management, particularly Dr. Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, and a loss of a member of our senior management team in the future, even if only temporary, could harm our business. Our operations will be dependent upon the services of our executives and our employees who are engaged in research and development. If we lose the services of members of our senior management, particularly Dr. Soon-Shiong, for a short or an extended time, for any reason, we may not be able to find appropriate replacements on a timely basis, and our business, financial condition and results of operations could be materially adversely affected. Our existing operations and our future development depend to a significant extent upon the performance and active participation of certain key individuals, particularly Dr. Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer. Although Dr. Soon-Shiong focuses heavily on our matters and is highly active in our management, he does devote a significant amount of his time to a number of different endeavors and companies, including NantHealth, Inc., NantMedia Holdings, LLC (which operates the Los Angeles Times and the San Diego Union-Tribune) and NantWorks, which is a collection of multiple companies in the healthcare and technology space. The risks related to our dependence upon Dr. Soon-Shiong are particularly acute given his ownership percentage, the commercial and other relationships that we have with entities affiliated with him, his role in our company and his public reputation. We may also be dependent on additional funding from Dr. Soon-Shiong and his affiliates, which may not be available when needed and which he is under no obligation to provide. To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided, and plan to continue providing, equity incentive awards that vest over time. The value to employees of equity incentive awards that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. We do not have employment agreements with our key employees and all of our employees are hired on an “at-will” basis, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth. Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of their attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. In order to develop our business in accordance with our business plan, we will have to hire additional qualified personnel, including in the areas of research, manufacturing, clinical trials management, regulatory affairs, and sales and marketing. We are continuing our efforts to recruit and hire the necessary employees to support our planned operations in the near term. However, competition for qualified personnel in the biotechnology and pharmaceuticals industry is intense due to the limited number of individuals who possess the skills and experience required, and no assurance can be given that we will be able attract, hire, retain and motivate the highly skilled employees that we need, on acceptable terms or at all. Future growth will impose significant added responsibilities on members of management, including: • identifying, recruiting, integrating, maintaining, and motivating additional employees; • managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and • improving our operational, financial and management controls, reporting systems, and procedures. We currently rely, and for the foreseeable future we expect to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements on economically reasonable terms, or at all. In addition, if we are unable to effectively manage our outsourced activities or if the quality, compliance or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed, or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. 97 Table of Contents If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development, and commercialization goals on a timely basis, or at all. If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks. We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including: • assimilation of operations, intellectual property and products of an acquired company or product, including difficulties associated with integrating new personnel; • the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition; • retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships; • risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals; and • our inability to generate revenues from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs. Depending on the size and nature of future strategic acquisitions, we may acquire assets or businesses that require us to raise additional capital or to operate or manage businesses in which we have limited experience. Making larger acquisitions that require us to raise additional capital to fund the acquisition will expose us to the risks associated with capital raising activities. Acquiring and thereafter operating larger new businesses will also increase our management, operating and reporting costs and burdens (including increased cash requirements). In addition, if we undertake acquisitions, we may issue dilutive equity securities, assume or incur additional debt obligations or contingent liabilities, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business. We may become involved in securities litigation or stockholder derivative litigation in connection with our recent merger, and this could divert the attention of our management and harm our business, and insurance coverage may not be sufficient to cover all related costs and damages. Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. We are involved in this type of litigation in connection with our recent merger, and we may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business and the combined company. A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business. We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including: • differing regulatory requirements in foreign countries; • unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements; • economic weakness, including inflation, or political instability in particular foreign economies and markets; 98 Table of Contents • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • foreign taxes, including withholding of payroll taxes; • foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; • difficulties staffing and managing foreign operations; • workforce uncertainty in countries where labor unrest is more common than in the United States; • differing payor reimbursement regimes, governmental payors or patient self-pay systems, and price controls; • potential liability under the Foreign Corrupt Practices Act of1977 (“FCPA”) or comparable foreign regulations; • challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States; • production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; • the impact of public health epidemics on the global economy, such as the coronavirus pandemic currently having an impact throughout the world; and • business interruptions resulting from geo-political actions, including war and terrorism. These and other risks associated with international operations may materially adversely affect our ability to attain or maintain profitable operations. Risks Related to Government Regulation We may be unable to obtain U.S. or foreign regulatory approval and, as a result, unable to commercialize our product candidates. We are, and if we receive regulatory approval of our product candidates, will continue to be subject to ongoing extensive regulation, regulatory obligations and continued regulatory review, which may result in significant additional expense. Our product candidates are subject to extensive governmental regulations relating to, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs and therapeutic biologics. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process are required to be successfully completed in the United States and in many foreign jurisdictions before a new drug or therapeutic biologic can be marketed. Satisfaction of these and other regulatory requirements is costly, lengthy, time-consuming, uncertain and subject to unanticipated delays and can vary substantially based upon the type, complexity and novelty of the products involved. We will not be permitted to market or promote any of our product candidates without receiving regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for a