ImmunityBio, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) March 31, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 88,481 $ 104,641 Marketable securities 2,787 2,543 Due from related parties 1,464 1,890 Prepaid expenses and other current assets (including amounts with related parties) 20,754 31,503 Total current assets 113,486 140,577 Marketable securities, noncurrent 820 840 Property, plant and equipment, net 154,165 143,659 Intangible assets, net 19,502 20,003 Convertible note receivable 6,691 6,629 Operating lease right-of-use assets, net (including amounts with related parties) 44,191 45,788 Other assets (including amounts with related parties) 4,545 4,860 Total assets $ 343,400 $ 362,356 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 33,573 $ 21,016 Accrued expenses and other liabilities 54,118 41,825 Related-party promissory notes, net of discounts and deferred issuance costs ( Note 9 ) 441,628 431,901 Related-party convertible note at fair value ( Note 5 and Note 9 ) 29,850 — Due to related parties 2,932 3,469 Operating lease liabilities (including amounts with related parties) 2,844 2,650 Total current liabilities 564,945 500,861 Related-party convertible notes and accrued interest, net of discount ( Note 9 ) 245,640 241,271 Operating lease liabilities, less current portion (including amounts with related parties) 46,289 47,951 Warrant liabilities 17,780 21,636 Other liabilities 462 457 Total liabilities 875,116 812,176 Commitments and contingencies ( Note 7 ) Stockholders’ deficit: Common stock, $ 0.0001 par value; 900,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 435,923,104 and 421,569,115 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively; excluding treasury stock, 163,800 shares outstanding as of March 31, 2023 and December 31, 2022, respectively 43 42 Additional paid-in capital 1,965,838 1,930,936 Accumulated deficit ( 2,494,831 ) ( 2,378,488 ) Accumulated other comprehensive (loss) income ( 33 ) 183 Total ImmunityBio stockholders’ deficit ( 528,983 ) ( 447,327 ) Noncontrolling interests ( 2,733 ) ( 2,493 ) Total stockholders’ deficit ( 531,716 ) ( 449,820 ) Total liabilities and stockholders’ deficit $ 343,400 $ 362,356 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 March 31, 2023 2022 Revenue $ 360 $ 14 Operating expenses: Research and development (including amounts with related parties) 79,264 55,378 Selling, general and administrative (including amounts with related parties) 32,676 40,608 Total operating expenses 111,940 95,986 Loss from operations ( 111,580 ) ( 95,972 ) Other income (expense), net: Interest and investment income, net 673 1,666 Interest expense (including amounts with related parties) ( 29,816 ) ( 8,491 ) Loss on equity method investment ( 2,337 ) ( 197 ) Change in fair value of warrant liabilities 27,554 — Other expense, net (including amounts with related parties) ( 1,077 ) ( 4 ) Total other expense, net ( 5,003 ) ( 7,026 ) Loss before income taxes and noncontrolling interests ( 116,583 ) ( 102,998 ) Income tax expense — — Net loss ( 116,583 ) ( 102,998 ) Net loss attributable to noncontrolling interests, net of tax ( 240 ) ( 172 ) Net loss attributable to ImmunityBio common stockholders $ ( 116,343 ) $ ( 102,826 ) Net loss per ImmunityBio common share – basic and diluted $ ( 0.27 ) $ ( 0.26 ) Weighted-average number of common shares used in computing net loss per share – basic and diluted 428,381,485 397,882,441 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 March 31, 2023 2022 Net loss $ ( 116,583 ) $ ( 102,998 ) Other comprehensive income (loss), net of income taxes: Net unrealized gains (losses) on available-for-sale securities 4 ( 310 ) Reclassification of net realized gains on available-for-sale securities included in net loss 6 — Foreign currency translation adjustments ( 226 ) ( 61 ) Total other comprehensive loss ( 216 ) ( 371 ) Comprehensive loss ( 116,799 ) ( 103,369 ) Less: Comprehensive loss attributable to noncontrolling interests ( 240 ) ( 172 ) Comprehensive loss attributable to ImmunityBio common stockholders $ ( 116,559 ) $ ( 103,197 ) 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 March 31, 2023 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total ImmunityBio Stockholders’ Deficit Noncontrolling Interests Total Stockholders’ Deficit Shares Amount Balance as of December 31, 2022 421,569,115 $ 42 $ 1,930,936 $ ( 2,378,488 ) $ 183 $ ( 447,327 ) $ ( 2,493 ) $ ( 449,820 ) Issuance of shares in a registered direct offering, net of discount and offering costs of $ 2,046 and value ascribed to associated warrants ( Note 11 ) 14,072,615 1 24,255 — — 24,256 — 24,256 Stock-based compensation expense — — 10,878 — — 10,878 — 10,878 Exercise of stock options 81,037 — 126 — — 126 — 126 Vesting of restricted stock units (RSUs) 313,975 — — — — — — — Net share settlement for RSUs vesting ( 113,638 ) — ( 357 ) — — ( 357 ) — ( 357 ) Other comprehensive (loss) income, net of tax — — — — ( 216 ) ( 216 ) — ( 216 ) Net loss — — — ( 116,343 ) — ( 116,343 ) ( 240 ) ( 116,583 ) Balance as of March 31, 2023 435,923,104 $ 43 $ 1,965,838 $ ( 2,494,831 ) $ ( 33 ) $ ( 528,983 ) $ ( 2,733 ) $ ( 531,716 ) 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) Three Months Ended March 31, 2022 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total ImmunityBio Stockholders’ Deficit Noncontrolling Interests Total Stockholders’ Deficit Shares Amount Balance as of December 31, 2021 397,830,044 $ 40 $ 1,719,704 $ ( 1,961,921 ) $ 4 $ ( 242,173 ) $ ( 1,740 ) $ ( 243,913 ) Stock-based compensation expense — — 10,024 — — 10,024 — 10,024 Exercise of stock options 14,767 — 74 — — 74 — 74 Vesting of RSUs 177,783 — — — — — — — Net share settlement for RSUs vesting ( 65,832 ) — ( 372 ) — — ( 372 ) — ( 372 ) Other comprehensive (loss) income, net of tax — — — — ( 371 ) ( 371 ) — ( 371 ) Net loss — — — ( 102,826 ) — ( 102,826 ) ( 172 ) ( 102,998 ) Balance as of March 31, 2022 397,956,762 $ 40 $ 1,729,430 $ ( 2,064,747 ) $ ( 367 ) $ ( 335,644 ) $ ( 1,912 ) $ ( 337,556 ) 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 Cash Flows (in thousands) (Unaudited) Three Months Ended March 31, 2023 2022 Operating activities: Net loss $ ( 116,583 ) $ ( 102,998 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 10,878 10,024 Change in fair value of warrant liabilities ( 27,554 ) — Transaction costs allocated to warrant liabilities 984 — Non-cash interest items, net (including amounts with related parties) 2,505 3,028 Amortization of related-party notes discounts 11,536 370 Depreciation and amortization 4,681 4,090 Non-cash lease expense related to operating lease right-of-use assets 1,597 1,318 Unrealized (gains) on equity securities ( 135 ) ( 1,419 ) Other 111 1,045 Changes in operating assets and liabilities: Prepaid expenses and other current assets 9,689 ( 218 ) Other assets 295 101 Accounts payable 668 795 Accrued expenses and other liabilities 18,590 10,891 Related parties ( 61 ) ( 1,618 ) Operating lease liabilities ( 1,511 ) ( 339 ) Net cash used in operating activities ( 84,310 ) ( 74,930 ) Investing activities: Purchases of property, plant and equipment ( 8,428 ) ( 27,347 ) Purchase of intangible assets — ( 21,229 ) Purchases of marketable debt securities, available-for-sale ( 158 ) ( 34,082 ) Maturities of marketable debt securities, available for sale — 14,345 Proceeds from sales of marketable debt and equity securities 102 — Investment in joint venture – an equity method investment — ( 1,000 ) Net cash used in investing activities ( 8,484 ) ( 69,313 ) Financing activities: Proceeds from equity offerings, net of discounts and issuance costs 47,288 — Proceeds from issuance of related-party convertible promissory notes, net of issuance costs paid 29,850 — Proceeds from exercises of stock options 126 74 Net share settlement for RSUs vesting ( 357 ) ( 372 ) Principal payments of finance leases ( 19 ) — Net cash provided by (used in) financing activities 76,888 ( 298 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 254 ) ( 175 ) Net change in cash, cash equivalents, and restricted cash ( 16,160 ) ( 144,716 ) Cash, cash equivalents, and restricted cash, beginning of period 104,965 181,280 Cash, cash equivalents, and restricted cash, end of period $ 88,805 $ 36,564 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 Cash Flows (Continued) (in thousands) (Unaudited) Three Months Ended March 31, 2023 2022 Reconciliation of cash, cash equivalents, and restricted cash, end of period: Cash and cash equivalents $ 88,481 $ 36,385 Restricted cash 324 179 Cash, cash equivalents, and restricted cash, end of period $ 88,805 $ 36,564 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 15,515 $ 5,036 Income taxes — — Supplemental disclosure of non-cash activities: Initial measurement of warrants issued in connection with the registered direct offering accounted for as liabilities $ 23,698 $ — Property and equipment purchases included in accounts payable, accrued expenses and due to related parties 19,033 1,061 Unpaid offering costs included in accounts payable and accrued expenses 318 — Unrealized gains (losses) on marketable debt securities, net 10 ( 310 ) Right-of-use assets obtained in exchange for operating lease liabilities — 911 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents ImmunityBio, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements 1. Description of Business In these notes to unaudited condensed consolidated financial statements, the terms “ImmunityBio,” “the company,” “we,” “us,” and “our” refer to ImmunityBio, Inc. and its subsidiaries. Our Business ImmunityBio, Inc. is a clinical-stage biotechnology company developing next-generation therapies and vaccines that complement, harness, and amplify the immune system to defeat cancers and infectious diseases. We strive to be a vertically-integrated immunotherapy company designing and manufacturing our products so they are more effective, accessible, more conveniently stored, and more easily administered to patients. Our broad immunotherapy and cell therapy platforms are designed to attack cancer and infectious pathogens by activating both the innate immune system—natural killer (NK) cells, dendritic cells, and macrophages—and the adaptive immune system—B cells and T cells—in an orchestrated manner. The goal of this potentially best-in-class approach is to generate immunogenic cell death thereby eliminating rogue cells from the body whether they are cancerous or virally infected. Our ultimate goal is to employ this approach to establish an “immunological memory” that confers long-term benefit for the patient. Although such designations may not lead to a faster development process or regulatory review and may not increase the likelihood that a product candidate will receive approval, Anktiva ™ (N-803), our novel antibody cytokine fusion protein, has received Breakthrough Therapy and Fast Track designations in combination with bacillus Calmette-Guérin ( BCG) from the United States (U.S.) Food and Drug Administration (FDA) for BCG -unresponsive non-muscle invasive bladder cancer (NMIBC) with carcinoma in situ (CIS) . I n May 2022, we announced the submission of a Biologics License Application (BLA) to the FDA for our product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease. In July 2022, we announced the FDA had accepted our BLA for review and set a target Prescription Drug User Fee Act (PDUFA) action date of May 23, 2023. On May 9, 2023, the FDA delivered a complete response letter to us regarding the BLA. The company plans to request a meeting with the FDA as soon as possible to address the subject matter of the letter and a response timeline, and plans to diligently address and resolve the issues identified and seek approval as expeditiously as possible. It is unclear when the FDA will approve our BLA, if at all. Our platforms include 13 novel therapeutic agents either in clinical trials or for which we are developing protocols. We are currently engaged in 15 active clinical trials involving 10 of these agents. Seven of these trials are being sponsored by ImmunityBio while the remaining eight are investigator-led studies. Twelve of these trials are in Phase 2 or 3 development across eleven indications in liquid and solid tumors. These include bladder, pancreatic, and lung cancers, which are among the most frequent and lethal cancer types, and where there are high failure rates for existing standards of care or no available effective treatment. In infectious diseases, our pipeline currently targets such pathogens as the novel strain of the coronavirus (SARS-CoV-2) and human immunodeficiency virus (HIV). We have established Good Manufacturing Practice (GMP) manufacturing capacity at scale with cutting-edge cell manufacturing expertise and ready-to-scale facilities, as well as extensive and seasoned research and development (R&D), clinical trial, and regulatory operations, and development teams. 8 Table of Contents 2. Summary of Significant Accounting Policies 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 U.S. Securities and Exchange Commission (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 and therefore should be read in conjunction with our consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023. These interim financials are not necessarily indicative of results expected for the full fiscal year. Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of the company, its wholly-owned subsidiaries, and a variable interest entity (VIE) for which the company is the primary beneficiary. Any material intercompany transactions and balances have been eliminated upon consolidation. For consolidated entities where we have less than 100% of ownership, we record net loss attributable to noncontrolling interest on the unaudited condensed consolidated statements of operations equal to the percentage of the ownership interest retained in such entities by the respective noncontrolling parties. We assess whether we are the primary beneficiary of a VIE at the inception of the arrangement and at each reporting date. This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Liquidity As of March 31, 2023, the company had an accumulated deficit of $ 2.5 billion. We also had negative cash flows from operations of $ 84.3 million for the three months ended March 31, 2023. The company will likely need additional capital to further fund the development of, and to seek regulatory approvals for, our product candidates, and to begin to commercialize any approved products. 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 our common stock that may be issued and sold under an “at-the-market” sales agreement (the Sale Agreement) with our sales agent (the ATM), of which we had $ 225.4 million available for future issuance as of March 31, 2023, and a February 2023 shelf registration statement, of which we had $ 640.0 million available for future offerings as of March 31, 2023), 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. See Note 12 , Stockholders’ Deficit, for information regarding the ATM and the shelf registration statement. We may also seek to sell additional equity, through one or more follow-on offerings, or in separate financings, or obtain a credit facility. However, we may not be able to secure such external 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 potential commercialization of our product candidates in development, we may need additional funds to meet our needs sooner than planned. 9 Table of Contents 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 calculation of warrants and convertible promissory notes, 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 condensed consolidated 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. Significant Accounting Policies There have been no material changes to our significant accounting policies from those described in Note 2, Summary of Significant Accounting Policies, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K filed with the SEC on March 1, 2023. Warrants The company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Accounting Standards Codification (ASC) Topic 480, Distinguishing Liabilities from Equity (ASC 480), and ASC Topic 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the company’s own stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For warrants that meet all criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and on each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash change in fair value of warrant liabilities in o ther income (expense), net , on the condensed consolidated statements of operations. The fair value of the warrants was estimated using the Black-Scholes option pricing model. Fair Value Option (FVO) Election The company accounts for certain convertible notes issued during the three months ended March 31, 2023 under the fair value option (FVO) election of ASC 825, Financial Instruments (ASC 825), as discussed below. The convertible notes accounted for under the FVO election are each debt host financial instruments containing embedded features wherein the entire financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. Changes in the estimated fair value of the convertible notes are recorded as other income (expense), net on the condensed consolidated statements of operations, except that the change in estimated fair value attributable to a change in the instrument-specific credit risks is recognized as a component of other comprehensive income. Since the underlying financial instrument was issued on March 31, 2023 , we did not recognize any change in estimated fair values during the three months ended March 31, 2023 . 10 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 March 31, 2023 2022 (Unaudited) Related-party convertible notes (1) 46,726,407 — Outstanding third-party warrants 23,163,524 — Outstanding stock options 9,159,665 8,819,466 Outstanding RSUs 6,188,292 6,149,411 Outstanding related-party warrants 1,638,000 1,638,000 Total 86,875,888 16,606,877 _______________ (1) Amount excludes the shares related to the related-party convertible note with a principal amount of $ 30.0 million issued on March 31, 2023 as the conversion price has not yet been determined. See Note 9 , Related-Party Debt , for further information. Recent Accounting Pronouncements Application of New or Revised Accounting Standards – Not Yet Adopted In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , which amends the guidance in Topic 820, Fair Value Measurement , to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, ASU 2022-03 introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We are currently evaluating the impact of this standard on our condensed consolidated financial statements. In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements , which requires that leasehold improvements associated with common control leases be amortized over the useful life of the leasehold improvements to the common control group, regardless of the lease term. ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We are currently evaluating the impact of this standard on our condensed consolidated financial statements and related disclosures. 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 March 31, 2023 did not, or are not expected to, have a material effect on our condensed consolidated financial statements. 11 Table of Contents 3. Financial Statement Details Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): March 31, 2023 December 31, 2022 (Unaudited) Prepaid research and development costs $ 6,741 $ 11,704 Prepaid services 3,246 8,013 Prepaid supplies 2,160 2,160 Prepaid insurance 2,150 2,282 Prepaid software license fees 1,672 2,195 Insurance premium financing asset 357 1,417 Other 4,428 3,732 Prepaid expenses and other current assets $ 20,754 $ 31,503 Property, Plant and Equipment, Net Property, plant and equipment, net, consist of the following (in thousands): March 31, 2023 December 31, 2022 (Unaudited) Leasehold improvements $ 73,078 $ 68,710 Equipment 68,973 67,945 Construction in progress 81,941 72,693 Furniture & fixtures 1,931 1,906 Software 1,657 1,657 Gross property, plant and equipment 227,580 212,911 Less: Accumulated depreciation and amortization 73,415 69,252 Property, plant and equipment, net $ 154,165 $ 143,659 Depreciation expense related to property, plant and equipment totaled $ 4.2 million and $ 3.8 million for the three months ended March 31, 2023 and 2022, respectively. 12 Table of Contents Intangible Assets, Net The gross carrying amounts and accumulated amortization of intangible assets are as follows at the dates indicated (in thousands): March 31, 2023 Weighted- Average Life (in years) Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Finite-lived: Favorable leasehold rights 8.9 $ 20,398 $ ( 2,295 ) $ — $ 18,103 Indefinite-lived: In-process research and development (IPR&D) 1,399 — — 1,399 Total intangible assets $ 21,797 $ ( 2,295 ) $ — $ 19,502 December 31, 2022 Weighted- Average Life (in years) Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Finite-lived: Favorable leasehold rights 9.1 $ 20,398 $ ( 1,785 ) $ — $ 18,613 Finite-lived: Organized workforce 831 ( 150 ) ( 681 ) — Total finite-lived intangible assets 21,229 ( 1,935 ) ( 681 ) 18,613 Indefinite-lived: IPR&D 1,390 — — 1,390 Total intangible assets $ 22,619 $ ( 1,935 ) $ ( 681 ) $ 20,003 In connection with the acquisition of the Dunkirk facility in 2022, we acquired finite-lived intangibles consisting of favorable leasehold rights and an organized workforce. We recorded amortization expense of our finite-lived intangibles totaling $ 0.5 million and $ 0.3 million in research and development expense , on the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively. Future amortization expense associated with our finite-lived intangible assets is as follows (in thousands): Years ending December 31: Finite-lived Intangible Assets 2023 (excluding the three months ended March 31, 2023) $ 1,530 2024 2,040 2025 2,040 2026 2,040 2027 2,040 Thereafter 8,413 Total $ 18,103 13 Table of Contents Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following (in thousands): March 31, 2023 December 31, 2022 (Unaudited) Accrued research and development costs $ 15,916 $ 1,930 Accrued bonus 14,642 12,068 Accrued professional and service fees 9,229 6,685 Accrued preclinical and clinical trial costs 5,523 4,985 Accrued compensation 5,327 6,040 Accrued construction costs 2,136 7,072 Financing obligation – current portion 357 1,417 Other 988 1,628 Accrued expenses and other liabilities $ 54,118 $ 41,825 Interest and Investment Income, Net Interest and investment income, net consists of the following (in thousands): Three Months Ended March 31, 2023 2022 (Unaudited) Unrealized gains from equity securities $ 135 $ 1,419 Interest income 284 1,296 Investment amortization expense, net 260 ( 1,049 ) Net realized losses on investments ( 6 ) — Interest and investment income, net $ 673 $ 1,666 Interest income includes interest from marketable securities, convertible notes receivable, other assets, and on bank deposits. Interest expense Interest expense consists of the following (in thousands): Three Months Ended March 31, 2023 2022 (Unaudited) Interest expense on related-party notes $ ( 18,260 ) $ ( 8,101 ) Amortization of related-party notes discounts ( 11,536 ) ( 370 ) Other interest expense ( 20 ) ( 20 ) Interest expense $ ( 29,816 ) $ ( 8,491 ) 14 Table of Contents 4. Financial Instruments Investments in Marketable Debt Securities As of March 31, 2023, 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): March 31, 2023 (Unaudited) Weighted- Average Remaining Contractual Life (in years) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Current: Foreign bonds 2.0 $ 107 $ — $ — $ 107 Mutual funds 39 — ( 2 ) 37 Current portion 146 — ( 2 ) 144 Noncurrent: Foreign bonds 0.3 902 — ( 82 ) 820 Total $ 1,048 $ — $ ( 84 ) $ 964 As of December 31, 2022, 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): December 31, 2022 Weighted- Average Remaining Contractual Life (in years) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Current: Mutual funds $ 38 $ — $ ( 2 ) $ 36 Noncurrent: Foreign bonds 4.5 932 — ( 92 ) 840 Total $ 970 $ — $ ( 94 ) $ 876 15 Table of Contents At March 31, 2023, 14 of the securities were in an unrealized loss position. 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 were as follows (in thousands): March 31, 2023 (Unaudited) Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Mutual funds $ — $ — $ 37 $ ( 2 ) Foreign bonds 581 ( 58 ) 346 ( 24 ) Total $ 581 $ ( 58 ) $ 383 $ ( 26 ) December 31, 2022 Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Mutual funds $ — $ — $ 36 $ ( 2 ) Foreign bonds — — 840 ( 92 ) Total $ — $ — $ 876 $ ( 94 ) Marketable Equity Securities We held investments in marketable equity securities with readily determinable fair values of $ 2.6 million and $ 2.5 million as of March 31, 2023 and December 31, 2022, respectively. Unrealized gains recorded on these securities totaled $ 0.1 million and $ 1.4 million for the three months ended March 31, 2023 and 2022, respectively, in interest and investment income, net , on the condensed consolidated statements of operations. 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. • 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. 16 Table of Contents 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 (in thousands): Fair Value Measurements at March 31, 2023 (Unaudited) Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 88,481 (1) $ 73,487 $ 14,994 $ — Equity securities 2,643 2,643 — — Foreign bonds 107 107 — — Mutual funds 37 37 — — Noncurrent: Foreign bonds 820 — 820 — Total assets measured at fair value $ 92,088 $ 76,274 $ 15,814 $ — Liabilities: Current: Related-party convertible note payable $ ( 29,850 ) (2) $ — $ — $ ( 29,850 ) Contingent consideration obligations ( 20 ) — — ( 20 ) Noncurrent: Warrant liabilities ( 17,780 ) (3) — — ( 17,780 ) Total liabilities measured at fair value $ ( 47,650 ) $ — $ — $ ( 47,650 ) Fair Value Measurements at December 31, 2022 Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 104,641 (1) $ 63,860 $ 40,781 $ — Equity securities 2,507 2,507 — — Mutual funds 36 36 — — Noncurrent: Foreign bonds 840 — 840 — Total assets measured at fair value $ 108,024 $ 66,403 $ 41,621 $ — Liabilities at fair value: Current: Contingent consideration $ ( 19 ) $ — $ — $ ( 19 ) Noncurrent: Warrant liability ( 21,636 ) (3) — — ( 21,636 ) Total liabilities measured at fair value $ ( 21,655 ) $ — $ — $ ( 21,655 ) 17 Table of Contents _______________ (1) As of March 31, 2023, the Level 2 measurements include $ 15.0 million in U.S. government agency securities with original maturities of less than 90 days. As of December 31, 2022, the Level 2 measurements include $ 32.0 million in U.S. government agency securities and $ 8.8 million in corporate debt securities with original maturities of less than 90 days. (2) As of March 31, 2023, the company has a related-party convertible note payable with a principal amount of $ 30.0 million, which is accounted for under the ASC 825-10-15-4 FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently re-measured at estimated fair value on a recurring basis at each reporting period date. The company’s other related-party notes are not accounted for under the fair value election. See Note 9 , Related-Party Debt, for further information. The estimated fair value of the convertible note was computed using a discounted cash flow method with the following unobservable assumptions: March 31, 2023 (Unaudited) Expected market yield 17.5 % Discount period 0.1 years Discount factor 0.98 (3) Third-Party Warrant Liabilities December 2022 Warrants In connection with the December 12, 2022 registered direct offering of common stock, the company issued 9,090,909 warrants (December 2022 Warrants). The warrants were classified as a liability at their fair value upon the issuance. As of March 31, 2023, all warrants were outstanding. The estimated fair value of the warrants was computed using the Black-Scholes option pricing model with the following unobservable assumptions at the following date: March 31, 2023 (Unaudited) Exercise price per share $ 6.60 Expected term 1.7 years Expected average volatility 129.3 % Expected dividend yield — Risk-free interest rate 4.2 % The change in the carrying amount of the December 2022 Warrants was as follows (in thousands): (Unaudited) Beginning fair value, at December 31, 2022 $ 21,636 Change in fair value ( 15,818 ) Ending fair value, at March 31, 2023 $ 5,818 18 Table of Contents February 2023 Warrants In connection with the February 15, 2023 registered direct offering of common stock, the company issued 14,072,615 warrants (February 2023 Warrants). The warrants were classified as a liability at its fair value upon the issuance. As of March 31, 2023, all warrants were outstanding. The estimated fair value of the warrants was computed using the Black-Scholes option pricing model with the following unobservable assumptions at the following dates: March 31, 2023 Issuance Date February 15, 2023 (Unaudited) Exercise price per share $ 4.26 $ 4.26 Expected term 1.9 years 2.0 years Expected average volatility 127.8 % 97.0 % Expected dividend yield — — Risk-free interest rate 4.1 % 4.6 % Changes in the carrying amount of the February 2023 Warrants were as follows (in thousands): (Unaudited) Fair value at the issuance date $ 23,698 Change in fair value ( 11,736 ) Ending fair value, at March 31, 2023 $ 11,962 Nonrecurring Valuations We measured the fair value of the fixed-rate promissory notes and variable-rate promissory notes before and after amendments that were entered on August 31, 2022, as they were accounted for under the debt extinguishment accounting model. We used discounted cash flow analyses for promissory notes without a holder conversion option and a binomial lattice convertible note model for the fixed-rate promissory notes with a holder conversion option. Since certain of the factors analyzed are considered to be unobservable inputs, both the discounted cash flow model and the lattice model are considered to be a Level 3 valuation. See Note 9 , Related-Party Debt, for additional information. 6. Collaboration and License Agreements and Acquisition Collaboration Agreement Amyris Joint Venture In December 2021, ImmunityBio and Amyris, Inc. (Amyris) entered into a 50:50 joint venture arrangement and formed a new limited liability company to conduct the business of the joint venture. The purpose of the joint venture is to accelerate commercialization of a next-generation COVID-19 vaccine utilizing an RNA vaccine-platform. As part of the limited liability agreement, Amyris contributed $ 1.0 million in cash and rights to its license agreement with the Access to Advanced Health Institute (AAHI) for an RNA platform for the field of COVID-19. ImmunityBio contributed $ 1.0 million in cash and priority access to its manufacturing capacity for the joint venture product. Both parties agreed to enter into a separate manufacturing and supply agreement and a sublicense agreement following the execution of the joint venture agreement. The joint venture agreement stipulates the initial terms for equal representation in the management of the newly-formed joint venture. The joint venture is managed by a board of directors consisting of four directors: two appointed by the company and two appointed by Amyris. Both parties agreed to make additional capital contributions in cash, in proportion to their respective interests, as determined by the board of directors of the joint venture. 19 Table of Contents We considered the joint venture entity as a VIE and determined that we are not the primary beneficiary of the VIE. In February 2022, we made a cash investment totaling $ 1.0 million in the joint venture’s common stock. We account for our investment in the joint venture using the equity method of accounting, and recorded our 50 % share of the net loss from the joint venture totaling $ 2.3 million and $ 0.2 million, respectively, in other income (expense), net , on the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022. Such losses incurred during the three months ended March 31, 2023 were attributed to expenses incurred by us on behalf of the joint venture. We are not obligated to fund the joint venture’s potential future losses. As of March 31, 2023, the carrying amount of our equity investment in the joint venture was zero . License Agreements 3M Innovative Properties Company (3M IPC) and AAHI License Agreement We have licensed rights to 3M-052, a synthetic TLR7/8 agonist, 3M-052 formulations and related technology from 3M IPC and its affiliates and AAHI. In November 2021 we obtained nonexclusive rights in the field of SARS-CoV-2 and in June 2022 we modified those rights and expanded the scope of the license to include (1) SARS-CoV-2 and other infectious diseases including malaria, HIV, tuberculosis, hookworm and varicella zoster on an exclusive basis in countries other than low- and middle-income countries (LMIC), and (2) oncology applications, when used in combination with our proprietary technology and/or IL-15 agonists. In consideration for the license, we agreed to make certain periodic license payments, including $ 2.25 million each year through June 2025, with the June 2022 payment being partially offset by the $ 0.5 million previously paid under the initial November 2021 license agreement. We have also agreed to make payments upon the achievement of certain regulatory milestone events and tiered royalties ranging from the low to high single-digits as a percentage of net sales. Beginning in April 2026, the annual minimum licensing payment is $ 1.0 million, which can be credited against any royalty payments due under this agreement. In June 2022, we made a payment of $ 1.75 million for the annual license maintenance fee. We expensed $ 0.4 million for the three months ended March 31, 2023, in research and development expense , on the condensed consolidated statement of operations. AAHI License Agreements In May 2021, we entered into two license agreements with AAHI pursuant to which we received a license to certain patents and know-how relating to AAHI’s (i) adjuvant formulations for the treatment, prevention and/or diagnosis of SARS-CoV-2 (the AAHI Adjuvant Formulation License Agreement) and (ii) RNA vaccine platform as further described below (the AAHI 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 AAHI Adjuvant Formulation License Agreement we owe 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. No milestone fees were incurred for the three months ended March 31, 2023. In September 2021, we amended and restated the AAHI RNA License Agreement, pursuant to which AAHI granted us an exclusive, worldwide, sublicensable license to AAHI’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 AAHI RNA License Agreement, we made a one-time, non-creditable, non-refundable, upfront payment to AAHI of $ 1.5 million and a license maintenance fee of $ 3.0 million in June 2022. The company is required to pay license maintenance fees to AAHI of $ 5.5 million annually from 2023 through 2030. The company may terminate the restated agreement without cause by paying AAHI a $ 10.0 million one-time early termination fee. In addition, the milestone payments to AAHI 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 recorded $ 0.8 million in research and development expense, on the condensed consolidated statement of operations during the three months ended March 31, 2023. 20 Table of Contents In connection with the license agreements, in May 2021 we also entered into a sponsored research agreement with the AAHI 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. No expenses were incurred for the three months ended March 31, 2023. Acquisition Dunkirk Facility Leasehold Interest On February 14, 2022, we completed the acquisition of a leasehold interest in approximately 409,000 rentable square feet of current Good Manufacturing Practice (cGMP) ISO Class 5 pharmaceutical manufacturing space in western New York (the Dunkirk Facility) from Athenex, Inc. (the Seller), which we believe will provide us with a state-of-the-art biotech production center that will substantially expand and diversify our manufacturing capacity in the U.S. and ability to scale production associated with certain of our product candidates. The company accounted for the transaction as an asset acquisition because the Dunkirk Facility’s integrated set of assets and activities does not meet the definition of a business. The total consideration for the acquisition was approximately $ 40.5 million, including a cash payment of $ 40.0 million, and transaction costs of approximately $ 0.5 million. The following table summarizes the fair value of assets acquired as of the acquisition date (in thousands): Construction in progress $ 10,043 Leasehold improvements 6,253 Finite-lived intangible assets (1) 21,229 Other depreciable assets and prepaid expenses 2,983 Total consideration $ 40,508 _______________ (1) See Note 3 , Financial Statement Details—Intangible Assets, Net , for further information. Upon the closing of the Dunkirk transaction, the company became the tenant of the Dunkirk Facility under the Fort Schuyler Management Corporation Lease, dated October 1, 2021 and as amended as of the February 14, 2022 closing date (as amended, the Dunkirk Lease), with Fort Schuyler Management Corporation, a not-for-profit corporation affiliated with the State of New York (FSMC) as landlord. The Dunkirk Facility, as well as certain equipment, is owned by FSMC and is leased to us under the Dunkirk Lease. Our annual lease payment will be $ 2.00 per year for an initial 10-year term, with an option to renew the lease under substantially the same terms and conditions for an additional 10-year term. As part of the transaction, we assumed certain of the Seller’s obligations under various third-party agreements (the Facility Agreements), subject to the terms and conditions of the purchase agreement by and between the company and Seller dated as of January 7, 2022, and committed to spend an aggregate of $ 1.52 billion on operational expenses during the initial term, and an additional $ 1.50 billion on operational expenses if we elect to renew the lease for the additional 10-year term. We also committed to hiring 450 employees at the Dunkirk Facility within the first five years of operations, with 300 such employees to be hired within the first 2.5 years of operation. We are eligible for certain sales-tax exemption savings during the development of the Dunkirk Facility, and certain property tax savings over the next 20 years, subject to certain terms and conditions, including performance of certain of the obligations described above. Failure to satisfy the obligations over the lease term may give rise to certain rights and remedies of governmental authorities including, for example, termination of the Dunkirk Lease and other Facility Agreements and potential recoupment of a percentage of the grant funding received by the Seller for construction of the facility and other benefits received, subject to the terms and conditions of the applicable agreements. Although we believe that governmental funding will assist in funding a portion of the further build-out of the Dunkirk Facility, which we estimate to be approximately $ 8.0 million to $ 10.0 million of governmental funding remaining available as of March 31, 2023, there can be no assurance as to the final acceptance and timing of the requests for governmental funding that we submit, and we will need to plan and fund most of the additional build-out of, and purchase additional equipment for, the Dunkirk Facility in connection with our planned full operations. In addition, any future governmental funding will be subject to the eligibility of submitted expenses, as well as our compliance with the obligations that we are subject to pursuant to the agreements with parties regarding the Dunkirk Facility as described above. 21 Table of Contents 7. Commitments and Contingencies Contingent Consideration Related to Business Combinations VivaBioCell, S.p.A. In April 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. In June 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 our acquisition of VBC, we are obligated to pay the former owners contingent consideration upon the achievement of certain milestones related to the GMP-in-a-Box technology. A clinical milestone totaling $ 0.8 million was earned by the former owners of VivaBioCell, of which $ 0.4 million was paid during 2021, with the remaining clinical obligation settled in September 2022. If a government agency unconditionally approves the GMP-in-a-Box technology for commercial sale (the regulatory milestone) in the future, we will be obligated to pay an additional approximately $ 2.2 million to the former owners. Altor BioScience Corporation In connection with the 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 contingent consideration upon the successful regulatory approval of a BLA by the FDA, or foreign equivalent, for N-803 by December 31, 2022 and approximately $ 304.0 million contingent consideration upon calendar-year worldwide net sales of N-803 exceeding $ 1.0 billion prior to December 31, 2026, with amounts payable in cash or shares of our common stock or a combination thereof. 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. With respect to the regulatory milestone CVR agreement, in May 2022 we announced the submission of a BLA to the FDA for our product candidate, Anktiva (N-803) in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease . I n July 2022 we announced that the FDA had accepted our BLA for review and set a target PDUFA action date of May 23, 2023. On May 9, 2023, the FDA delivered a complete response letter to us regarding the BLA. The company plans to request a meeting with the FDA as soon as possible to address the subject matter of the letter and a response timeline, and plans to diligently address and resolve the issues identified and seek approval as expeditiously as possible. It is unclear when the FDA will approve our BLA, if at all. The FDA did not approve our BLA on or before December 31, 2022, and therefore the regulatory milestone was not met, and the regulatory milestone CVR agreement terminated in accordance with its terms. With respect to the net sales milestone CVR agreement, as of March 31, 2023, Dr. Soon-Shiong and his related party hold approximately $ 139.8 million of net sales CVRs and they have both irrevocably agreed to receive shares of the company’s common stock in satisfaction of their CVRs. We may be required to pay the other prior Altor stockholders up to $ 164.2 million for their net sales CVRs should they choose to have their CVRs paid in cash instead of common stock. 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. 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, Inc. (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. 22 Table of Contents 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, including appraisal claims, and which the defendants subsequently moved to dismiss. In a second action, Dyad Pharmaceutical Corporation (Dyad) filed a petition in Delaware Chancery Court for appraisal in connection with the merger. The defendants moved to dismiss the appraisal petition in 2018. The court issued an oral ruling in 2019 that dismissed certain claims and dismissed Altor BioScience from the action. The following claims remained: (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 defendants’ 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. The plaintiffs then 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 the third amended complaint. In 2020, the defendants answered the third amended complaint and asserted counterclaims against the plaintiffs. The defendants sought damages for attorneys’ fees and costs incurred as a result of the breaches of “standstill” agreements and of stockholder releases. The plaintiffs filed an answer denying the counterclaims and asserting defenses. The shares of the former Altor stockholders seeking appraisal 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, given that those shares were the subject of the above-described appraisal claims. In late March 2022, the company agreed to the terms of a settlement with the appraisal petitioners, without any admission of liability or fault. The settlement provided that in exchange for complete releases, the appraisal petitioners, who as a group held 3,167,565 dissenting Altor shares, collectively would receive an aggregate of 2,229,296 shares of the company’s common stock issued in a private placement, plus an aggregate of $ 21.13 in cash in lieu of fractional shares. The company’s Board of Directors approved the settlement and stock issuance in April 2022, and the court approved the settlement and dismissed the appraisal petitioners’ claims on July 9, 2022. On July 9, 2022, the company issued 2,229,296 shares of its common stock with an aggregate market value of $ 10.7 million, based on the closing price of its common stock on the Nasdaq as of July 8, 2022, to the appraisal petitioners pursuant to the court-approved settlement agreement. In late April 2022, the company also agreed to the terms of a settlement with the putative class plaintiffs without any admission of liability or fault. In exchange for class-wide releases, the company committed to make a settlement payment of $ 5.0 million in cash by December 31, 2022. On December 8, 2022, the Delaware Court of Chancery entered a final judgment approving the settlement, and the company timely made the $ 5.0 million settlement payment. Sorrento Therapeutics, Inc. Litigation Sorrento Therapeutics, Inc. (Sorrento), derivatively on behalf of Immunotherapy NANTibody, LLC (NANTibody) filed an action in the Superior Court of California, Los Angeles County (the Superior Court) against the company’s subsidiary NantCell, Dr. Soon-Shiong, and Charles Kim. The action alleged that the defendants improperly caused NANTibody to acquire IgDraSol, Inc. (IgDraSol) from 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. The company believes the case is without merit and intends to vigorously defend against the claims asserted. Trial has been set to commence in Sorrento’s Superior Court action on July 17, 2023. 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 alleged 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. 23 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. Sorrento filed counterclaims against the company and NANTibody in the arbitration. The hearings in the NANTibody arbitration commenced in April 2021 and concluded in early August 2021. After post-hearing briefing was concluded, the parties were notified on November 30, 2021 that the arbitrator in the NANTibody arbitration had passed away. A substitute arbitrator was appointed on February 25, 2022, and the parties worked with the substitute arbitrator to conclude the proceedings. Additional hearing sessions were held in May and July 2022, and summations took place on August 2, 2022. On December 2, 2022, the arbitrator issued a final award finding that Sorrento had breached the two exclusive license agreements with NantCell and NANTibody. The arbitrator awarded NantCell approximately $ 156.8 million and NANTibody approximately $ 16.7 million, plus post-award interest accruing at a daily rate. On December 21, 2022, NantCell and NANTibody filed petitions in the Superior Court to confirm the arbitration award; on January 16, 2023, Sorrento filed a response to the petitions and moved to vacate the award. On February 7, 2023, after a hearing, the Superior Court entered orders confirming the arbitration award and denying Sorrento’s motion to vacate. The Superior Court entered judgments against Sorrento in the aggregate amount of approximately $ 176.4 million plus 10 % post-judgment interest, of which approximately $ 159.4 million is payable to NantCell, and the remainder of which is payable to NANTibody. On February 13, 2023, Sorrento informed counsel to the company that it had filed a Chapter 11 proceeding in the U.S. District Court for the Southern District of Texas, In re: Sorrento Therapeutics, Inc., et al., Case No. 23-bk-90085 (Bankr. S.D. Tex.) (DRJ). The company intends to continue to pursue vigorously, consistent with its rights in light of Sorrento’s Chapter 11 filing, the collection of the judgments from Sorrento, but we make no assurances that we will receive the full amount or with respect to the timing of our receipt of any funds. As of March 31, 2023, we have not determined the amount we are likely to recover, and thus have not recorded any receivables in relation to the judgments. The Superior Court action remains pending, and it remains to be determined how, if at all, the award in the arbitration will affect the Superior Court action. An estimate of the possible loss or range of loss resulting from the Superior Court litigation cannot be made at this time. Shenzhen Beike Biotechnology Co. Ltd. Arbitration In 2020, we received a Request for Arbitration before the International Chamber of Commerce, International Court of Arbitration. The arbitration relates to a license, development, and commercialization agreement that Altor 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 N-803 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 N-803. Beike is seeking specific performance and declaratory relief for the alleged breaches. On September 25, 2020, the parties entered into a standstill and tolling agreement (standstill 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 could be terminated by any party on ten calendar days’ notice, and upon termination, the parties had the right to pursue claims arising from the license agreement in any appropriate tribunal. On March 20, 2023, we terminated the standstill agreement, and on April 11, 2023, Beike served an amended Request for Arbitration. We have until May 19, 2023 to file a response. 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. Stipulation of Settlement In 2019, following approval by our Board of Directors, we entered into a settlement agreement (the Stipulation of Settlement) with three stockholders of the company, each of whom had submitted a stockholder demand for the Board of Directors to take action to remedy purported harm to the company resulting from certain alleged wrongful conduct concerning, among other things, disclosures about Dr. Soon-Shiong’s compensation and a related-party lease agreement. The Stipulation of Settlement called for us to adopt certain governance changes, and for the three stockholders to file a stockholder derivative action in the Superior Court of the State of California, County of San Diego, followed by an application for court approval of the Stipulation of Settlement. The court entered an order preliminarily approving the Stipulation of Settlement. Pursuant to the Stipulation of Settlement, we provided stockholders with notice of the settlement and the final settlement hearing. 24 Table of Contents Commitments We did not enter into any significant contracts during the three months ended March 31, 2023, 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 7, Commitments and Contingencies, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K filed with the SEC on March 1, 2023. 8. Lease Arrangements We lease property in multiple facilities across the U.S. (including the Dunkirk Facility in upstate New York) and Italy, including facilities located in El Segundo, CA, which are leased from related parties. Substantially all of our operating lease right-of-use assets and operating lease liabilities relate to facilities leases. All of our finance leases are related to equipment rental at the Dunkirk Facility. See Note 10 , Related-Party Agreements , for additional information about our related-party leases. 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 ten years , and are included in the lease term when it is reasonably certain that we will exercise the option. Supplemental balance sheet information related to our leases is as follows (in thousands): March 31, 2023 December 31, 2022 Classification (Unaudited) Assets Operating lease assets Operating lease right-of-use assets $ 44,191 $ 45,788 Finance lease assets Other assets 115 135 Total lease assets $ 44,306 $ 45,923 Liabilities Current: Operating lease liabilities Operating lease liabilities $ 2,844 $ 2,650 Finance lease liabilities Accrued expenses and other liabilities 79 77 Noncurrent: Operating lease liabilities Operating lease liabilities, less current portion 46,289 47,951 Finance lease liabilities Other liabilities 43 64 Total lease liabilities $ 49,255 $ 50,742 25 Table of Contents Information regarding our lease terms is as follows: March 31, 2023 December 31, 2022 (Unaudited) Weighted-average remaining lease term: Operating leases 6.4 years 6.6 years Finance leases 1.5 years 1.8 years Weighted-average discount rate: Operating leases 10.6 % 10.5 % Finance leases 11.7 % 11.7 % The components of lease expense consist of the following (in thousands): Three Months Ended March 31, 2023 2022 (Unaudited) Operating lease costs $ 2,921 $ 2,308 Short-term lease costs 1,050 — Finance lease costs (including amortization and interest costs) 23 — Variable lease costs 970 1,182 Total lease costs $ 4,964 $ 3,490 Cash paid for amounts included in the measurement of lease liabilities is as follows (in thousands): Three Months Ended March 31, 2023 2022 (Unaudited) Cash paid for operating leases (excluding variable lease costs) $ 3,179 $ 2,151 Financing cash flow from finance leases 19 — Operating cash flow from finance leases 4 — 26 Table of Contents Future minimum lease payments as of March 31, 2023, including $ 14.8 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 Finance Leases Total 2023 (excluding the three months ended March 31, 2023) $ 6,748 $ 66 $ 6,814 2024 12,119 66 12,185 2025 12,145 — 12,145 2026 10,290 — 10,290 2027 8,209 — 8,209 Thereafter 23,247 — 23,247 Total future minimum lease payments 72,758 132 72,890 Less: Interest 20,684 10 20,694 Less: Tenant improvement allowance receivable 2,941 — 2,941 Present value of lease liabilities $ 49,133 $ 122 $ 49,255 There have been no other material changes related to our existing lease agreements from those disclosed in Note 8, Lease Arrangements , of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K filed with the SEC on March 1, 2023. 9. Related-Party Debt Related-Party Convertible Note at Fair Value On March 31, 2023, the company executed a $ 30.0 million promissory note with Nant Capital, LLC (Nant Capital), an affiliated entity under common control of our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder. This note bears interest at Term Secured Overnight Financing Rate (SOFR) plus 8.0 % per annum. The outstanding principal amount and any accrued and unpaid interest are due on December 31, 2023 or upon the occurrence and continuation of an Event of Default (as defined in the note). The interest on this note will be paid on a quarterly basis beginning on June 30, 2023. The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty. The noteholder may convert the balance of the convertible promissory note and accrued interest in whole at its option following the Conversion Price Date, which is the trading day prior to the opening of the next open trading window, as determined by the company’s board of directors in accordance with the company’s Insider Trading Policy. The conversion price is equal to the greater of (i) the NASDAQ Official Closing Price and (ii) the consolidated closing bid price of the company’s common stock on the Conversion Price Date. There is no floor on the conversion price for this convertible note, therefore, as of March 31, 2023 we cannot determine the total number of shares issuable upon conversion that may occur in the future. The company received net proceeds of $ 29.9 million from this financing, net of a $ 0.1 million origination fee paid to the lender. The note is accounted for under ASC 825-10-15-4 FVO election. Under the FVO election, the note is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. With each such remeasurement, the note will be adjusted to fair value, with the change in fair value recognized in other income (expense), net , on the condensed consolidated statement of operations, except that the change in the fair value resulting from a change in the instrument-specific credit risks are recognized as a component of other comprehensive income . As of March 31, 2023, we had a balance of $ 29.9 million in a related-party convertible note at fair value , on the condensed consolidated balance sheets related to the convertible promissory note measured at fair value. 27 Table of Contents Related-Party Convertible Notes On August 31, 2022, the company amended and restated an aggregate of $ 315.1 million (including outstanding principal and accrued and unpaid interest) of fixed-rate promissory notes held by entities affiliated with Dr. Soon-Shiong. Prior to the amendments and restatements, these notes bore and continue to bear interest at a per annum rate ranging from 3.0 % to 6.0 %, provide that the outstanding principal was and continues to be due and payable on September 30, 2025, and accrued and unpaid interest was or continues to be payable either upon maturity or, with respect to one of the notes, on a quarterly basis. Prior to the amendments and restatements, the company could and can continue to prepay the outstanding principal (together with accrued and unpaid interest), either in whole or in part, at any time without premium or penalty and without the prior consent of the lender, now subject to an advance notice period of at least five business days during which the lender can convert the amount requested to be prepaid by the company into shares of the company’s common stock, as part of the amendment and restatement. The terms of these fixed-rate promissory notes were amended and restated to include a conversion feature that gives each lender, at its sole option, at any time (other than when the lender is in receipt of a written notice of prepayment from the borrower), the right to convert the entire outstanding principal amount and accrued and unpaid interest due under each note at the time of conversion into shares of the company’s common stock at a price of $ 5.67 per share. Upon receipt of a written notice of prepayment from the borrower, the lender has the right, at its option, to convert the outstanding principal amount to be prepaid and the accrued and unpaid interest thereon (as specified in the notice of prepayment) into shares of the company’s common stock at a price of $ 5.67 per share. No other material terms or conditions of these fixed-rate promissory notes were modified as part of the August 31, 2022 amendments and restatements. As of March 31, 2023 and December 31, 2022, the carrying value of the fixed-rated convertible promissory notes of $ 245.6 million and $ 241.3 million, respectively, was recorded in related-party convertible notes and accrued interest, net of discount, on the condensed consolidated balance sheets. During the three months ended March 31, 2023 and 2022, the company made interest payments of $ 0.6 million and $ 0.6 million, respectively, related to our $ 40.0 million promissory note. Related-Party Nonconvertible Notes As of March 31, 2023, the company had a promissory note outstanding with Nant Capital for $ 300.0 million in principal and a carrying balance of $ 272.2 million, net of unamortized discount of $ 27.8 million. The note bears an interest rate of Term SOFR plus 8.0 % per annum, payable on a quarterly basis. In the event of a default on the loan (as defined in both the original and amended and restated promissory notes), including if the company does not repay the loan at maturity, the company had and continues to have the right, at its sole option, to convert the outstanding principal amount and accrued and unpaid interest due under this note into fully paid and non-assessable shares of the company’s common stock at a conversion price per share equal to $ 5.67 . The company made interest payments of $ 9.4 million and $ 4.4 million during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, the company had a promissory note outstanding with Nant Capital for $ 125.0 million in principal and a carrying balance of $ 119.6 million, net of unamortized discount of $ 5.4 million. The note bears an interest rate of Term SOFR plus 8.0 % per annum, payable on a quarterly basis. The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty. The company made an interest payment of $ 3.9 million during three months ended March 31, 2023. As of March 31, 2023, the company had a promissory note outstanding with Nant Capital for $ 50.0 million in principal and a carrying balance of $ 49.8 million, net of unamortized discount of $ 0.2 million. The note bears an interest rate of Term SOFR plus 8.0 % per annum, payable on a quarterly basis. The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty. In the event of a Specified Transaction (as defined in the loan agreement), the noteholder can request the outstanding principal and interest due on the loan be repaid in full upon consummation of such Specified Transaction. The company made a cash payment of $ 1.6 million during three months ended March 31, 2023. 28 Table of Contents Our related-party debt is summarized below (in thousands): Balances at March 31, 2023 Maturity Year Interest Rate Principal Amount Accrued Interest Added to Note Less: Unamortized Discounts Total (Unaudited) Related-Party Nonconvertible Notes: Nant Capital (1) 2023 Term SOFR + 8.0 % $ 475,000 $ — $ 33,372 $ 441,628 Related-Party Convertible Note at Fair Value: Nant Capital (1) 2023 Term SOFR + 8.0 % 30,000 — — 29,850 Related-Party Convertible Notes: Nant Capital 2025 5.0 % 55,226 10,113 4,742 60,597 Nant Capital 2025 6.0 % 50,000 7,870 3,696 54,174 Nant Capital 2025 6.0 % 40,000 — 2,373 37,627 NantMobile, LLC 2025 3.0 % 55,000 5,554 5,482 55,072 NantCancerStemCell, LLC (NCSC) 2025 5.0 % 33,000 8,176 3,006 38,170 Total related-party convertible notes 233,226 31,713 19,299 245,640 Total related-party debt $ 738,226 $ 31,713 $ 52,671 $ 717,118 _______________ (1) The interest rate on our related-party variable-rate notes as of March 31, 2023 was 12.89 %. Balances at December 31, 2022 Maturity Year Interest Rate Principal Amount Accrued Interest Added to Note Less: Unamortized Discounts Total Related-Party Nonconvertible Notes: Nant Capital (1) 2022 Term SOFR + 8.0 % $ 475,000 $ — $ 43,099 $ 431,901 Related-Party Convertible Notes: Nant Capital 2025 5.0 % 55,226 9,320 5,188 59,358 Nant Capital 2025 6.0 % 50,000 7,039 4,068 52,971 Nant Capital 2025 6.0 % 40,000 — 2,580 37,420 NantMobile 2025 3.0 % 55,000 5,110 5,978 54,132 NCSC 2025 5.0 % 33,000 7,684 3,294 37,390 Total related-party convertible notes 233,226 29,153 21,108 241,271 Total related-party debt $ 708,226 $ 29,153 $ 64,207 $ 673,172 _______________ (1) The interest rate on our related-party variable-rate notes as of December 31, 2022 was 12.59 %. 29 Table of Contents The following table summarizes the estimated future contractual obligations for our related-party debt as of March 31, 2023 (unaudited; in thousands): Principal Payments Interest Payments (1) Convertible Notes Non-convertible Notes Convertible Notes Non-convertible Notes Total 2023 (excluding the three months ended March 31, 2023) $ 30,000 $ 475,000 $ 4,724 $ 46,131 $ 555,855 2024 — — 2,407 — 2,407 2025 233,226 — 61,050 — 294,276 Total principal and estimated interest due on related-party debt $ 263,226 $ 475,000 $ 68,181 $ 46,131 $ 852,538 _______________ (1) Interest payments on our fixed-rate convertible notes are calculated based on contractual interest rates and scheduled maturity dates. Interest payments on our variable-rate notes are calculated based on Term SOFR plus the contractual spread per the loan agreements. The rate on our variable-rate notes as of March 31, 2023 was 12.89 %. 10. 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): March 31, 2023 December 31, 2022 (Unaudited) Due from related party–NantBio, Inc. $ 1,294 $ 1,294 Due from related party–Brink Biologics 35 271 Due from related parties–Various 135 325 Total due from related parties $ 1,464 $ 1,890 Due to related party–Duley Road, LLC $ 1,356 $ 1,431 Due to related party–NantBio, Inc. 943 943 Due to related party–NantWorks 592 986 Due to related party–Immuno-Oncology Clinic, Inc. 41 109 Total due to related parties $ 2,932 $ 3,469 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 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, Global Chief Scientific and Medical Officer, and principal stockholder. 30 Table of Contents NantWorks, LLC Shared Services Agreement Under the amended and restated shared services agreement with NantWorks dated as of June 2016, but effective as of August 2015, NantWorks, a related party, provides corporate, general and administrative, certain research and development, 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 March 31, 2023 and 2022, we recorded $ 1.0 million and $ 1.3 million, respectively, in selling, general and administrative expense , and $ 0.4 million of expense reimbursements and an immaterial amount, respectively, 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 March 31, 2023 and December 31, 2022, we owed NantWorks net amounts of $ 0.6 million and $ 1.0 million, respectively, for all agreements between the two affiliates, which are included in due to related parties, on the condensed consolidated balance sheets. We also recorded $ 2.1 million and $ 2.0 million of prepaid expenses for services that have been passed through to the company from NantWorks as of March 31, 2023 and December 31, 2022, respectively, which are included in prepaid expenses and other current assets , on the condensed consolidated balance sheets. Facility License Agreement In 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 rentable square feet of office space in Culver City, California, which was converted to a research and development laboratory and a cGMP manufacturing facility. In 2020, we amended this agreement to extend the term of this license agreement through December 31, 2021. Commencing on January 1, 2022, the license fee increased by 3 % to approximately $ 56,120 per month. On May 6, 2022, we amended our facility license agreement with NantWorks to expand the licensed premises by 36,830 rentable square feet to an aggregate total of 46,330 rentable square feet. Effective May 1, 2022, the license fee is approximately $ 273,700 per month, which is subject to a 3 % increase commencing on January 1 of each year. The space continues to be rented on a month-to-month basis, which can be terminated by either party with at least 30 days’ prior written notice to the other party. We recorded license fee expense for this facility totaling $ 0.8 million and $ 0.2 million for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations. 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. Pursuant to the terms of the Clinic agreement (as amended), we made payments totaling $ 5.6 million in consideration of future services to be performed by the Clinic. In 2021, we completed a review of alternative structures that could support our more complex clinical trial requirements and made a decision to explore a potential transition of clinical trials at the Clinic to a new structure (including contracting with a new, non-affiliated professional corporation) to be determined and agreed upon by all parties. Based on this decision to explore a potential transition, we determined that it was more likely than not that the previously recorded prepaid asset would not result in the collection of fees for services performed by the Clinic as contemplated in the original agreements. As a result, we wrote down the remaining value of our prepaid asset and recorded approximately $ 4.4 million in research and development expense , on the condensed consolidated statement of operations for the year ended December 31, 2021 . We continue productive negotiations with potential partners around alternative structures, but there can be no assurance that we will be successful. We recorded $ 0.6 million and $ 0.4 million for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations related to clinical trial and transition services provided by the Clinic. As of March 31, 2023 and December 31, 2022 , we owed the Clinic an immaterial amount and $ 0.1 million, respectively . 31 Table of Contents NantBio, Inc. In August 2018, we entered into a supply agreement with 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 no revenue for the three months ended March 31, 2023 and no revenue for the three months ended March 31, 2022. We recorded $ 0.1 million and $ 0.1 million of deferred revenue for bioreactors that were delivered but not installed in accrued expenses and other liabilities , on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, 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 to the company. As of March 31, 2023 and December 31, 2022, we recorded a net receivable from NantBio of $ 1.3 million for amounts we paid on behalf of NantBio during the year ended December 31, 2019. 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. We recorded lease expense for this facility of $ 0.2 million and $ 0.2 million for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations. Duley Road, LLC In February 2017, we 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 11,980 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 October 2034. The base rent is approximately $ 40,700 per month, with annual increases of 3 %. 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, with annual increases of 3 %. As of March 31, 2023 and December 31, 2022, respectively, we recorded $ 0.9 million and $ 0.9 million of leasehold improvement payables, and $ 0.5 million and $ 0.6 million of lease-related payables, to Duley Road, which were included in due to related parties , on the condensed consolidated balance sheets. We recorded rent expense for these leases totaling $ 0.2 million and $ 0.2 million for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations. 32 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 rentable square feet (the Initial Premises) i n 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 received a rent abatement for the first seven months . The lease also provides a tenant improvement incentive of $ 0.3 million for costs and expenses associated with the construction of tenant improvements for the Initial Premises. 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. We received a rent abatement for the first seven months . The amended lease provides for a tenant improvement allowance of approximately $ 2.6 million for costs and expenses related to improvements made by us to the Expansion Premises. We recorded rent expense for the Initial and Expansion Premises leases totaling $ 0.5 million and $ 0.5 million for the three months ended March 31, 2023 and 2022, respectively, i n research and development expense, on the condensed consolidated statements of operations. 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. 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. We have included the first option to extend the lease term for five years as part of the initial term of the lease as it is reasonably certain that we will exercise the option, which implies lease expiration in September 2031. We recorded $ 0.1 million and $ 0.1 million of rent expense related to this lease for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations. 23 Alaska, LLC On May 6, 2022, we entered into a lease agreement with 23 Alaska, LLC, a related party, for a 47,265 rentable square foot facility located at 2335 Alaska Ave., El Segundo, California, to be used primarily for pharmaceutical development and manufacturing, research and development, and office space. Under the terms of the agreement, the lease term begins on May 1, 2022 and expires on April 30, 2027. The base rent is approximately $ 139,400 per month with an annual increase of 3 % on May 1 of each year beginning in 2023 during the initial term. We are also required to pay $ 7,600 per month for parking during the initial term and extension term, if exercised. 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. 33 Table of Contents The company has an option to extend the lease term for one additional consecutive five-year period. At the beginning of the 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. We recorded $ 0.4 million of rent expense for this lease for the three months ended March 31, 2023 in research and development expense , on the condensed consolidated statement of operations. 11. Warrant Liabilities December 2022 Warrants On December 12, 2022, in connection with the sale of 9,090,909 shares of our common stock to an institutional investor, we entered into a warrant agreement that allows such investor to purchase up to 9,090,909 shares at an exercise price of $ 6.60 per share. We classified the warrants as a liability at their fair value determined using the Black-Scholes option pricing model. The fair value of the warrants was estimated at $ 35.1 million at the issuance date. Of the total placement agent fees and other offering costs of $ 3.0 million, $ 1.1 million were allocated to the warrants and recorded to other income (expense), net on the date of the transaction. As of March 31, 2023, all 9,090,909 underlying warrants were outstanding, As of March 31, 2023 and December 31, 2022, the estimated fair value of the warrants were $ 5.8 million and $ 21.6 million, respectively . The decrease in fair value of $ 15.8 million was recognized in other income (expense), net , on the condensed consolidated statement of operations for the three months ended March 31, 2023. February 2023 Warrants On February 15, 2023, in connection with the sale of 14,072,615 shares of our common stock to institutional investors, we entered into a warrant agreement that allows such investors to purchase up to 14,072,615 shares at an exercise price of $ 4.26 per share. We classified the warrants as a liability at their fair value determined using the Black-Scholes option pricing model. The fair value of warrants were estimated at $ 23.7 million at the issuance date. Of the total placement agent fees and other offering costs of $ 3.0 million , $ 1.0 million were allocated to the warrants and recorded to other income (expense), net, on the date of the transaction . As of March 31, 2023, all 14,072,615 underlying warrants were outstanding, with an estimated fair value of $ 12.0 million . The decrease in fair value of $ 11.7 million is recognized in other income (expense), net , on the condensed consolidated statement of operations for the three months ended March 31, 2023. 12. Stockholders’ Deficit Stock Repurchases No shares of our common stock were repurchased during the three months ended March 31, 2023 and 2022 under the company’s 2015 Share Repurchase Program. As of March 31, 2023, $ 18.3 million remained authorized to use for share repurchases under the program. Shelf Registration Statement During February 2023, we filed a $ 750.0 million shelf registration statement with the SEC on Form S-3 for the offering and sale of equity and equity-linked securities, including common stock, preferred stock, debt securities, depositary shares, warrants to purchase common stock, preferred stock or debt securities, subscription rights, purchase contracts, and units. In February 2023, we sold shares of our common stock and warrants valued at $ 110.0 million under the shelf. As of March 31, 2023, we had $ 640.0 million available for use under the shelf. See “ —Registered Direct Offerings ” below. This available shelf is in addition to the Open Market Sale Agreement described below. 34 Table of Contents Open Market Sale Agreement In April 2021, we entered into 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 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. We issued no shares under the ATM during the three months ended March 31, 2023. As of March 31, 2023, we had $ 225.4 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. Registered Direct Offerings On December 12, 2022, we entered into a securities purchase agreement with an institutional investor for the sale of 9,090,909 shares of our common stock, as well as warrants that allow such investor to purchase an additional 9,090,909 shares of common stock at an exercise price of $ 6.60 per share, for a purchase price of $ 5.50 per share and accompanying warrant, generating net proceeds of approximately $ 47.0 million, after deducting placement agent fees and other offering costs of $ 3.0 million, of which $ 1.9 million was allocated to the sale of our common stock and recognized as additional-paid-in capital , on the consolidated statement of stockholders’ deficit, for the year ended December 31, 2022. The warrants became immediately exercisable and expire two years after the initial issuance date. On February 15, 2023, we entered into a securities purchase agreement with certain institutional investors for the sale of 14,072,615 shares of our common stock, as well as warrants that allow such investors to purchase an additional 14,072,615 shares of common stock at an exercise price of $ 4.26 per share, for an aggregate purchase price of $ 3.55 per share and accompanying warrant. This transaction generated net proceeds of approximately $ 47.0 million, after deducting placement agent fees and other estimated offering costs of $ 3.0 million, of which $ 2.0 million was allocated to the sale of our common stock and recognized in additional-paid-in capital, on the condensed consolidated statement of stockholders’ deficit for the three months ended March 31, 2023. The warrants became immediately exercisable and expire two years after the initial issuance date. The closing of the offering occurred on February 17, 2023. We currently intend to use the net proceeds from this offering, together with other available funds, to progress our pre-commercialization efforts and clinical development programs, fund other research and development activities, for capital expenditures, and for other general corporate purposes. We may also use a portion of the net proceeds to license intellectual property or to make acquisitions or investments. See Note 11 , Warrant Liabilities, for further information. 35 Table of Contents 13. Stock-Based Compensation 2015 Equity Incentive Plan As of March 31, 2023, approximately 18.6 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 March 31, 2023 2022 (Unaudited) Stock-based compensation expense: Stock options $ 3,643 $ 2,022 RSUs 7,235 8,002 $ 10,878 $ 10,024 Stock-based compensation expense in operating expenses: Research and development $ 3,634 $ 2,985 Selling, general and administrative 7,244 7,039 $ 10,878 $ 10,024 Stock Options The following table summarizes stock option activity and related information for the three months ended March 31, 2023: Number of Options Weighted- Average Exercise Price Aggregate Intrinsic Value (in thousands) Weighted- Average Remaining Contractual Life (in years) Outstanding at December 31, 2022 9,262,926 $ 9.87 $ 4,848 7.2 Granted — $ — Exercised ( 81,037 ) $ 1.55 Forfeited/expired ( 22,224 ) $ 5.83 Outstanding at March 31, 2023 9,159,665 $ 9.96 $ 234 7.0 Vested and exercisable at March 31, 2023 5,053,597 $ 12.93 $ 234 5.3 As of March 31, 2023, the unrecognized compensation cost related to outstanding stock options was $ 16.7 million, which is expected to be recognized over a remaining weighted-average period of 1.6 years. The total intrinsic value of stock options exercised during the three months ended March 31, 2023 was $ 0.2 million. Cash proceeds received from stock option exercises during the three months ended March 31, 2023 and 2022 totaled $ 0.1 million and $ 0.1 million, respectively. As of December 31, 2022, a total of 3,445,499 vested and exercisable shares were outstanding. 36 Table of Contents Restricted Stock Units The following table summarizes RSU activity during the three months ended March 31, 2023: Number of Units Weighted- Average Grant Date Fair Value Nonvested balance at December 31, 2022 6,551,388 $ 18.27 Granted 202,985 $ 1.43 Vested ( 313,975 ) $ 15.17 Forfeited/canceled ( 252,106 ) $ 4.38 Nonvested balance at March 31, 2023 6,188,292 $ 18.45 As of March 31, 2023, there was $ 61.9 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.6 years. The total intrinsic value of RSUs vested during the three months ended March 31, 2023 was $ 0.9 million. RSUs awarded to employees and consultants of affiliated companies are 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 10 , 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 on March 4, 2021 and recorded $ 0.1 million and $ 0.1 million of deemed dividends for the three months ended March 31, 2023 and 2022 in additional paid-in capital, on the condensed consolidated balance sheets, with a corresponding credit to stock-based compensation expense. Related-Party 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 March 31, 2023. 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. 14. Income Taxes We are subject to U.S. federal income tax, as well as income tax in Italy, South Korea, California and other states. From inception through March 31, 2023, we have not been required to pay U.S. federal and state income taxes because of current and accumulated net operating losses (NOLs). 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 U.S., Italy, and South Korea because those losses are offset by a full valuation allowance. Our federal returns for tax years 2019 through 2021 remain open to examination, and our state returns remain subject to examination for tax years 2018 through 2021. The Italian and South Korea returns for tax years 2017 through 2021 remain open to examination. Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the Internal Revenue Service or other respective tax authorities. No income tax returns are currently under examination by taxing authorities. 37 Table of Contents Inflation Reduction Act of 2022 The Inflation Reduction Act 2022, which incorporates a Corporate Alternative Minimum Tax (CAMT), was signed on August 16, 2022. The changes are effective for the tax years beginning after December 31, 2022. The new tax will require companies to compute two separate calculations for federal income tax purposes and pay the greater of the new minimum tax or their regular tax liability. The company will be monitoring the impact of the act to determine if it will have an impact on the company for years beginning after December 31, 2022. We currently do not expect this act will have a material effect on our consolidated financial statements. Coronavirus Aid, Relief and Economic Security Act On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief and Economic Security Act (the CARES Act). The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S. economy and fund a nationwide effort to curtail the effect of COVID-19. The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic. Under the CARES Act, some of the more significant provisions are NOL carrybacks for five years to offset previous years’ income, or can be carried forward indefinitely to offset 100% of taxable income for the tax year beginning before 2021 and 80% of taxable income for tax years 2021 and thereafter, increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. During the three months ended March 31, 2023 and 2022, we did not record any income tax (expense) benefit resulting from the CARES Act, mainly due to our history of net operating losses generated and the maintenance of a full valuation allowance against our net deferred tax assets. There was no material impact from the provisions of the Cares Act for the three months ended March 31, 2023 and 2022. State of California Assembly Bill No. 85 On June 29, 2020, the state of California enacted Assembly Bill No. 85 (AB 85) suspending California NOL utilization and imposing a cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020, 2021 and 2022. There was no material impact from the provisions of AB 85 for the three months ended March 31, 2022. On February 9, 2022, Senate Bill No. 113 was enacted that removed the limitations on the use of NOLs and the cap on the business incentive tax credits that were suspended in accordance with AB 85 effective for tax year 2022. 38 Table of Contents