What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-07 · 301 added, 286 removed, 519 unchanged (53% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

June 30, 2020

December 31, 2019

September 30,

Current assets:

Cash and cash equivalents

Prepaid expenses and other current assets (including related parties)

Prepaid expenses and other current assets (including amounts with related parties)

Marketable debt securities, available-for-sale

1 unchanged sentence

Marketable debt securities, noncurrent

Property, plant and equipment, net

Operating lease right-of-use assets, net (including related parties)

Property, plant and equipment, net (including amounts with related parties)

Operating lease right-of-use assets, net (including amounts with related parties)

Equity investment

Other assets (including related parties)

Other assets (including amounts with related parties)

LIABILITIES AND STOCKHOLDERS’ EQUITY

3 unchanged sentences

Due to related parties

Other current liabilities (including related parties)

Operating lease liabilities (including amounts with related parties)

Other current liabilities

Total current liabilities

Operating lease liability, less current portion (including related parties)

Operating lease liabilities, less current portion (including amounts with related parties)

Total liabilities

3 unchanged sentences

500,000,000 shares authorized;

107,764,158 and

98,460,404 issued and outstanding as of June 30, 2020 and December 31, 2019

108,592,583 and 98,460,404 issued and outstanding as of September 30, 2020

and December 31, 2019, respectively

Additional paid-in capital

7 unchanged sentences

(in thousands, except share and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

20 unchanged sentences

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive income, net of income taxes:

Net unrealized gains on available-for-sale securities

Reclassification of net realized gains on available-for-sale

securities included in net loss

Total other comprehensive income

Three Months Ended

September 30,

Nine Months Ended

September 30,

Other comprehensive (loss) income, net of income taxes:

Net unrealized (losses) gains on available-for-sale securities

Reclassification of net realized losses on

available-for-sale securities included in net loss

Total other comprehensive (loss) income

Comprehensive loss

4 unchanged sentences

Comprehensive

Three Months Ended June 30, 2020

Balance at March 31, 2020

Three Months Ended September 30, 2020

Balance at June 30, 2020

Issuance of common stock, net of

4 unchanged sentences

Employee payroll taxes withheld related to

vesting of RSUs

Other comprehensive income, net

Balance at June 30, 2020

vesting of RSUs and exercise of stock

Other comprehensive loss, net

Balance at September 30, 2020

Comprehensive

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Balance at December 31, 2019

5 unchanged sentences

Employee payroll taxes withheld related to

vesting of RSUs

Other comprehensive income, net

Balance at June 30, 2020

vesting of RSUs and exercise of stock

Other comprehensive loss, net

Balance at September 30, 2020

The accompanying notes are an integral part of these condensed consolidated financial statements.

3 unchanged sentences

Comprehensive

Three Months Ended June 30, 2019

Balance at March 31, 2019

Three Months Ended September 30, 2019

Balance at June 30, 2019

Stock-based compensation expense

2 unchanged sentences

vesting of RSUs

Repurchase of common stock

Other comprehensive income, net

Balance at June 30, 2019

Balance at September 30, 2019

Comprehensive

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Balance at December 31, 2018

9 unchanged sentences

Other comprehensive income, net

Balance at June 30, 2019

Balance at September 30, 2019

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities:

3 unchanged sentences

Stock-based compensation expense

Non-cash interest items, net

Amortization of net premiums and discounts on marketable debt securities

Loss on sales of marketable debt securities

Non-cash interest items, net

Loss on impairment of fixed assets

1 unchanged sentence

Prepaid expenses and other current assets

Operating lease right-of-use assets, net

Accounts payable

7 unchanged sentences

Purchases of marketable debt securities, available-for-sale

Sales/maturities of marketable debt securities

Net cash provided by (used in) investing activities

Maturities of marketable debt securities

Sales of marketable debt securities

Net cash (used in) provided by investing activities

Financing activities:

3 unchanged sentences

Repurchase of common stock

Net share settlement for restricted stock unit vesting and option exercises

Net share settlement for restricted stock unit vesting

Net cash provided by financing activities

6 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Reconciliation of cash, cash equivalents, and restricted cash at end of

4 unchanged sentences

Cash paid during the period for:

Supplemental disclosure of non-cash investing and financing activities:

Supplemental disclosure of non-cash activities:

Property and equipment purchases included in accounts payable, accrued

expenses, due to related parties and other liabilities

Unpaid offering costs included in accounts payable and accrued expenses

expenses and due to related parties

Cashless exercise of stock options

Right-of-use assets obtained in exchange for operating lease liabilities

Conversion of Viracta convertible notes and accrued interest into investment in

equity securities of Viracta (Note 4)

Unrealized gains on marketable debt securities

Cashless exercise of stock options

Unrealized (losses) gains on marketable debt securities

The accompanying notes are an integral part of these condensed consolidated financial statements.

14 unchanged sentences

We have non-exclusively licensed or sub-licensed our high-affinity CD16 bearing aNK cell platform and corresponding intellectual property to numerous pharmaceutical and biotechnology companies for such non-clinical uses.

On June 29, 2020, the company closed an underwritten public offering of an aggregate of 8,521,500 shares of common stock, which included 4,811,500 shares issued to the public at a price of $ 9.50 per share (which includes 1,111,500 shares sold to the public upon full exercise of the underwriters’ option to purchase additional shares at a public offering price of $ 9.50 per share), less underwriting discounts and commissions, and 3,710,000 shares issued to our Chairman, CEO and principal stockholder, Dr.

Patrick Soon-Shiong, at a price of $ 12.12 per share, less underwriting discounts and commissions.

All of the shares were offered by the company.

Including the underwriters’ option exercise, the aggregate gross proceeds from the offering were approximately $ 90.7 million, before deducting underwriting discounts, commissions and other offering expenses payable by the company of approximately $ 4.4 million.

Estimated issuance cost totaling $ 0.5 million were unpaid as of June 30, 2020 and have been included in accounts payable and accrued expenses on the company’s condensed consolidated balance sheets as of such date.

As of June 30, 2020, the company had an accumulated deficit of $ 700.7 million.

We also had negative cash flow from operations of $ 29.1 million during the six months ended June 30, 2020.

As of September 30, 2020, the company had an accumulated deficit of $ 722.4 million.

We also had negative cash flow from operations of $ 47.4 million during the nine months ended September 30, 2020.

The company will likely need additional capital to further fund development of, and seek regulatory approvals for, our product candidates, and to begin to commercialize any approved products.

4 unchanged sentences

Additional financing may not be available to us when needed and, if available, financing may not be obtained on terms favorable to the company or its stockholders.

While we expect our existing cash, and cash equivalents and marketable debt securities will enable us to fund operations and capital expenditure requirements for at least the next 12 months, we may not have sufficient funds to reach commercialization.

While we expect our existing cash, and cash equivalents and marketable debt securities will enable us to fund operations and capital expenditure requirements for at least the next 12 months, we anticipate that we will need additional funds to reach commercialization.

Failure to obtain adequate financing when needed may require us to delay, reduce, limit, or terminate some or all of our development programs or future commercialization efforts or grant rights to develop and market product candidates that we might otherwise prefer to develop and market ourselves, which could adversely affect our ability to operate as a going concern.

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The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S.

The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the results for the interim periods presented and have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended December 31, 2019.

GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission.

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.

Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2019 included in our Annual Report on Form 10‑K.

Interim operating results are not necessarily indicative of operating results for the full year.

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 discussed in the Liquidity section of Note 1.

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Further, because of the risk and uncertainties associated with the commercialization of the company’s product candidates in development, we may need additional funds to meet our needs sooner than planned.

The unaudited condensed consolidated financial statements do not include all information and notes necessary for a complete presentation of results of income, comprehensive income, financial position, and cash flows in conformity with U.S.

Interim operating results are not necessarily indicative of operating results for the full year.

The year-end consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by U.S.

Principles of Consolidation and Equity Investments

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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 valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, useful lives of long-lived assets, loss contingencies, and fair value measurements.

On an ongoing basis, we evaluate our estimates, including those related to valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, and fair value measurements.

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 recent coronavirus disease (COVID‑19) could have on our significant accounting estimates.

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.

1 unchanged sentence

In March 2020, the World Health Organization declared the novel strain of coronavirus disease (SARS‑CoV‑2) outbreak a pandemic.

To date, our operations have not been significantly impacted by the COVID‑19 outbreak.

However, we cannot at this time predict the specific extent, duration, or full impact that the COVID‑19 outbreak may have on our financial condition and results of operations, including ongoing and planned clinical trials.

More specifically, the recent uptick of COVID‑19 outbreaks worldwide and in particular across the U.S.

may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist until such time a vaccine is available.

The impact of the COVID‑19 coronavirus outbreak on the financial performance of the company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions.

These developments and the impact of COVID‑19 on the financial markets and the overall economy are highly uncertain.

To date, our operations have not been significantly impacted by the pandemic.

However, we cannot at this time predict the specific extent, duration, or full impact that this pandemic may have on our financial condition and results of operations, including ongoing and planned clinical trials.

More specifically, the pandemic may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist until such time a vaccine is broadly available and in use.

The impact of the pandemic on the financial performance of the company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions.

These developments and the impact of the ongoing pandemic on the financial markets and the overall economy are highly uncertain.

If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected.

2 unchanged sentences

We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause a change in the potential amount of the liability recorded or of the range of potential losses disclosed.

Moreover, we record gain contingencies only when they are realizable, and the amount is known.

Additionally, we record our rights to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and when receipt is deemed probable.

13 unchanged sentences

The following table details those securities that have been excluded from the computation of potentially dilutive securities:

As of June 30,

As of September 30,

Outstanding options

1 unchanged sentence

Amounts in the table above reflect the common stock equivalents of the noted instruments.

Collaboration Arrangements

We analyze our collaboration arrangements to assess whether they are within the scope of ASC Topic 808, Collaborative Arrangements, or ASC 808.

A collaborative arrangement is a contractual arrangement that involves a joint operating activity.

These arrangements involve two or more parties who are active participants in the activity, and exposed to significant risks and rewards dependent on the commercial success of the activity.

This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

To the extent the collaboration agreement is within the scope of ASC 808, we also assess whether the arrangement contains multiple elements that are within the scope of other accounting literature.

If we conclude that some or all aspects of the agreement are distinct and represent a transaction with a customer, we account for those aspects of the arrangement within the scope of ASC Topic 606, Revenue from Contracts with Customers , or ASC 606.

Amounts that are owed to collaboration partners that are within the scope of ASC 808 are recognized as an offset to research and development expenses as such amounts are incurred by the collaboration partner.

Where amounts owed to a collaboration partner exceed our collaboration expenses in each quarterly period, such amounts are classified as research and development expense.

Our collaboration arrangements require us to acquire certain equipment for exclusive use in the joint operating activities.

These equipment purchases do not have an alternative use and are therefore expensed as incurred within research and development expenses.

Our collaboration arrangements are further discussed within Note 7, Collaboration and License Agreements .

Recent Accounting Pronouncements

Application of New or Revised Accounting Standards – Adopted

In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2019‑12, Simplifying the Accounting for Income Taxes , or ASU 2019‑12.

The amendments in ASU 2019‑12 include removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income, or a gain, from other items (e.g., discontinued operations or other comprehensive income) and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

In November 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No.

2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18).

ASU 2018-18 clarifies when certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606.

It also specifically addresses when the participant should be considered a customer in the context of a unit of account;

adds unit of account guidance in ASC 808 to align with guidance in ASC 606;

and precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.

The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted.

We adopted ASU 2018-18, as required, in the quarter ended March 31, 2020.

We are a party to several collaboration arrangements as further described in Note 7, Collaboration and License Agreements , however, adoption of ASU 2018-18 did not have an impact on our condensed consolidated financial statements because the counterparties to our collaboration agreements do not meet the definition of a customer.

In December 2019, the FASB issued A SU 2019 ‑ 12, Simplifying the Accounting for Income Taxes , or ASU 2019 ‑12 .

The amendments in ASU 2019 ‑ 12 include remov ing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gai n from other items (e.g., discontinued operations or other comprehensive income) , and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year .

ASU 2019 ‑ 12 also amends other aspects of accounting for income taxes to help simplify and promote consistent application of U.S.

1 unchanged sentence

We early adopted ASU 2019 ‑ 12 effective January 1, 2020, and it did not have a material impact on our consolidated financial statements .

Although our adoption of ASU 2019‑12 did not have a material impact on our consolidated financial statements during the three and six months ended June 30, 2020, it may have a material impact on our consolidated financial statements in future periods due to the removal of the exceptions discussed above.

The amendments related to intraperiod tax allocation were applied prospectively, and the amendment related to calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year will be applied prospectively.

Although our adoption of ASU 2019 ‑12 did not have a material impact on our consolidated financial statements during the three and nine months ended September 30, 2020 , it may have a material impact on our consolidated financial statements in future periods due to the removal of the exceptions discussed above.

The amendment s related to intraperiod tax allocation were a pplied prospectively, and the amendment related to calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year will be applied prospectively.

Application of New or Revised Accounting Standards – Not Yet Adopted

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With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption.

We continue to evaluate the impact that this new standard and its related amendments will have on our consolidated financial statements and we have not yet determined when we will adopt this new standard.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission during the three months ended June 30, 2020 did not, or are not expected to, have a material effect on our consolidated financial statements.

We continue to evaluate the impact that this new standard and its related amendments will have on our consolidated financial statements and we do not intend to early adopt this new standard.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission during the three months ended September 30, 2020 did not, or are not expected to, have a material effect on our consolidated financial statements.

Financial Statement Details

Prepaid expenses and other current assets

As of June 30, 2020 and December 31, 2019, prepaid expenses and other current assets were made up of (in thousands):

June 30, 2020

December 31, 2019

As of September 30, 2020 and December 31, 2019, prepaid expenses and other current assets were made up of (in thousands):

September 30,

Prepaid preclinical and clinical trial services - with

related party (Note 9)

Insurance premium financing asset

Prepaid services

Prepaid supplies - with related party (Note 9)

Prepaid insurance

Prepaid equipment maintenance

Prepaid license fees

Interest receivable - marketable debt securities

Prepaid supplies - with related party (Note 9)

Prepaid license fees

Prepaid equipment maintenance

Laboratory equipment deposit

Due from related parties

Insurance premium financing asset

Insurance claim receivables

Property, plant and equipment, net

As of June 30, 2020 and December 31, 2019, property, plant and equipment, net, was made up of (in thousands):

June 30, 2020

December 31, 2019

Property, p lant and e quipment, n et

As of September 30, 2020 and December 31, 2019, property, plant and equipment, net, was made up of (in thousands):

September 30,

Leasehold improvements

1 unchanged sentence

Accumulated depreciation

Depreciation expense related to property, plant and equipment was $ 2.3 million and $ 2.2 million for the three months ended June 30, 2020 and 2019, respectively, and $ 4.5 million and $ 4.0 million for the six months ended June 30, 2020 and 2019, respectively.

Other a ssets

As of June 30, 2020 and December 31, 2019, other assets were made up of (in thousands):

June 30, 2020

December 31, 2019

Depreciation expense related to property, plant and equipment was $ 2.4 million and $ 2.2 million for the three months ended September 30, 2020 and 2019, respectively, and $ 6.9 million and $ 6.2 million for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and December 31, 2019, other assets were made up of (in thousands):

September 30,

Prepaid preclinical and clinical trial services - with

1 unchanged sentence

Restricted cash

Prepaid software license fees

Security deposit

1 unchanged sentence

Accrued expenses

As of June 30, 2020 and December 31, 2019, accrued expenses were made up of (in thousands):

June 30, 2020

December 31, 2019

As of September 30, 2020 and December 31, 2019, accrued expenses were made up of (in thousands):

September 30,

Accrued bonus

Accrued compensation

Accrued laboratory equipment, supplies and related services

Accrued professional and service fees

Accrued laboratory equipment, supplies and related services

Accrued preclinical and clinical trial costs

Accrued franchise and sales/use taxes

Other current liabilities

As of June 30, 2020 and December 31, 2019, other current liabilities were made up of (in thousands):

June 30, 2020

December 31, 2019

Operating lease liability - current portion (including

amounts with related parties, Note 9)

Due to broker - marketable debt securities

Accrued construction costs

Other c urrent l iabilities

As of September 30, 2020 and December 31, 2019, other current liabilities were made up of (in thousands):

September 30,

Financing obligation - current portion

Investment income, net

Net investment income is as follows for the three and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Net investment income is as follows for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Interest income

2 unchanged sentences

Interest income includes interest from marketable debt securities, notes receivable, other assets, and interest from bank deposits.

We did no t recognize an impairment loss on any investments during the three and six months ended June 30, 2020 and 2019 .

We did no t recognize an impairment loss on any investments during the three and nine months ended September 30, 2020 and 2019.

Viracta Investment

1 unchanged sentence

In May 2017, we executed an exclusive worldwide license with Viracta to develop and commercialize Viracta’s proprietary histone deacetylase inhibitor drug candidate for use in combination with natural killer cell therapy and possibly additional therapies.

At June 30, 2020, our investment in Viracta totaled $ 9.3 million.

At September 30, 2020, our investment in Viracta totaled $ 9.3 million.

Our investment in Viracta is reflected in equity investment on the condensed consolidated balance sheets.

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As the preferred stock does not have a readily determinable fair value and does not qualify for the practical expedient to estimate fair value in accordance with ASC 820, we have elected to apply the measurement alternative under ASC 321, pursuant to which we measure our investment in Viracta at cost, less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer.

As of June 30, 2020, our qualitative impairment assessment did not indicate there were events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment.

We have not recorded any impairments as of June 30, 2020, or on a cumulative basis.

Further, we have not identified any downward or upward adjustments due to observable price changes in the investment as of June 30, 2020, or on a cumulative basis.

As of September 30, 2020, our qualitative impairment assessment did not indicate there were events or changes in circumstances that may have had a significant adverse effect on the fair value of the investment.

We have not recorded any impairments as of September 30, 2020, or on a cumulative basis.

Further, we have not identified any downward or upward adjustments due to observable price changes in the investment as of September 30, 2020, or on a cumulative basis.

Financial Instruments – Investments in Marketable Debt Securities

At June 30, 2020, our investments in available-for-sale debt securities, excluding $ 1.2 million of corporate debt securities and commercial paper included in cash and cash equivalents, are detailed below (in thousands):

June 30, 2020

At September 30, 2020, our investments in available-for-sale debt securities, excluding $ 10.6 million of corporate debt securities and commercial paper included in cash and cash equivalents, are detailed below (in thousands):

September 30, 2020

Corporate debt securities

Commercial paper

Current portion

As of June 30, 2020, the weighted-average remaining contractual life of our available-for-sale securities was approximately 0.1 years.

Corporate debt securities

Noncurrent portion

At September 30, 2020, the weighted-average remaining contractual life of our available-for-sale securities was approximately 0.5 years.

At December 31, 2019, our investments in available-for-sale debt securities are detailed below (in thousands):

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Noncurrent portion

Accumulated unrealized losses on debt securities classified as available-for-sale that have been in a continuous loss position for less than 12 months and for more than 12 months at June 30, 2020 and December 31, 2019 were as follows (in thousands):

June 30, 2020

Accumulated unrealized losses on debt securities classified as available-for-sale that have been in a continuous loss position for less than 12 months and for more than 12 months at September 30, 2020 and December 31, 2019 were as follows (in thousands):

September 30, 2020

Less than 12 months

6 unchanged sentences

Government sponsored securities

At June 30, 2020, 1 of the securities was in an unrealized loss position.

We evaluated our securities for other-than-temporary impairment and concluded that the decline in value was primarily caused by current economic and market conditions.

We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.

Therefore, we did not recognize any other-than-temporary impairment loss during the six months ended June 30, 2020.

Realized gains and losses on sales of available-for-sale debt securities during the three and six months ended June 30, 2020 and 2019 were immaterial.

Therefore, we did not recognize any other-than-temporary impairment loss during the nine months ended September 30, 2020 .

Realized gains and losses on sales of available-for-sale debt securities during the three and nine months ended September 30, 2020 and 2019 were immaterial.

Fair Value Measurements

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Recurring Valuations

Financial assets and liabilities measured at fair value on a recurring basis are summarized below at June 30, 2020 and December 31, 2019 (in thousands):

Fair Value Measurements at June 30, 2020

Financial assets and liabilities measured at fair value on a recurring basis are summarized below at September 30, 2020 and December 31, 2019 (in thousands):

Fair Value Measurements at September 30, 2020

Cash and cash equivalents

Corporate debt securities

Commercial paper

Corporate debt securities

Total assets measured at fair value

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Non-financial assets and liabilities are recognized at fair value subsequent to initial recognition when they are deemed to be other-than-temporarily impaired.

There were no material non-financial assets and liabilities deemed to be other-than-temporarily impaired and measured at fair value on a non-recurring basis for the three months ended June 30, 2020.

There were no material non-financial assets and liabilities deemed to be other-than-temporarily impaired and measured at fair value on a non-recurring basis for the three months ended September 30, 2020.

Collaboration and License Agreements

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ImmunityBio is a related party, as it is an affiliate of NantWorks (Note 9).

J oint Development Agreement for COVID ‑19

In May 2020, we entered into a binding term sheet with ImmunityBio for the joint development, manufacturing and marketing of a vaccine and various therapeutics for COVID‑19, or the Joint COVID-19 Collaboration, pursuant to which we and ImmunityBio will share equally in all costs relating to developing, manufacturing, and marketing of the product candidates globally, starting from and after the effective date of the definitive agreement, and the global net profits from the collaboration products will be shared 60 %/ 40 % in favor of the party contributing the product on which the sales are based.

All net profits from sales of any combined collaboration products will be shared equally as further outlined below.

We are negotiating and finalizing a definitive agreement related to this term sheet and expect to complete this definitive agreement by late August 2020, and our current plans and operations assume that this definitive agreement will be executed to continue the Joint COVID‑19 Collaboration.

Until the definitive agreement is finalized, any investments made by each entity are the responsibility of the contributing party.

As of June 30, 2020, we have incurred operating expenses of $ 5.4 million, which includes allocated personnel costs, laboratory supplies, and other expenses related to readying and operating our GMP laboratory manufacturing facilities in El Segundo and Culver City, California, which has been included in research and development expense on the condensed consolidated statements of operations.

These facilities and related laboratory equipment have been repurposed for the manufacture of two of the collaboration product candidates.

In addition, we also incurred capital expenditures of $ 2.3 million related to laboratory equipment in connection with the Joint COVID-19 Collaboration, which has been included in property, plant and equipment on the condensed consolidated balance sheets.

As of June 30, 2020, we have committed operating and capital expenditures of $ 4.5 million that we will incur in future periods.

The incurred and committed expenditures are primarily associated with the company’s previously ongoing QUILT-COVID-19-MSC product candidate and ImmunityBio’s human adenovirus, or hAd5, vaccine candidate.

In this Joint COVID‑19 Collaboration, we contributed our QUILT‑COVID‑19‑MSC product candidate as a therapeutic candidate for patients with severe symptoms of COVID‑19, to modulate the immune system’s excessive response to COVID‑19 infection, thereby potentially reducing the debilitating and sometimes fatal effects of the disease;

and our QUILT‑ceNK‑COVID‑19 product candidate as a therapeutic candidate for moderate-risk, hospitalized adults with moderate to severe symptoms of COVID‑19.

ImmunityBio contributed its IL‑15 product candidate as a therapeutic candidate for patients with mild symptoms of COVID-19, for use prior to the onset of severe disease by potentially activating natural killer cells to mitigate viral replication;

and human adenovirus, or hAd5, as a vaccine candidate for those individuals in an uninfected state, to prevent the onset of COVID‑19.

In addition to the above programs contributed by each party, we will contribute our manufacturing capabilities in the form of facilities, equipment, personnel and related know-how, including our GMP manufacturing facility in El Segundo, California, and ImmunityBio will contribute certain manufacturing equipment and related technology and know-how.

To date, NantKwest and ImmunityBio have each prepared a GMP-ready manufacturing plant for COVID‑19 vaccine production, which we and ImmunityBio expect will have a combined estimated capacity to produce sufficient clinical supply for our phase I and II studies by year-end 2020.

We have prepared one of our GMP manufacturing facilities previously used to manufacture product for our oncology trials to manufacture and produce the vaccine candidate and we have identified a new, well-equipped location to manufacture and produce clinical products for our oncology trials, which will result in additional facilities and related facility operating costs in future periods.

We have established a clinical product inventory to continue to supply clinical product for our ongoing oncology trials.

In addition, we have repurposed some of our manufacturing facility in Culver City, California, and personnel to support our QUILT‑COVID‑19‑MSC program and have repurposed some of our personnel overseeing quality of our oncology programs to support the Joint COVID‑19 Collaboration.

We also expect to hire additional staff to support the Joint COVID‑19 Collaboration.

We believe the Joint COVID‑19 Collaboration will have no material impact on our current oncology efforts and trials and we expect that we will be able to continue to manufacture adequate product to continue our ongoing oncology trials.

Additionally, with the sole exception of IL‑15 manufacturing, we will have primary responsibility for manufacturing and supplying the COVID‑19 collaboration products for clinical and commercial purposes.

We will also have the primary responsibility in the U.S.

for sales and marketing of the COVID‑19 collaboration products and the parties will share responsibility in the rest of the world for sales and marketing for the COVID‑19 collaboration products.

The Joint COVID‑19 Collaboration binding term sheet outlines how development costs will be shared, how profits will be apportioned for any successfully marketed products, and the structure of the shared governance of the joint effort.

Under the terms of the collaboration, we and ImmunityBio will share equally in all costs relating to developing, manufacturing, and marketing of the product candidates globally, starting from and after the effective date of the definitive agreement, and the global net profits from the collaboration products will be shared 60 %/ 40 % in favor of the party contributing the product on which the sales are based.

All net profits from sales of combined COVID‑19 collaboration products will be shared equally.

The Joint COVID‑19 Collaboration will be supervised by joint committees, comprised of an equal number of representatives from both companies.

Joint COVID‑19 Collaboration Development Agreement

On August 21, 2020, we entered into a definitive agreement (the “Collaboration Agreement”) with ImmunityBio to pursue collaborative joint development, manufacturing and marketing of certain COVID‑19 therapeutics and vaccines.

The terms of the Collaboration Agreement supersede and replace the terms of the binding term sheet executed on May 22, 2020, as previously disclosed.

Through their efforts, the parties agreed to jointly develop ceNK, haNK, mesenchymal stem cells (MSC), adenovirus constructs (hAd5), and N‑803, a novel IL‑15 cytokine superagonist, for the prevention and treatment of SARS‑CoV‑2 viral infections and associated conditions in humans, including without limitation, COVID‑19.

Pursuant to the Collaboration Agreement, we have contributed our ceNK, haNK, and MSC product candidates and certain of our manufacturing capabilities, and ImmunityBio has contributed their hAd5 and N‑803 product candidates.

hAd5 has been developed as a vaccine, and ceNK, haNK, MSC and N‑803 have each been developed as therapeutics for treating COVID‑19 at various stages of infection.

From and after the effective date of the Collaboration Agreement, the parties will share equally in all costs relating to developing and manufacturing of the product candidates globally with the exception of certain laboratory equipment purchases that will be borne solely by us.

With the exception of N‑803, we will be primarily responsible for the manufacture of each product.

Each party will be responsible for the regulatory affairs and the commercialization relating to its contributed products.

The global net profits from the collaboration products will be shared 60 %/ 40 % in favor of the party contributing the product on which the sales are based except if the parties mutually agree because of certain circumstances.

All net profits from sales of combined collaboration products will be shared equally.

This collaboration is supervised by a joint steering committee, which is comprised of an equal number of representatives from both parties.

The term of the agreement will be five years and it is renewable for an additional five year period upon mutual agreement.

Each party will also have a right to terminate in the event of material breach, bankruptcy, or insolvency.

If the definitive agreement is not entered into by both parties on or prior to August 21, 2020, then either party may thereafter terminate the term sheet upon five business days’ notice.

At September 30, 2020, joint research activity under the Collaboration Agreement totaled $ 3.5 million, which has been included in research and development expense on the condensed consolidated statements of operations.

Expenses incurred during the third quarter of 2020 were primarily related to the acquisition of $ 3.2 million of equipment to be utilized in the manufacture of the hAd5 COVID‑19 vaccine candidate, and other net program related costs of $ 0.3 million after applying the eligible cost sharing under the Collaboration Agreement.

Certain equipment purchases made by us during the third quarter of 2020, which are necessary for us to fulfil our manufacturing obligations related to the COVID‑19 program, were borne solely by us.

These equipment purchases do not have an alternative use and were therefore expensed as incurred within research and development expenses.

Prior to the effective date of the Collaboration Agreement, COVID‑19 related program costs incurred by us and ImmunityBio, including expenditures related to property, plant and equipment, were the responsibility of each party and not subject to the equal cost sharing.

At September 30, 2020, we owed ImmunityBio $ 0.1 million for net costs incurred under the Collaboration Agreement, which has been included in due to related parties on the condensed consolidated balance sheets.

Cost Sharing Agreement

In January 2020, we entered into a Cost Allocation Agreement with ImmunityBio and its subsidiaries.

Under the Cost Allocation Agreement, which became effective on October 1, 2019, and related work order, the parties agreed to conduct a joint study for the clinical research trial being conducted pursuant to the protocol titled QUILT 3.063:

A phase 2 study of combination therapy with an IL‑15 superagonist (N‑803), off-the-shelf CD16‑targeted natural killer cells (haNK), and avelumab without cytotoxic chemotherapy in subjects with Merkel Cell Carcinoma (MCC) that has progressed on or after treatment with a checkpoint inhibitor .

The ImmunityBio study drug included in the joint study is ImmunityBio’s proprietary IL‑15 superagonist known as N‑803 and our study drug is our proprietary “off-the-shelf” CD16-targeted natural killer cell therapy known as haNK.

We will act as the sponsor of this joint study for purposes of regulatory matters, including submissions, correspondence, and communications.

Additionally, we are designated as the contracting party to execute agreements with third and related parties relating to the joint study.

We and ImmunityBio will split certain joint study costs equally in accordance with the terms of the Cost Allocation Agreement and related work order.

Shared joint study costs include cost related to conducting the joint study development activities, such as personnel related costs, as well as all costs associated with regulatory matters.

Costs and expenses incurred in connection with the development, manufacturing, supply, delivery, and pre-patient administration dosing mechanism of each party’s study drug, are excluded from the shared joint study costs.

In January 2020, but effective on October 1, 2019, we entered into a Cost Allocation Agreement with ImmunityBio and its subsidiaries to co-sponsor and conduct certain combination clinical trials (each a Joint Study) pursuant to clinical trial protocols wherein at least one investigational agent is a proprietary therapeutic drug candidate owned or controlled by NantKwest and at least one other investigational agent is a proprietary therapeutic drug candidate owned or controlled by ImmunityBio.

Prior to initiating any activities for a Joint Study the parties agreed to enter into written work orders describing, amongst other things, development and management responsibilities, allocation of Joint Study costs and expenses, regulatory responsibilities, and any other matters relating to the Joint Study.

Under the Cost Allocation Agreement, each of ImmunityBio and the company will receive exclusive rights to any new intellectual property developed that relates solely to its respective study drug, and the parties will have joint co-equal rights in any other intellectual property.

The Cost Allocation Agreement expires on June 22, 2022 with the option to renew for additional successive one-year terms, but work orders for any joint studies still in process at the time of termination will continue until the applicable study is completed.

During the three and six months ended June 30, 2020, we incurred $ 29,700 and $ 0.1 million, respectively, in costs related to the joint study that are subject to joint cost sharing under the Cost Allocation Agreement which have been recorded as a reduction in research and development expense on the condensed consolidated statements of operations.

At June 30, 2020, we have recorded a receivable of $ 29,700 from ImmunityBio related to ImmunityBio’s share of joint study costs under the Cost Allocation Agreement.

We and ImmunityBio are splitting certain costs related to these joint studies equally in accordance with the terms of the Cost Allocation Agreement and related work orders.

Shared Joint Study costs include cost related to conducting the Joint Study development activities, such as personnel related costs, as well as all costs associated with regulatory matters.

In January 2020, but effective on October 1, 2019, we executed Work Order Number One with ImmunityBio, pursuant to the Cost Allocation Agreement.

Under Work Order Number One, the parties are conducting a clinical trial pursuant to the protocol titled QUILT 3.063:

The ImmunityBio study drug included in this Joint Study is ImmunityBio’s proprietary IL‑15 superagonist known as N‑803, and our study drug is our proprietary “off-the-shelf” CD16-targeted natural killer cell therapy known as haNK.

We are the sponsor of this Joint Study for purposes of regulatory matters, including submissions, correspondence, and communications.

Additionally, we are designated as the contracting party to execute agreements with third and related parties relating to the Joint Study.

In July 2020, but effective on June 22, 2020, we executed Work Order Number Two with ImmunityBio, pursuant to the Cost Allocation Agreement.

Under Work Order Number Two, the parties are conducting a clinical trial pursuant to the protocol titled QUILT 88:

Open-label, randomized, comparative phase 2 study of combination immunotherapy with standard-of-care chemotherapy versus standard-of-care chemotherapy for first and second line treatment of locally or advanced metastatic pancreatic cancer .

The ImmunityBio study drugs included in the joint study are ImmunityBio’s proprietary IL‑15 superagonist (N‑803) and Aldoxorubicin Hydrochloride (Aldoxorubicin), and our study drug is PD‑L1.t‑haNK.

ImmunityBio is the sponsor of this Joint Study for purposes of regulatory matters, including submissions, correspondence, and communications with the FDA.

Additionally, ImmunityBio is designated as the contracting party to execute agreements with third and related parties relating to this Joint Study.

During the three and nine months ended September 30, 2020, we incurred net costs of $ 0.3 million and $ 0.5 million, respectively, after applying the eligible costs sharing under the Cost Allocation Agreement, which have been recognized in research and development expense on the condensed consolidated statements of operations.

At September 30, 2020, our balance owed to ImmunityBio related to the Cost Allocation Agreement was not material.

Exclusive Co-Development Agreement

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We have dosed patients with N‑803, an IL‑15 superagonist, in several phase Ib/II trials.

No charges for supplies by Altor were incurred in association with the above trials during the three and six months ended June 30, 2020 and 2019.

No charges for supplies by Altor were incurred in association with the above trials during the three and nine months ended September 30, 2020 and 2019.

Commitments and Contingencies

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Moreover, we record gain contingencies only when they are realizable, and the amount is known.

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This includes instances where our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund.

The amount of such receivable recorded at June 30, 2020 and December 31, 2019 was $ 0 and $ 34,000 , respectively, and is included in prepaid expenses and other current assets on our consolidated balance sheets.

The amount of such receivable recorded at December 31, 2019 was $ 34,000 , which is included in prepaid expenses and other current assets on our consolidated balance sheets.

There were no such receivables recorded at September 30, 2020.

Contractual Obligations - Leases

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(ii) a research and manufacturing space in Culver City, California, from a related party;

(iii) a research and manufacturing facility in El Segundo, California, also from a related party;

(iii) research and manufacturing facilities in El Segundo, California, also from related parties;

(iv) a research facility in Torrance, California;

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See Note 9 – Related Party Agreements for further information.

For the three months ended June 30, 2020 and 2019, $ 1.3 million and $ 1.3 million, respectively, including variable lease costs of $ 0.3 million and $ 0.3 million, respectively, was recorded in operating expenses on the condensed consolidated statements of operations.

For the six months ended June 30, 2020 and 2019, $ 2.6 million and $ 2.5 million, respectively, including variable lease costs of $ 0.7 million and $ 0.5 million, respectively, was recorded in operating expenses on the condensed consolidated statements of operations.

The weighted-average remaining lease term as of June 30, 2020 and December 31, 2019 was 4.1 years and 4.5 years, respectively.

The weighted-average discount rate as of June 30, 2020 and December 31, 2019 was 9 %.

For the three months ended June 30, 2020 and 2019, cash outflows from operating leases, excluding variable lease costs, was $ 1.1 million and $ 1.0 million, respectively.

For the six months ended June 30, 2020 and 2019, cash outflows from operating leases, excluding variable lease costs, was $ 2.1 million and $ 2.3 million, respectively.

Future minimum lease payments at June 30, 2020 are presented in the following table (in thousands).

For the three months ended September 30, 2020 and 2019, $ 1.7 million and $ 1.3 million, respectively, including variable lease costs of $ 0.4 million and $ 0.3 million, respectively, was recorded in operating expenses on the condensed consolidated statements of operations.

For the nine months ended September 30, 2020 and 2019, $ 4.3 million and $ 3.8 million, respectively, including variable lease costs of $ 1.1 million and $ 0.9 million, respectively, was recorded in operating expenses on the condensed consolidated statements of operations.

The weighted-average remaining lease term as of September 30, 2020 and December 31, 2019 was 3.4 years and 4.5 years, respectively.

The weighted-average discount rate as of September 30, 2020 and December 31, 2019 was 9 %.

For the three months ended September 30, 2020 and 2019, cash outflows from operating leases, excluding variable lease costs, was $ 1.1 million and $ 1.0 million, respectively.

For the nine months ended September 30, 2020 and 2019, cash outflows from operating leases, excluding variable lease costs, was $ 3.2 million and $ 3.3 million, respectively.

Future minimum lease payments at September 30, 2020 are presented in the following table (in thousands).

Common area maintenance costs and taxes are not included in these payments.

Years ending December 31:

2020 (excluding the six months ended June 30, 2020)

2020 (excluding the nine months ended September 30, 2020)

Total future minimum lease payments

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Operating lease payments include $ 3.9 million related to options to extend lease terms that are reasonably certain of being exercised.

In September 2020, we entered into a sublease agreement with Altor Bioscience Manufacturing Company, LLC, a related party (Note 9), whereby we leased approximately 6,901 square feet in El Segundo, California, including laboratory space and related furniture, fixtures and equipment.

The agreement also includes certain non-lease components related primarily to the right to use certain common areas within the building and the related furniture and fixtures.

This facility will be used to manufacture and produce clinical products for our oncology product candidate trials.

The lease runs from August 2020 through July 2022, and includes an option to extend the lease for an additional one year term through July 2023.

The monthly fixed charge related to the agreement is $ 0.2 million, a portion of which will be subject to annual increases of 3 % beginning in November 2020 .

In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses, both of which are variable lease expenses.

At inception of the lease we recognized an increase of $ 4.0 million in both operating lease right-of-use assets and operating lease liabilities on the condensed consolidated balance sheets.

In August 2018, NantBio, Inc., or NantBio, a related party (Note 9), assigned an agreement to us for the use of a third-party research facility, which provides us with the exclusive right to use and access to a portion of the third party’s laboratory and vivarium premises.

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In November 2015, we entered into a facility license agreement with NantWorks LLC, or NantWorks, a related party (Note 9), for approximately 9,500 square feet of office space in Culver City, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility.

The license was effective in May 2015 and extends through December 2020.

The monthly rent is $ 47,000 , with annual increases of 3 % beginning in January 2017 .

The initial license was effective in May 2015 and extends through December 2020.

Base monthly rent for the initial lease term is $ 47,000 , with annual increases of 3 % beginning in January 2017 .

In September 2020, we entered into an amendment to extend the term of this lease through December 31, 2021 .

Commencing on January 1, 2021 , the monthly rent will increase by 3 % to $ 54,500 .

Subsequent to December 31, 2021, the lease term will automatically renew on a month-to-month basis, terminable by either party with at least thirty days ’ prior written notice to the other party.

In addition, we will have a one-time option to extend the lease term through December 31, 2022.

If we exercise the option to extend the lease through December 31, 2022, or continue on a month-to-month basis, the monthly rent will increase by 3 % annually commencing on January 1 of each year.

On the date of amendment we recognized an increase of $ 1.2 million in both operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets, which reflects our belief that we will extend the term of this lease through December 31, 2022.

In June 2015, we entered into a lease agreement for an approximately 44,700 square foot facility in San Diego, California, for a research and development laboratory, related office and other related uses.

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The base rent is $ 0.2 million per month with 3 % annual increases on each anniversary date.

We did not enter into any significant contracts during the six months ended June 30, 2020, other than those disclosed in these unaudited condensed consolidated financial statements.

We did not enter into any significant contracts during the nine months ended September 30, 2020, other than those disclosed in these unaudited condensed consolidated financial statements.

Related Party Agreements

Our Chairman and CEO founded and has a controlling interest in NantWorks, which is a collection of multiple companies in the healthcare and technology space.

Our Chairman founded and has a controlling interest in NantWorks, which is a collection of multiple companies in the healthcare and technology space.

As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new genetically modified NK cells for our product pipeline.

Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Chairman and CEO.

Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Chairman.

Under the NantWorks shared services agreement executed in November 2015, but effective August 2015, NantWorks provides corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy, and other support services.

We are charged for the services at cost plus reasonable allocations for indirect costs that relate to the employees providing the services.

For the three months ended June 30, 2020 and 2019, we recorded selling, general and administrative expense under this arrangement of $ 0.6 million and $ 0.5 million, respectively.

For the six months ended June 30, 2020 and 2019, we recorded selling, general and administrative expense under this arrangement of $ 1.3 million and $ 1.2 million, respectively.

For the three months ended June 30, 2020 and 2019, we recorded research and development expense under this arrangement of $ 0.4 million and $ 0.3 million, respectively.

For the six months ended June 30, 2020 and 2019, we recorded research and development expense under this arrangement of $ 1.0 million and $ 0.6 million, respectively.

For the three months ended September 30, 2020 and 2019, we recorded selling, general and administrative expense under this arrangement of $ 0.5 million and $ 0.5 million, respectively.

For the nine months ended September 30, 2020 and 2019, we recorded selling, general and administrative expense under this arrangement of $ 1.8 million and $ 1.7 million, respectively.

For the three months ended September 30, 2020 and 2019, we recorded research and development expense under this arrangement of $ 0.3 million and $ 0.4 million, respectively.

For the nine months ended September 30, 2020 and 2019, we recorded research and development expense under this arrangement of $ 1.3 million and $ 1.0 million, respectively.

These amounts exclude certain general and administrative expenses provided by third party vendors directly for our benefit, which have been reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks.

In June 2016, we amended the existing shared services agreement with NantWorks whereby we can provide support services to NantWorks and/or any of its affiliates.

For the three months ended June 30, 2020 and 2019, we recorded selling, general and administrative expense reimbursements of $ 0.4 million and $ 0.2 million, respectively.

For the six months ended June 30, 2020 and 2019, we recorded selling, general and administrative expense reimbursements of $ 0.7 million and $ 0.4 million, respectively.

For the three months ended June 30, 2020 and 2019, we recorded research and development expense reimbursements of $ 0.3 million and $ 0.6 million, respectively.

For the six months ended June 30, 2020 and 2019, we recorded research and development expense reimbursements of $ 0.8 million and $ 1.1 million, respectively.

We owed NantWorks a net amount of $ 0.8 million and $ 0.4 million for all agreements between the two affiliates at June 30, 2020 and December 31, 2019, respectively, which is included in due to related parties on the condensed consolidated balance sheets.

For the three months ended September 30, 2020 and 2019, we recorded selling, general and administrative expense reimbursements of $ 0.4 million and $ 0.2 million, respectively.

For the nine months ended September 30, 2020 and 2019, we recorded selling, general and administrative expense reimbursements of $ 1.1 million and $ 0.6 million, respectively.

For the three months ended September 30, 2020 and 2019, we recorded research and development expense reimbursements of $ 0.4 million and $ 0.6 million, respectively.

For the nine months ended September 30, 2020 and 2019, we recorded research and development expense reimbursements of $ 1.2 million and $ 1.7 million, respectively.

We owed NantWorks a net amount of $ 0.7 million and $ 0.4 million for all agreements between the two affiliates at September 30, 2020 and December 31, 2019, respectively, which is included in due to related parties on the condensed consolidated balance sheets.

In November 2015, we entered into a facility license agreement with NantWorks, which became effective May 2015, for approximately 9,500 square feet in Culver City, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility.

Lease expense for this facility is recorded in research and development expense on the condensed consolidated statements of operations and was $ 0.2 million and $ 0.3 million for each of the three and six months ended June 30, 2020 and 2019, respectively.

In September 2020, we amended this agreement to extend the term of this lease through December 31, 2021 , as further described in Note 8 – Commitments and Contingencies .

Lease expense for this facility is recorded in research and development expense on the condensed consolidated statements of operations and was $ 0.2 million and $ 0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $ 0.5 million and $ 0.4 million for the nine months ended September 30, 2020 and 2019, respectively.

Immuno-Oncology Clinic, Inc.

Beginning in 2017, we entered into multiple agreements with Immuno-Oncology Clinic, Inc., or the Clinic, to conduct various clinical trials.

The Clinic was formerly known as John Lee, M.D.

and Leonard Sender, M.D., Inc., a professional medical corporation, dba Chan Soon-Shiong Institutes for Medicine, in El Segundo, California.

Beginning in 2017, we entered into multiple agreements with Immuno-Oncology Clinic, Inc., or the Clinic (dba Chan Soon-Shiong Institutes for Medicine, in El Segundo, California), to conduct clinical trials related to certain of our product candidates.

The Clinic is a related party as it is owned by one officer of NantKwest and NantWorks manages the administrative operations of the Clinic.

Prior to June 30, 2019, one of the company’s officers was an investigator or sub-investigator for all of the company’s trials conducted at the Clinic.

In July 2019, we entered into a new agreement with the Clinic which superseded our existing agreements with the Clinic, effective as of July 1, 2019.

The new agreement, as amended on March 31, 2020, covers clinical trial and research related activities on a non-exclusive basis relating to our existing clinical trials, commenced prior to July 1, 2019, and prospective clinical trials and research projects.

The new agreement also specifies certain services and related costs that are excluded from the new agreement.

Prior to commencing any work under the new agreement, the parties have agreed to execute written work orders setting forth the terms and conditions related to specific services to be performed, including financial terms.

For existing clinical trials, commenced prior to July 1, 2019, fees incurred for services performed after July 1, 2019 are covered under the new agreement and applied towards the below-mentioned prepayments.

The initial term of the new agreement was for one year , but the agreement allows for an automatic renewal and additional extensions beyond the initial term.

In July 2019, we executed a clinical trial work order under the new agreement with the Clinic for an open-label, phase I study of PD‑L1.t‑haNK for infusion in subjects with locally advanced or metastatic solid cancers.

In consideration of the services to be performed under the new agreement, as amended on March 31, 2020, we agreed to make payments of up to $ 7.5 million to the Clinic, of which $ 3.75 million and $ 1.875 million were paid in July 2019 and October 2019, respectively.

In July 2019, we entered into a new agreement with the Clinic (the Clinic Agreement), which became effective on July 1, 2019.

The Clinic Agreement, as amended on March 31, 2020, covers clinical trial and research related activities on a non-exclusive basis relating to our existing clinical trials, commenced prior to July 1, 2019, and prospective clinical trials and research projects.

The Clinic Agreement also specifies certain services and related costs that are excluded from the Clinic Agreement.

Prior to commencing any work under the Clinic Agreement, the parties have agreed to execute written work orders setting forth the terms and conditions related to specific services to be performed, including financial terms.

For clinical trials that commenced prior to July 1, 2019, fees incurred for services performed after July 1, 2019 are covered under the Clinic Agreement and applied towards the below-mentioned prepayments.

The Clinic Agreement allows for an automatic renewal and additional extensions beyond the initial one year term.

In consideration of the services to be performed under the Clinic Agreement, as amended on March 31, 2020, we agreed to make payments of up to $ 7.5 million to the Clinic, of which $ 3.75 million and $ 1.875 million were paid in July 2019 and October 2019, respectively.

As amended, a conditional payment of $ 1.875 million shall be due and payable at such time, if any, that the payments made in July 2019 and October 2019 have been earned by the Clinic through performance of services.

Under the term of the new agreement, the outstanding balance of our prepayment shall be increased on a quarterly basis by an interest credit computed in accordance with terms specified in the new agreement.

To the extent any portion of the prepayments remain unearned by the Clinic on the third anniversary of the new agreement, we may elect at our sole discretion either to (i) not extend the term of the new agreement and have the Clinic reimburse us for the total amount of any remaining unused portion of the prepayments, or (ii) extend the term of the new agreement for up to three additional one year periods, at which time the Clinic will reimburse us for the total amount of any remaining unused portion of the prepayments plus interest if reimbursement is not made within 60 days of expiration.

On a quarterly basis our prepayment is increased by an interest credit computed in accordance with terms specified in the Clinic Agreement.

To the extent any portion of the prepayments remain unearned by the Clinic on the third anniversary of the Clinic Agreement, we may elect at our sole discretion either to (i) not extend the term of the Clinic Agreement and have the Clinic reimburse us for the total amount of any remaining unused portion of the prepayments, or (ii) extend the term of the Clinic Agreement for up to three additional one year periods, at which time the Clinic will reimburse us for the total amount of any remaining unused portion of the prepayments plus interest if reimbursement is not made within 60 days of expiration.

The Clinic may terminate this agreement upon each anniversary date upon sixty (60) days prior written notice and reimbursement in full to us of any outstanding unearned balance of the prepayments, provided that any such termination by the Clinic will not apply with respect to any work orders still in effect at the time of such termination.

During the three months ended June 30, 2020 and 2019, $ 0.1 million and $ 0.2 million, respectively, has been recognized in research and development expense on the condensed consolidated statements of operations related to our agreements with the Clinic.

During the six months ended June 30, 2020 and 2019, $ 0.2 million and $ 0.5 million, respectively, has been recognized in research and development expense on the condensed consolidated statements of operations related to our agreements with the Clinic.

At June 30, 2020 and December 31, 2019, we owed the Clinic $ 0.1 million and $ 0.1 million, respectively, for services excluded from the new agreement, which are included in due to related parties on the condensed consolidated balance sheets.

At June 30, 2020 and December 31, 2019, we had a prepaid balance with the Clinic of $ 4.9 million and $ 5.1 million, respectively, which are included in prepaid expenses and other currents assets, and other assets, on the condensed consolidated balance sheets.

We anticipate that the remaining prepayment amount as of June 30, 2020 will be utilized in future periods as the Clinic provides additional services pursuant to the new agreement.

In July 2019, we executed a clinical trial work order under the Clinic Agreement for an open-label, phase I study of PD‑L1.t‑haNK for infusion in subjects with locally advanced or metastatic solid cancers.

In July 2020, but effective June 22, 2020, we and ImmunityBio executed a clinical trial work order under our existing master agreement with the Clinic for an open-label, randomized, comparative phase II study of ImmunityBio’s proprietary IL‑15 superagonist (N‑803) and Aldoxorubicin Hydrochloride (Aldoxorubicin) and our PD‑L1.t‑haNK with standard-of-care chemotherapy versus standard-of-care chemotherapy for first and second line treatment of locally or advanced metastatic pancreatic cancer.

During the three months ended September 30, 2020 and 2019, $ 0.1 million and $ 0.3 million, respectively, has been recognized in research and development expense on the condensed consolidated statements of operations related to clinical trial and research related activities conducted for us by the Clinic.

During the nine months ended September 30, 2020 and 2019, $ 0.3 million and $ 0.9 million, respectively, has been recognized in research and development expense on the condensed consolidated statements of operations related to clinical trial and research related activities conducted for us by the Clinic.

At September 30, 2020 and December 31, 2019, we owed the Clinic $ 0.2 million and $ 0.1 million, respectively, for services excluded from the Clinic Agreement, which are included in due to related parties on the condensed consolidated balance sheets.

At September 30, 2020 and December 31, 2019, we had prepaid balances related to the Clinic Agreement of $ 4.8 million and $ 5.1 million, respectively, which are included in prepaid expenses and other currents assets, and other assets, on the condensed consolidated balance sheets.

We anticipate that the remaining prepayment amount as of September 30, 2020 will be utilized in future periods as the Clinic provides additional services pursuant to the Clinic Agreement.

ImmunityBio, Inc., or ImmunityBio, is a related party, as it is an affiliate of NantWorks.

Until the definitive agreement is finalized, any investments made by each entity are the responsibility of the contributing party.

These facilities and related laboratory equipment have been repurposed for the manufacture of two of the collaboration product candidates.

As of June 30, 2020, we have committed operating and capital expenditures of $ 4.5 million that we will incur in future periods.

In January 2020, we entered into a cost sharing agreement with ImmunityBio as further described in Note 7 – Collaboration and License Agreements .

During the three and six months ended June 30, 2020, we incurred $ 29,700 and $ 0.1 million, respectively, in costs related to the joint study being conducted that are subject to joint cost sharing under the Cost Allocation Agreement which have been recorded as a reduction in research and development expense on the condensed consolidated statements of operations.

At June 30, 2020, we have a receivable of $ 29,700 from ImmunityBio related to this agreement.

On August 21, 2020, we entered into a Collaboration Agreement with ImmunityBio as further described in Note 7 – Collaboration and License Agreements .

At September 30, 2020, the joint research activity under the Collaboration Agreement totaled $ 3.5 million, which has been included in research and development expense on the condensed consolidated statements of operations.

Expenses incurred during the third quarter of 2020 were primarily related to the acquisition of $ 3.2 million of equipment to be utilized in the manufacture of the human adenovirus, or hAd5, vaccine candidate, and other net program related costs of $ 0.3 million after applying the eligible cost sharing under the Collaboration Agreement.

Certain equipment purchases made by us during the third quarter of 2020, which are necessary for us to fulfil our manufacturing obligations related to the COVID‑19 program, were borne solely by us.

These equipment purchases do not have an alternative use and were therefore expensed as incurred within research and development expenses.

In January 2020, we entered into a Cost Allocation Agreement with ImmunityBio which (together with related work orders) is described further in Note 7 – Collaboration and License Agreements .

At September 30, 2020, our balance owed to ImmunityBio related to the Cost Allocation Agreement was no t material.

In August 2016, we entered into an exclusive Co‑Development Agreement with Altor as described in Note 7 – Collaboration and License Agreements .

Altor is a related party as it is a wholly owned subsidiary of ImmunityBio.

No charges for supplies by Altor were incurred in association with the trials during the three and six months ended June 30, 2020 and 2019.

No charges for supplies by Altor were incurred in association with the Co‑Development Agreement during the three and nine months ended September 30, 2020 and 2019.

In June 2015, we entered into a supply agreement with ImmunityBio pursuant to which we have the right to purchase ImmunityBio’s proprietary bioreactors, made according to specifications mutually agreed to with ImmunityBio.

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The agreement has an initial term of five years and renews automatically for successive one-year periods unless terminated earlier.

At June 30, 2020 and December 31, 2019, we had $ 3.1 million and $ 1.8 million, respectively, in capitalized equipment purchased from ImmunityBio, which is included in property, plant and equipment, net, on the condensed consolidated balance sheets.

During the three months ended June 30, 2020 and 2019, we recorded research and development expense associated with reagents and consumables purchased from ImmunityBio of $ 0.1 million and $ 5,000 , respectively, on the condensed consolidated statements of operations.

During the six months ended June 30, 2020 and 2019, we recorded research and development expense associated with reagents and consumables purchased from ImmunityBio of $ 0.1 million and $ 0.1 million, respectively, on the condensed consolidated statements of operations.

At June 30, 2020 and December 31, 2019 we had $ 0.3 million and $ 0.5 million, respectively, included in prepaid expenses and other current assets on the condensed consolidated balance sheets related to consumables purchased from ImmunityBio.

At June 30, 2020, we owed ImmunityBio $ 1.3 million related primarily to purchases of equipment during the second quarter of 2020.

At December 31, 2019, no other balances were due between the parties.

In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Chairman and CEO, for approximately 24,250 square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility.

At September 30, 2020 and December 31, 2019, we had $ 3.2 million and $ 1.8 million, respectively, in capitalized equipment purchased from ImmunityBio, which is included in property, plant and equipment, net, on the condensed consolidated balance sheets.

During the three months ended September 30, 2020 and 2019, we recorded research and development expense associated with reagents and consumables purchased from ImmunityBio of $ 0.2 million and $ 12,900 , respectively, on the condensed consolidated statements of operations.

During the nine months ended September 30, 2020 and 2019, we recorded research and development expense associated with reagents and consumables purchased from ImmunityBio of $ 0.3 million and $ 0.1 million, respectively, on the condensed consolidated statements of operations.

At September 30, 2020 and December 31, 2019 we had $ 0.1 million and $ 0.5 million, respectively, included in prepaid expenses and other current assets on the condensed consolidated balance sheets related to consumables purchased from ImmunityBio.

Altor Bioscience Manufacturing Company, LLC Sublease Agreement

In September 2020, we entered into a sublease agreement with Altor Bioscience Manufacturing Company, LLC, a related party, whereby we leased approximately 6,901 square feet in El Segundo, California, including laboratory space and related furniture, fixtures and equipment.

The agreement also includes certain non-lease components related primarily to the right to use certain common areas within the building and the related furniture and fixtures.

This facility will be used to manufacture and produce clinical products for our oncology product candidate trials.

The lease runs from August 2020 through July 2022, and includes an option to extend the lease for an additional one year term through July 2023.

The monthly fixed charge related to the agreement is $ 0.2 million, a portion of which will be subject to annual increases of 3 % beginning in November 2020.

In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses, both of which are variable lease expenses.

Lease expense for this facility is recorded in research and development expense on the condensed consolidated statements of operations and was $ 0.4 million during the three months ended September 30, 2020.

At September 30, 2020, we owed $ 0.4 million under this agreement related to fixed and variable lease costs covering the period from August 1, 2020 through September 30, 2020.

In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Chairman, for approximately 24,250 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.

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The monthly rent is $ 0.1 million with annual increases of 3 % beginning in July 2017 .

Lease expense for this facility is recorded in research and development expense on the condensed consolidated statements of operations and was $ 0.2 million and $ 0.4 million for each of the three and six months ended June 30, 2020 and 2019, respectively.

At June 30, 2020 and December 31, 2019, no balances were due between the parties.

In August 2018, NantBio assigned an agreement to us for the use of a third-party research facility, which provides us with the exclusive right to use and access to a portion of the third party’s laboratory and vivarium premises.

NantBio is a related party, as it is an affiliate of NantWorks.

In conjunction with the assignment, we reimbursed NantBio for upfront payments which it had made to the third party of $ 0.9 million, and paid $ 0.5 million directly to the third party for an aggregate value of $ 1.4 million.

The assigned agreement is for a term of ten years and expires in June 2027 .

The agreement may be terminated by us at any time, with or without cause.

In case of termination of the agreement, the third party will reimburse us for a pro-rata amount based upon the passage of time.

At December 31, 2019, NantBio owed us $ 8,400 , which is included in prepaid expenses and other current assets on the condensed consolidated balance sheets.

At June 30, 2020, no balances were due between the parties.

Lease expense for this facility is recorded in research and development expense on the condensed consolidated statements of operations and was $ 0.2 million and $ 0.7 million for each of the three and nine months ended September 30, 2020 and 2019, respectively.

At September 30, 2020 and December 31, 2019, no balances were due between the parties.

In March 2016, NantBio and the National Cancer Institute entered into a cooperative research and development agreement.

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We benefited from the preclinical and clinical research conducted during the first four years under this agreement.

In each of April 2016, April 2017, August 2018, May 2019 and April 2020, we paid $ 0.6 million to the National Cancer Institute as a prepayment for services under the agreement.

We recognize research and development expense related to this agreement ratably over a 12‑month period for each funding year and recorded $ 0.2 million and $ 0.3 million of expense associated with the agreement in each of the three and six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020 and December 31, 2019, we had a balance of $ 0.4 million and $ 0.1 million, respectively, included in prepaid expenses and other current assets related to this agreement, on the condensed consolidated balance sheets.

In each of the contractual years under the agreement we paid $ 0.6 million to the National Cancer Institute as a prepayment for services under the agreement.

We recognize research and development expense related to this agreement ratably over a 12‑month period for each funding year and recorded $ 0.2 million and $ 0.5 million of expense associated with the agreement in each of the three and nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and December 31, 2019, we had a balance of $ 0.3 million and $ 0.1 million, respectively, included in prepaid expenses and other current assets related to this agreement, on the condensed consolidated balance sheets.

Stockholders’ Equity

Equity Offering – On June 29, 2020, the company closed an underwritten public offering of an aggregate of 8,521,500 shares of common stock, which included 4,811,500 shares issued to the public at a price of $ 9.50 per share (which includes 1,111,500 shares sold to the public upon full exercise of the underwriters’ option to purchase additional shares at a public offering price of $ 9.50 per share), less underwriting discounts and commissions, and 3,710,000 shares issued to our Chairman, CEO and principal stockholder, Dr.

Patrick Soon-Shiong, at a price of $ 12.12 per share, less underwriting discounts and commissions.

All of the shares were offered by the company.

Estimated issuance cost totaling approximately $ 0.5 million were unpaid as of June 30, 2020 and have been included in accounts payable and accrued expenses on the company’s condensed consolidated balance sheets as of such date.

Stock Repurchase – In November 2015, the board of directors approved a share repurchase program, or the 2015 Share Repurchase Program, allowing the CEO or CFO, on behalf of the company, to repurchase from time to time, in the open market or in privately negotiated transactions, up to $ 50.0 million of our outstanding shares of common stock, exclusive of any commissions, markups or expenses.

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We have financed, and expect to continue to finance, the purchases with existing cash balances.

At June 30, 2020, $ 18.3 million remained authorized for repurchase under the 2015 Share Repurchase Program.

No shares were repurchased during the three and six months ended June 30, 2020.

During the three and six months ended June 30, 2019, we repurchased 473,586 shares of our common stock at prices ranging between $ 0.95 per share and $ 1.09 per share for a total cost of $ 0.5 million.

At September 30, 2020, $ 18.3 million remained authorized for repurchase under the 2015 Share Repurchase Program.

No shares were repurchased during the nine months ended September 30, 2020.

During the nine months ended September 30, 2019, we repurchased 473,586 shares of our common stock at prices ranging between $0.95 per share and $ 1.09 per share for a total cost of $ 0.5 million.

In addition, we paid $ 14,200 of broker commissions on these repurchases.

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In March 2020, the company’s board of directors adopted, and in June 2020 the company’s stockholders approved, a second amendment to the 2015 Plan to reserve a further 3,000,000 shares of common stock for issuance pursuant to the 2015 Plan.

Following approval of these amendments, a total of 10,249,857 shares of common stock were reserved for issuance pursuant to the 2015 Plan.

As of September 30, 2020, a total of approximately 10.2 million shares of common stock were reserved for issuance pursuant to the 2015 Plan and a total of approximately 7.2 million shares were available for future grant.

Stock-Based Compensation

The following table presents all stock-based compensation as included on the condensed consolidated statements of operations (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Stock-based compensation expense:

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Stock Options

The following table summarizes stock option activity under all equity incentive plans for the six months ended June 30, 2020:

The following table summarizes stock option activity under all equity incentive plans for the nine months ended September 30, 2020:

(in thousands)

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Options forfeited

Outstanding at June 30, 2020

Vested and Exercisable at June 30, 2020

The total unrecognized compensation cost related to non-vested stock options as of June 30, 2020 is $ 2.4 million, which is expected to be recognized over a weighted-average period of 1.3 years.

During the three and six months ended June 30, 2020, we recognized proceeds of $ 0.6 million and $ 0.6 million, respectively, from exercises of stock options.

The aggregate intrinsic value of stock options exercised during the three and six months ended June 30, 2020, was $ 1.9 million and $ 1.9 million, respectively.

During the three and six months ended June 30, 2019, we recognized proceeds of $ 0 and $ 4.1 million, respectively, from exercises of stock options by our Chairman and CEO.

Outstanding at September 30, 2020

Vested and Exercisable at September 30, 2020

Unrecognized compensation cost related to unvested stock options at September 30, 2020 was $ 1.9 million, which is expected to be recognized over a weighted-average period of 1.1 years.

During the three and nine months ended September 30, 2020, we recognized proceeds of $ 0.4 million and $ 0.9 million, respectively, from exercises of stock options.

The aggregate intrinsic value of stock options exercised during the three and nine months ended September 30, 2020, was $ 8.7 million and $ 10.6 million, respectively.

During the nine months ended September 30, 2019, we recognized proceeds of $ 4.1 million from exercises of stock options by our Chairman during March 2019.

The company uses a Black-Scholes option-pricing model to determine the fair value of stock-based compensation under U.S.

The assumptions used for employee stock options granted during the periods presented in these condensed consolidated financial statements are presented in the table below for the three and six months ended June 30, 2020 (Unaudited):

Expected term (in years)

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Dividend yield

Weighted-average measurement date fair value

Weighted-average grant date fair value

The expected term was estimated using the average of the contractual term and the weighted-average vesting term of the options.

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Treasury’s rates for U.S.

Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

Treasury zero-coupon bonds with maturities similar to those of the expected term of the award s being valued.

E xpected volatility was estimated based on the historical volatility of our c ommon stock.

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Restricted Stock Units

The following table summarizes the restricted stock units, or RSUs, activity under the 2015 Plan for the six months ended June 30, 2020:

The following table summarizes the restricted stock units, or RSUs, activity under the 2015 Plan for the nine months ended September 30, 2020:

Unvested balance at December 31, 2019

Unvested balance at June 30, 2020

As of June 30, 2020, there was $ 0.9 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.1 years.

Unvested balance at September 30, 2020

As of September 30, 2020, there was $ 0.8 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.0 years.

Of that amount, $ 0.8 million of unrecognized expense is related to employee grants with a remaining weighted-average period of 2.0 years and $ 14,700 of unrecognized expense is related to non-employee grants with a remaining weighted-average period of 0.5 years.

During the three and six months ended June 30, 2019, we recognized proceeds of $ 0 and $ 35.2 million, respectively, upon the exercise of warrants by our Chairman and CEO.

As of December 31, 2019 there were no warrants outstanding, and no warrants were issued during the six months ended June 30, 2020.

During the nine months ended September 30, 2019, we recognized proceeds of $ 35.2 million upon the exercise of warrants by our Chairman during March 2019.

As of December 31, 2019 there were no warrants outstanding, and there were no warrants issued during the nine months ended September 30, 2020.

The difference between the federal statutory tax rate of 21 % and our 0 % tax rate is due to losses in jurisdictions from which we cannot benefit.

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However, with the adoption of ASU 2019‑12, we are no longer required to allocate the tax provision to the other categories of earnings and related benefit to continuing operations under these circumstances.

We recorded unrealized gains on marketable debt securities in other comprehensive income during the three and six months ended June 30, 2019.

As a result, we recorded a tax expense of $ 2,000 for the three months ended June 30, 2019 and a tax benefit of $ 34,000 for the six months ended June 30, 2019 on the condensed consolidated statements of operations.

We also recorded an increase to other comprehensive income of $ 0.1 million, for the six months ended June 30, 2019 on the condensed consolidated balance sheets.

No increase to other comprehensive income was recorded for the three months ended June 30, 2019.

We recorded unrealized gains on marketable debt securities in other comprehensive income during the three and nine months ended September 30, 2019.

As a result, we recorded a tax expense of $ 0 for the three months ended September 30, 2019 and a tax benefit of $ 34,000 for the nine months ended September 30, 2019 on the condensed consolidated statements of operations.

We also recorded a reduction to other comprehensive income of $ 0 for the three months ended September 30, 2019, and a reduction of $ 0.1 million for the nine months ended September 30, 2019 on the condensed consolidated balance sheets.

We are operating in Korea.

During the three and six months ended June 30, 2020 and 2019, there was no tax expense or benefit related to Korea.

During the three and nine months ended September 30, 2020 and 2019, there was no tax expense or benefit related to Korea.

We currently file federal and state income tax returns in the U.S.

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The C ARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U .

economy and fund a nationwide effort to curtail the effect of COVID ‑ 19.

While the CARES Act provides sweeping tax changes in response to the COVID ‑ 19 pandemic , some of the more significant provisions which are expected to impact our financial statements i nclud e removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

economy and fund a nationwide effort to curtail the effect of the coronavirus pandemic .

While the CARES Act provides sweeping tax changes in response to the pandemic , some of the more significant provisions which are expected to impact our financial statements i nclud e removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

Consistent with previous years, we expect to continue to generate net losses in the foreseeable future.

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Management does not expect any other provisions of the CARES Act to have a material impact on our financial position, results of operations or cash flows d uring 2020.

Subsequent Events

ImmunityBio Agreemen t

In July 2020, but effective June 22, 2020, we executed Work Order Number Two with ImmunityBio, pursuant to that certain Cost Allocation Agreement, as described in further detail in Note 7 – Collaboration and License Agreements .

Under the second work order, the parties agreed to conduct a joint study for the clinical research trial being conducted pursuant to the protocol titled QUILT 88:

ImmunityBio will act as the sponsor of this joint study for purposes of regulatory matters, including submissions, correspondence, and communications with the FDA.

Additionally, ImmunityBio is designated as the contracting party to execute agreements with third and related parties relating to the joint study.

We and ImmunityBio will split certain joint study costs equally in accordance with the terms of the Cost Allocation Agreement and related work order.

Shared joint study costs include cost related to conducting the joint study development activities, such as personnel related costs, as well as all costs associated with regulatory matters.

We expect to share approximately $ 11.8 million of joint study costs under Work Order Number Two, subject to changes dependent on clinical trial enrollments and progress.

Minimal costs were incurred related to this work order as of June 30, 2020.

Immuno-Oncology Clinic, Inc.

In July 2020, but effective June 22, 2020, we and ImmunityBio executed a clinical trial work order under our existing master agreement with the Clinic.

Under this work order, the parties agreed that the Clinic would serve as a site for our multi-site clinical trial for the protocol titled QUILT 88, as described above.

Pursuant to our existing agreement with the Clinic, our share of qualifying expenses shall be deducted from amounts previously paid to the Clinic as described in further detail in Note 9 – Related Party Agreements .

We expect to incur up to $ 3.7 million of qualifying clinical trial expenses under this work order, subject to changes dependent on clinical trial enrollments and progress.

Minimal costs were incurred related to this work order as of June 30, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements