What changed in this filing

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Item 1A. Risk Factors

2020-11-09 compared with 2020-08-07 · 83 added, 86 removed, 1266 unchanged (12% of the section changed)

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We have incurred operating losses on an annual basis since our formation and we may never become profitable.

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

We incurred net losses of $38.5 million and $34.6 million for the six months ended June 30, 2020 and 2019, respectively.

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

We incurred net losses of $60.3 million and $50.1 million for the nine months ended September 30, 2020 and 2019, respectively.

Our losses have resulted principally from costs incurred in ongoing preclinical studies, clinical trials and operations, as well as research and development expenses, and general and administrative expenses.

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Additionally, our net losses may fluctuate significantly from quarter to quarter, and as a result, a period-to-period comparison of our results of operations may not be meaningful.

For example, we expect our operating expenses to increase in the third quarter of 2020 compared to the second quarter of 2020 due to increased research and development expenses including personnel related costs and capital and facility operating expenditures in continued preparation for our Joint COVID‑19 Collaboration with ImmunityBio.

For example, we expect our operating expenses to continue to increase in the fourth quarter of 2020 due to increased research and development expenses including personnel related costs and capital and facility operating expenditures in continued efforts for our Joint COVID‑19 Collaboration with ImmunityBio.

Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

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We will also require a significant additional amount of capital to commercialize any approved products.

As of June 30, 2020 , we had cash and cash equivalents of $ 102.7 million and marketable debt securities of $ 7.9 million .

As of September 30, 2020 , we had cash and cash equivalents of $ 27.7 million and marketable debt securities of $ 62.1 million .

We are using and expect to continue to use our existing cash and cash equivalents and marketable debt securities to fund expenses in connection with our ongoing and any future clinical trials, our manufacturing facilities and processes and the hiring of additional personnel, and for other research and development activities, working capital and general corporate purposes, including our previously announced share repurchase program.

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If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market any approved products that we would otherwise prefer to develop and market ourselves, or be unable to continue or expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations and cause the price of our common stock to decline.

* If we are not able to finalize a definitive agreement with ImmunityBio, Inc.

regarding a joint collaboration, our recent expenditures in contemplation of executing a definitive agreement may not be recoverable.

As described above, we have executed a binding term sheet with ImmunityBio regarding the joint development, manufacturing and marketing of a vaccine and multiple therapeutics for COVID‑19.

This binding term sheet provides that if we and ImmunityBio are unable to execute a definitive agreement regarding the Joint COVID Collaboration by August 21, 2020, then either party may terminate the binding term sheet upon five business days written notice to the other party.

Until the definitive agreement is finalized, any investments made by each entity are the responsibility of the contributing party and at each contributing party’s risk.

We have started to incur expenses in connection with pursuing the Joint COVID‑19 Collaboration and have made significant expenditure commitments for scaling up the manufacturing of ImmunityBio’s COVID‑19 vaccine candidate.

We expect that we 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, if any.

However, if after August 21, 2020 we have not executed a definitive agreement and either party decides to no longer pursue the Joint COVID‑19 Collaboration, such party could terminate the arrangement, and our expenses incurred at termination will not be reimbursable at the agreed upon 50% cost sharing basis.

In addition, expenditures incurred before the execution of the definitive agreement may also not be subject to the agreed upon 50% cost sharing basis.

Furthermore, depending on the extent of each party’s expense incurred in connection with the Joint COVID‑19 Collaboration, we could be responsible for additional unknown costs of ImmunityBio.

In addition, if we are unable to execute a definitive collaboration agreement, we will not have rights to share in net profits from any future sales of ImmunityBio’s COVID‑19 product candidates.

*We expect our business to be adversely affected by outbreaks of epidemic, pandemic or contagious diseases, including the recent coronavirus disease (COVID‑19) outbreak.

Outbreaks of epidemic, pandemic or contagious diseases, such as COVID‑19, may significantly disrupt our operations and adversely affect our business, financial condition and results of operations.

In March 2020, the World Health Organization declared the outbreak of COVID‑19 a global pandemic as the novel coronavirus continues to spread throughout the world.

* We expect o ur business to be adversely affected by outbreaks of epidemic, pandemic or contagious diseases, including the ongoing coronavirus pandemic .

Outbreaks of epidemic, pandemic or contagious diseases, such as the coronavirus pandemic, may significantly disrupt our operations and adversely affect our business, financial condition and results of operations.

In March 2020, the World Health Organization declared the outbreak of COVID‑19 a global pandemic as the novel coronavirus continued to spread throughout the world.

The spread of this pandemic has caused significant volatility and uncertainty in the U.S.

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As a result of slower patient enrollment, we may not be able to complete our clinical trials as planned or in a timely manner.

We expect to continue spending on research and development in the third quarter of 2020 and beyond, and we could also have unexpected expenses related to the pandemic.

We expect to continue spending on research and development during the fourth quarter of 2020 and beyond, and we could also have unexpected expenses related to the pandemic.

The short-term continued expenses, as well as the overall uncertainty and disruption caused by the pandemic, will likely cause a delay in our ability to commercialize a product and adversely impact our financial results.

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Clinical Trials:

This pandemic has not significantly impacted our business or financial results during the six months ended June 30, 2020, however, it is likely to adversely affect certain of our clinical trials, including our ability to initiate and complete our clinical trials within the anticipated timelines.

This pandemic has not significantly impacted our business or financial results during the nine months ended September 30, 2020, however, it is likely to adversely affect certain of our clinical trials, including our ability to initiate and complete our clinical trials within the anticipated timelines.

Due to site and participant availability during the pandemic, new subject enrollment is expected to slow in the short-term for most of our clinical trials.

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* Our plans to support the Joint COVID ‑ 19 Collaboration by moving some of our current manufacturing facilities or repurposing personnel may cause delays in our oncology trials.

We have prepared one of our GMP manufacturing facilities previously used to manufacture product for our oncology trials to manufacture and develop a COVID ‑ 19 vaccine and we have identified a new, well-equipped location to manufacture and produce clinical product for our oncology product candidate trials.

We cannot assure you that we will be able to achieve GMP qualifications for these new manufacturing facilities, or the extent of costs or delays in timing to do so.

We have prepared one of our GMP manufacturing facilities previously used to manufacture product for our oncology trials to manufacture and produce a COVID‑19 vaccine candidate and we are in the process of readying a new, well-equipped location to manufacture and produce clinical products for our oncology trials.

We cannot assure you that we will be able to achieve GMP qualifications for this new manufacturing facility, or the extent of costs or delays in timing to do so.

Failure to achieve GMP status could adversely impact our ability to successfully develop our oncology product candidates.

In addition, we have repurposed some of our manufacturing facility in Culver City, California, and personnel to support the Joint COVD ‑ 19 Collaboration.

While we believe we have sufficient product in our inventory to not incur any interruptions in our current or planned oncology trials, we cannot be sure that the moving of these facilities or repurposing of personnel will not experience any unforeseen circumstances that causes a delay in our ability to manufacture sufficient product for our current or planned trials.

In addition, we have repurposed some of our manufacturing facility in Culver City, California, and personnel to support the Joint COVD‑19 Collaboration Agreement.

While we believe we have sufficient product in our inventory to not incur any disruptions in our current or planned oncology trials, we cannot be certain that we will not experience any unforeseen circumstances that may cause delays in our ability to manufacture sufficient product for our current or planned trials.

If this occurs, such trials could be significantly delayed which would have an adverse effect on our business, financial condition, results of operations and prospects.

*Our efforts regarding the Joint COVID‑19 Collaboration may be difficult to integrate into our current operations and will require additional personnel who will require training which may cause some of our employees to reallocate their time from our current operations or manufacturing duties which could in turn cause delays in clinical supply of our products or trials.

Since we signed the binding term sheet regarding the Joint COVID‑19 Collaboration, we have started to plan for the development of the COVID‑19 products.

After signing the binding term sheet regarding the Joint COVID‑19 Collaboration in May 2020, we have made significant investments related to the development and manufacture of our COVID‑19 product candidates.

We have repurposed some of our personnel to support our QUILT‑COVID‑19‑MSC program and have repurposed some of our personnel overseeing quality of our oncology products to support the Joint COVID‑19 Collaboration.

We also plan to hire additional staff to support the Joint COVID‑19 Collaboration, which will increase our expenses.

Although we believe it will have an immaterial impact on our current oncology trials in the near term, if our current personnel fail to remain focused on our oncology drug candidates, or new personnel that we plan to hire to support the Joint COVID‑19 Collaboration require extensive training, our current oncology operations may be adversely impacted.

Although we do not believe the Joint COVID‑19 collaboration will have a material impact on our current oncology trials in the near term, if our current personnel fail to remain focused on our oncology drug candidates, or new personnel that we plan to hire to support the Joint COVID‑19 Collaboration require extensive training, our current oncology operations may be adversely impacted.

*We face significant competition in the biopharmaceutical industry, and many of our competitors have substantially greater experience and resources than we have.

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adding a sufficient number of clinical trial sites;

obtaining sufficient product supply of product candidate for use in preclinical studies or clinical trials from third-party suppliers.

obtaining sufficient product supply of product candidates for use in preclinical studies or clinical trials from third-party suppliers.

We may experience numerous adverse or unforeseen events during, or as a result of, preclinical studies and clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

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If we and ImmunityBio are unable to successfully develop, obtain regulatory approval for, manufacture at scale and commercialize product candidates for COVID ‑ 19, or if the Joint COVID ‑19 Collaboration is terminated, we may not be able to realize any share of net sales of resulting products or recoup the substantial investments we expect to make in our joint development efforts.

*We are heavily dependent on our senior management, particularly Drs.

Patrick Soon-Shiong and Barry Simon, and a loss of a member of our senior management team in the future, even if only temporary, could harm our business.

*We are heavily dependent on our senior management, particularly Mr.

Richard Adcock, Dr.

Patrick Soon-Shiong and Dr.

Barry Simon, and a loss of a member of our senior management team in the future, even if only temporary, could harm our business.

If we lose members of our senior management for a short or an extended time, we may not be able to find appropriate replacements on a timely basis, and our business could be adversely affected.

Our existing operations and continued future development depend to a significant extent upon the performance and active participation of certain key individuals, including Drs.

Patrick Soon-Shiong, our Chairman and CEO and our principal stockholder, and Barry Simon, our President and Chief Administrative Officer.

Soon-Shiong focuses heavily on NantKwest matters and is highly active in our management, he does devote a certain amount of his time to a number of different endeavors and companies, including ImmunityBio and NantWorks, which is a collection of multiple companies in the healthcare and technology space.

Our existing operations and continued future development depend to a significant extent upon the performance and active participation of certain key individuals, including Mr.

Adcock, our CEO, Dr.

Soon-Shiong, our Chairman and our principal stockholder, and Dr.

Simon, our President and Chief Administrative Officer.

The risks related to our dependence upon Dr.

Soon-Shiong are particularly acute given his ownership percentage, the commercial and other relationships that we have with entities affiliated with him, role in our company and reputation.

Soon-Shiong are particularly acute given his ownership percentage, the commercial and other relationships that we have with entities affiliated with him, his role in our company and reputation.

We may also be dependent on additional funding from Dr.

Soon‑Shiong and his affiliates, which may not be available when needed.

If we were to lose Drs.

Soon-Shiong or Simon for a short or an extended time, for any reason, including the contraction of COVID‑19, we may not be able to find appropriate replacements on a timely basis and our financial condition and results of operations could be materially adversely affected.

If we were to lose Mr.

Soon-Shiong or Dr.

Simon for a short or an extended time, for any reason, including the contraction of COVID‑19, we may not be able to find appropriate replacements on a timely basis and our financial condition and results of operations could be materially adversely affected.

Competition for qualified personnel in the biotechnology and pharmaceuticals industry is intense due to the limited number of individuals who possess the skills and experience required.

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options, warrants, and restricted stock units that vest over time.

Additionally, we provided warrants that vested upon the achievement of certain performance milestones to Dr.

These performance warrants provided to Dr.

Soon-Shiong were exercised in full in March 2019.

The value to employees of stock options, warrants, and restricted stock units that vest over time may be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options and restricted stock units that vest over time.

The value to employees of stock options and restricted stock units that vest over time may be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.

Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice.

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We may not be able to attract and retain quality personnel on acceptable terms, or at all, which may cause our business and operating results to suffer.

Soon-Shiong, our Chairman and CEO and our principal stockholder, has significant interests in other companies which may conflict with our interests.

Our Chairman and CEO, Dr.

Patrick Soon-Shiong, our Chairman and our principal stockholder, has significant interests in other companies which may conflict with our interests.

Our Chairman, Dr.

Soon-Shiong, is the founder of NantWorks.

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To effect our business plan, we will need to add other management, administrative, regulatory, manufacturing and scientific staff.

As of June 30, 2020, we had 148 employees.

As of September 30, 2020, we had 160 employees.

We will need to attract, retain and motivate a significant number of new additional managerial, operational, sales, marketing, financial, and other personnel, as well as highly skilled scientific and medical personnel, and to expand our capabilities to successfully pursue our research, development, manufacturing and commercialization efforts and secure collaborations to market and distribute our products.

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The novel nature of our technology also increases the complexity and risk in the manufacturing process.

In 2017, we opened our Culver City, California, site for the manufacture of cryopreserved haNK cells for our planned clinical trials and finished the build-out of our larger El Segundo, California, site in 2018 for the manufacture of our haNK, taNK, t‑haNK and ceNK cells for our clinical trials and, if we receive FDA approval, initial commercialization.

However, we may encounter difficulties in obtaining the approvals for, and designing, constructing, validating and operating, any new manufacturing facility.

In addition, we may encounter difficulties in obtaining the approvals for, and designing, constructing, validating and operating, any new manufacturing facility.

We may also be unable to hire the qualified personnel that we will require to accommodate the expansion of our operations and manufacturing capabilities.

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*We are dependent on third parties to store our aNK, haNK, taNK, t ‑ haNK and ceNK cells, and any damage or loss to our master cell bank would cause delays in replacement, and our business could suffer.

The aNK cells of our master and working cell banks are stored in freezers at a third party biorepository and also stored in our freezers at our production facility.

If these cells are damaged at both facilities, including by the loss or malfunction of these freezers or our back-up power systems, as well as by damage from fire, power loss or other natural disasters, we would need to establish replacement master and working cell banks, which would impact clinical supply and delay our patients’ treatments.

The aNK cells of our master and working cell banks are stored in freezers at a third party biorepository and also stored in our freezers at one of our production facilities.

If these cells are damaged at these facilities, including by the loss or malfunction of these freezers or back-up power systems, as well as by damage from fire, loss of power, or other natural disasters, we would need to establish replacement master and working cell banks, which would impact clinical supply and delay our patients’ treatments.

If we are unable to establish replacement cell banks, we could incur significant additional expenses and liability to patients whose treatment is delayed, and our business could suffer.

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If we or any of our third-party manufacturers fail to comply with these requirements, we may be subject to regulatory action, which could delay or curtail our ability to develop, obtain regulatory approval of, and commercialize haNK, taNK, t‑haNK or ceNK cells.

If our component part manufacturers and suppliers fail to provide components of sufficient quality, that meet our required specifications, our clinical trials or commercialization of haNK, taNK, t‑haNK or ceNK cells could be delayed or halted, and we could face product liability claims.

If our component part manufacturers and suppliers fail to provide components of sufficient quality to meet our required specifications, our clinical trials or commercialization of haNK, taNK, t‑haNK or ceNK cells could be delayed or halted, and we could face product liability claims.

If we or any of our third-party manufacturers that we may engage use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

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We have formed, and may in the future form or seek, strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third and related parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop.

For example, we entered into an agreement whereby Viracta granted to us exclusive world-wide rights to Viracta’s phase II drug candidate, VRx‑3996, for use in combination with our platform of NK cell therapies.

For example, during the third quarter of 2020, we entered into a Joint COVID‑19 Collaboration Agreement with ImmunityBio, a related party, as further described above.

In addition, we entered into an agreement whereby Viracta granted to us exclusive world-wide rights to Viracta’s phase II drug candidate, VRx‑3996, for use in combination with our platform of NK cell therapies.

However, if Viracta fails to raise sufficient capital to complete their pivotal phase II trial, if their trial is unsuccessful, or if our future clinical trial of NK cell therapy in combination with VRx‑3996 fails, the value of the Viracta license would be adversely affected.

In addition, we have entered into a binding term sheet with ImmunityBio, a related party, related to the Joint COVID‑19 Collaboration as further described above.

Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business.

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Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy.

If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture.

If we license products or acquire businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture.

We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction.

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We may rely on third-party manufacturers to produce and process our product candidates.

Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster, pandemics, epidemics, or other business interruption, including the recent novel strain of coronavirus (SARS‑CoV‑2) that originally surfaced in Wuhan, China in December 2019.

The extent to which COVID‑19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID‑19 and the actions to contain SARS‑CoV‑2 or treat its impact, among others.

The extent to which coronavirus pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID‑19 and the actions to contain SARS‑CoV‑2 or treat its impact, among others.

If any disaster were to occur, our ability to operate our clinical trials could be seriously, or potentially completely, impaired.

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The severity of the coronavirus pandemic could also make access to our existing supply chain difficult or impossible by delaying the delivery of key raw materials used in our product candidates and therefore delay the delivery of such products for use in our clinical trials.

Any of these results could materially impact our business and have an adverse effect on our business.

*Our manufacturing facilities may be negatively impacted by the recent COVID-19 Pandemic.

The COVID‑19 pandemic, including any actions we have taken in response, may disrupt our internal operations, including by heightening the risk that a significant portion of our workforce could suffer illness or otherwise not be permitted or be unable to work, and required that certain of our employees work remotely, which has heightened certain risks, including those related to cybersecurity and internal controls.

Additionally the COVID‑19 pandemic has impacted, and may continue to impact, our office and manufacturing locations, as well as our analytical, process development, and transitional research teams, including through the effects of facility closures, reductions in operating hours and other social distancing efforts.

Any of these results could have a material adverse effect on our business.

*Our manufacturing facilities may be negati vely impacted by the ongoing coronavirus p andemic.

The coronavirus pandemic, including any actions we have taken in response, may disrupt our internal operations, including by heightening the risk that a significant portion of our workforce could suffer illness or otherwise not be permitted or be unable to work, and required that certain of our employees work remotely, which has heightened certain risks, including those related to cybersecurity and internal controls.

Additionally the coronavirus pandemic has impacted, and may continue to impact, our office and manufacturing locations, as well as our analytical, process development, and transitional research teams, including through the effects of facility closures, reductions in operating hours and other social distancing efforts.

For example, if even a small number of our employees in our working clusters related to manufacturing, analytical, process development, or translational research, tested positive for COVID‑19, it would require us to temporarily close a number of our offices or manufacturing facilities and temporarily suspend operations in order to conduct a deep clean of the facilities in order to ensure the safety of our employees.

Additionally, we cannot predict whether these conditions and concerns will continue or whether we will experience more significant or frequent disruptions in the future, including the complete closure of one or more of our facilities.

In addition, in the event demand for our products is significantly reduced as a result of the COVID‑19 pandemic and related economic impacts, we may need to assess different corporate actions and cost-cutting measures, including reducing our workforce or closing one or more facilities, and these actions could cause us to incur costs and expose us to other risks and inefficiencies, including whether we would be able to rehire our workforce or recommence operations at a given facility if our business experiences a subsequent recovery.

In addition, in the event demand for our products is significantly reduced as a result of the coronavirus pandemic and related economic impacts, we may need to assess different corporate actions and cost-cutting measures, including reducing our workforce or closing one or more facilities, and these actions could cause us to incur costs and expose us to other risks and inefficiencies, including whether we would be able to rehire our workforce or recommence operations at a given facility if our business experiences a subsequent recovery.

*Our employees, affiliates, independent contractors, clinical investigators, CROs, data safety and monitoring boards, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, and insider trading.

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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or providing any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs;

that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government;

federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalty laws, which impose criminal and civil penalties against individuals or entities for, among other things, knowingly presenting, or causing to be presented, claims for payment or approval from the federal government including Medicare and Medicaid, that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government;

federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional U.S.

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patent laws resulting from the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law on September 16, 2011.

Among some of the other significant changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and provid e opportunities for third parties to challenge any issued patent in the USPTO.

Among some of the other significant changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO.

This applies to all of our U.S.

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It is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our business.

However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our b usiness and financial condition.

We may not be able to protect our intellectual property rights throughout the world.

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Under the license agreement, we have the right to enforce the licensed patents.

Our license agreement with Rush University Medical Center terminate d on the 12th anniversary of our first payment of royalties, at which point the license was deemed a perpetual, irrevocable, fully paid royalty-free, exclusive license.

Disputes may arise between us and our licensors regarding intellectual property rights subject to a license agreement, including:

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Generally, the loss of any one of our current licenses, or any other license we may acquire in the future, could materially harm our business, prospects, financial condition and results of operations.

In late May 2020, we received a notice of termination from Fox Chase Cancer Center alleging breaches of our license.

If we are not able to cure these alleged breaches our license will terminate, and we will lose the licensed rights.

In late May 2020, we received a letter from Fox Chase Cancer Center alleging breaches of our license.

If the letter is found to be a proper notice of termination and the alleged breaches are confirmed and found to be material, we will lose the licensed rights.

We do not consider these licensed rights to be material.

*One of NantKwest’s ten issued U.S.

patents is subject to a claim challenging the inventorship.

On September 10, 2020, a legal complaint was filed in a California court where Institute for Cancer Research (d/b/a Fox Chase Cancer Center) argued that it has a co-ownership interest in U.S.

10,456,420 and its underlying U.S.

Patent Application No.

15/529,848, as well as in certain related patent applications or issued patents that include claimed subject matter allegedly invented by one of the claimant’s employees .

On September 30, 2020, NantKwest filed motion with the court asking that the complaint be dismissed.

NantKwest disagrees that this claim for co-ownership has merit and intends to vigorously defend its position.

All of the existing named inventors have assigned their rights in this patent to NantKwest.

NantKwest will continue to have an undivided ownership interest in the technology covered by this patent even if claimant succeeds in this suit.

Litigating this matter could result in substantial costs and be a distraction to management and other employees.

Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete.

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Risks Relating to Our Common Stock

*Our Chairman and CEO and entities affiliated with him collectively own a significant majority of our common stock and will exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.

As of June 30, 2020, our Chairman and CEO, Patrick Soon-Shiong, M.D., and entities affiliated with him, collectively own approximately 64.9% of the outstanding shares of our common stock.

*Our Chairman, and entities affiliated with him, collectively own a significant majority of our common stock and will exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.

As of September 30, 2020, our Chairman, Dr.

Patrick Soon-Shiong, and entities affiliated with him, collectively own approximately 64.4% of the outstanding shares of our common stock.

Additionally, Dr.

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As a result, the market price of our common stock could be adversely affected.

The market price of our stock may fluctuate significantly, and investors may have difficulty selling their shares.

Prior to our initial public offering in July 2015, there was no public market for our common stock.

Although our common stock is listed on The Nasdaq Global Select Market, or Nasdaq, the market for our shares has demonstrated varying levels of trading activity.

* The market price of our common stock has been and may continue to be volatile , and investors may have difficulty selling their shares .

Although our common stock is listed on The Nasdaq Global Select Market, the market for our shares has demonstrated varying levels of trading activity.

You may not be able to sell your shares quickly or at the market price if trading in shares of our common stock is not active.

Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.

*The market price of our common stock has been and may continue to be volatile.

The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.

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If our stockholders sell, or the market perceives that our stockholders intend to sell substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly.

In addition, as of June 30, 2020 our Chairman and CEO, Dr.

Soon-Shiong, and his affiliates beneficially owned approximately 65.2% of our outstanding shares of common stock.

In addition, as of September 30, 2020 our Chairman, Dr.

Patrick Soon‑Shiong, and his affiliates beneficially owned approximately 64.7% of our outstanding shares of common stock.

Sales of stock by Dr.

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*We have incurred and will continue to incur costs as a result of operating as a public company and our management has been and will be required to devote substantial time to compliance initiatives and corporate governance practices, including maintaining an effective system of internal control over financial reporting.

As a public company listed in the U.S., and increasingly after we are no longer an “emerging growth company,” we have incurred and will continue to incur significant additional legal, accounting and other expenses that we did not incur as a private company.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including Sarbanes-Oxley and regulations implemented by the SEC and Nasdaq, may increase legal and financial compliance costs and make some activities more time consuming.

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The controls and other procedures are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is disclosed accurately and is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Our independent registered public accounting firm was not engaged to perform an audit of, and give an opinion on, our internal control over financial reporting for the year ended December 31, 2019, or for any other prior period.

No such opinion was expressed in 2019 and may not be necessary for some time, if ever.

We did not engage our independent registered public accounting firm to perform an audit of, and give an opinion on, our internal control over financial reporting for the year ended December 31, 2019, or for any other prior period.

No such opinion was expressed in 2019 and, based on current rules and regulations, an independent audit of our internal control over financial reporting may not be necessary for some time, if ever.

There can be no assurance that we will not discover deficiencies or a material weakness in our internal control over financial reporting or that our auditor will agree with management’s assessment of our internal control over financial reporting if or when our auditor conducts such audit and delivers an opinion.

Even after we develop these new procedures, these new controls may become inadequate because of changes in conditions or the degree of compliance with these policies or procedures may deteriorate and material weaknesses in our internal control over financial reporting may be discovered.

In the normal course of business our controls and procedures may become inadequate because of changes in conditions or the degree of compliance with these policies or procedures may deteriorate and material weaknesses in our internal control over financial reporting may be discovered.

We may err in the design or operation of our controls, and all internal control systems, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met.

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In the event that we are not able to demonstrate compliance with Section 404 in a timely manner, or are unable to produce timely or accurate financial statements, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or Nasdaq, and investors may lose confidence in our operating results and the price of our common stock could decline.

Furthermore, if we are unable to certify that our internal control over financial reporting is effective and in compliance with Section 404, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or stock exchanges, and we could lose investor confidence in the accuracy and completeness of our financial reports, which could hurt our business, the price of our common stock and our ability to access the capital markets.

We also expect that being a public company will continue to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.

Furthermore, if we are unable to certify that our internal control over financial reporting is effective and in compliance with Section 404, we may be subject to sanctions or investigations by regulatory authorities, such as the SEC or stock exchanges , and investor could lose confidence in the accuracy and completeness of our financial reports, which could h urt our business, the price of our common stock and our ability to access the capital markets.

Operating as a public company makes it more expensive for us to obtain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.

These factors could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors, or as members of senior management.

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*Because we are relying on the exemptions from corporate governance requirements as a result of being a “controlled company” within the meaning of the Nasdaq listing standards, you do not have the same protections afforded to stockholders of companies that are subject to such requirements.

Our Chairman and CEO, Dr.

Our Chairman, Dr.

Patrick Soon-Shiong, and entities affiliated with him, control a majority of our common stock.

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Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and may elect not to comply with certain Nasdaq corporate governance requirements, including (1) the requirement that a majority of the board of directors consist of independent directors, and (2) the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

Our board of directors is currently comprised of a majority of independent directors.

In addition, although not required by the rules of Nasdaq, in August 2019, our board of directors established a nominating and corporate governance committee comprised of two directors, which are independent.

Accordingly, you do not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.

However, our board of directors is currently comprised of a majority of independent directors.

We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies could make our common stock less attractive to investors.

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These net operating loss and research and development tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities.

Under Sections 382 and 383 of the I nternal R evenue C ode of 1986 , as amended , if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its future post-change income and taxes may be limited.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its future post-change income and taxes may be limited.

In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period.

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We completed an IRC Section 382/383 analysis through March 2019 regarding the limitation of net operating loss and research and development credit carryforwards.

T he analysis concluded that the federal and state carryforwards associated with the NOLs were reduced by the amount of tax attributes estimated to expire during their respective carryforward periods .

The analysis concluded that the federal and state carryforwards associated with the NOLs were reduced by the amount of tax attributes estimated to expire during their respective carryforward periods.

Since we will need to raise substantial additional funding to finance our operations, we may experience further ownership changes in the future, some of which may be outside of our control.

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An “interested stockholder” is a person who, together with affiliates and associates, owns (or, in certain cases, within three years prior, did own) 15% or more of the corporation’s voting stock.

Our decision not to be subject to Section 203 will allow, for example, our Chairman and CEO (who with members of his immediate family and entities affiliated with him owned approximately 64.9% of our

common stock as of June 30, 2020 ) to transfer shares in excess of 15% of our voting stock to a third-party free of the restrictions imposed by Section 203.

Our decision not to be subject to Section 203 will allow, for example, our Chairman (who with members of his immediate family and entities affiliated with him owned approximately 64.4% of our common stock as of September 30, 2020) to transfer shares in excess of 15% of our voting stock to a third-party free of the restrictions imposed by Section 203.

This may make us more vulnerable to takeovers that are completed without the approval of our board of directors and/or without giving us the ability to prohibit or delay such takeovers as effectively.

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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 1A. Risk Factors