ImmunityBio, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. NantKwest, Inc. Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) September 30, 2020 December 31, 2019 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 27,688 $ 15,508 Prepaid expenses and other current assets (including amounts with related parties) 8,977 4,105 Marketable debt securities, available-for-sale 61,353 36,144 Total current assets 98,018 55,757 Marketable debt securities, noncurrent 769 1,497 Property, plant and equipment, net (including amounts with related parties) 55,864 60,501 Operating lease right-of-use assets, net (including amounts with related parties) 14,602 11,729 Equity investment 9,253 9,253 Other assets (including amounts with related parties) 2,029 4,386 Total assets $ 180,535 $ 143,123 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 6,160 $ 1,749 Accrued expenses 5,497 5,343 Due to related parties 1,356 486 Operating lease liabilities (including amounts with related parties) 5,351 3,206 Other current liabilities 2,299 775 Total current liabilities 20,663 11,559 Operating lease liabilities, less current portion (including amounts with related parties) 11,250 10,885 Total liabilities 31,913 22,444 Commitments and contingencies (Note 8) Stockholders’ equity: Common stock, $ 0.0001 par value; 500,000,000 shares authorized; 108,592,583 and 98,460,404 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 11 10 Additional paid-in capital 871,170 782,965 Accumulated other comprehensive loss ( 117 ) ( 105 ) Accumulated deficit ( 722,442 ) ( 662,191 ) Total stockholders’ equity 148,622 120,679 Total liabilities and stockholders’ equity $ 180,535 $ 143,123 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 NantKwest, Inc. Condensed Consolidated Statements of Operations (in thousands, except share and per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue $ 68 $ 12 $ 90 $ 34 Operating expenses: Research and development (including amounts with related parties) 17,284 12,052 44,227 37,781 Selling, general and administrative (including amounts with related parties) 4,711 4,025 16,603 13,949 Total operating expenses 21,995 16,077 60,830 51,730 Loss from operations ( 21,927 ) ( 16,065 ) ( 60,740 ) ( 51,696 ) Other income (expense): Investment income, net 66 433 319 1,336 Interest expense ( 9 ) ( 5 ) ( 19 ) ( 8 ) Other income, net (including amounts with related parties) 96 56 195 186 Total other income 153 484 495 1,514 Loss before income taxes ( 21,774 ) ( 15,581 ) ( 60,245 ) ( 50,182 ) Income tax (expense) benefit ( 2 ) — ( 6 ) 34 Net loss $ ( 21,776 ) $ ( 15,581 ) $ ( 60,251 ) $ ( 50,148 ) Net loss per share: Basic and diluted $ ( 0.20 ) $ ( 0.16 ) $ ( 0.59 ) $ ( 0.54 ) Weighted-average number of shares during the period: Basic and diluted 108,246,579 98,331,695 101,853,047 92,791,644 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 NantKwest, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net loss $ ( 21,776 ) $ ( 15,581 ) $ ( 60,251 ) $ ( 50,148 ) Other comprehensive (loss) income, net of income taxes: Net unrealized (losses) gains on available-for-sale securities ( 19 ) 27 ( 14 ) 210 Reclassification of net realized losses on available-for-sale securities included in net loss 2 4 2 4 Total other comprehensive (loss) income ( 17 ) 31 ( 12 ) 214 Comprehensive loss $ ( 21,793 ) $ ( 15,550 ) $ ( 60,263 ) $ ( 49,934 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 NantKwest, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except for share amounts) (Unaudited) Accumulated Additional Other Common Stock Paid-in Comprehensive Accumulated Three Months Ended September 30, 2020 Shares Amount Capital Loss Deficit Total Balance at June 30, 2020 107,764,158 $ 11 $ 870,408 $ ( 100 ) $ ( 700,666 ) $ 169,653 Issuance of common stock, net of $ 4,373 in offering costs — — 19 — — 19 Stock-based compensation expense — — 711 — — 711 Exercise of stock options 883,256 — 353 — — 353 Vesting of restricted stock units (RSUs) 83,260 — — — — — Employee payroll taxes withheld related to vesting of RSUs and exercise of stock options ( 138,091 ) — ( 321 ) — — ( 321 ) Other comprehensive loss, net — — — ( 17 ) — ( 17 ) Net loss — — — — ( 21,776 ) ( 21,776 ) Balance at September 30, 2020 108,592,583 $ 11 $ 871,170 $ ( 117 ) $ ( 722,442 ) $ 148,622 Accumulated Additional Other Common Stock Paid-in Comprehensive Accumulated Nine Months Ended September 30, 2020 Shares Amount Capital Loss Deficit Total Balance at December 31, 2019 98,460,404 $ 10 $ 782,965 $ ( 105 ) $ ( 662,191 ) $ 120,679 Issuance of common stock, net of $ 4,373 in offering costs 8,521,500 1 86,301 — — 86,302 Stock-based compensation expense — — 1,472 — — 1,472 Exercise of stock options 1,142,273 — 917 — — 917 Vesting of RSUs 642,236 — — — — — Employee payroll taxes withheld related to vesting of RSUs and exercise of stock options ( 173,830 ) — ( 485 ) — — ( 485 ) Other comprehensive loss, net — — — ( 12 ) — ( 12 ) Net loss — — — — ( 60,251 ) ( 60,251 ) Balance at September 30, 2020 108,592,583 $ 11 $ 871,170 $ ( 117 ) $ ( 722,442 ) $ 148,622 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 NantKwest, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands, except for share amounts) (Unaudited) Accumulated Additional Other Common Stock Paid-in Comprehensive Accumulated Three Months Ended September 30, 2019 Shares Amount Capital Loss Deficit Total Balance at June 30, 2019 98,307,859 $ 10 $ 782,312 $ ( 84 ) $ ( 630,969 ) $ 151,269 Stock-based compensation expense — — 277 — — 277 Vesting of RSUs 90,310 — — — — — Employee payroll taxes withheld related to vesting of RSUs ( 30,985 ) — ( 40 ) — — ( 40 ) Other comprehensive income, net — — — 31 — 31 Net loss — — — — ( 15,581 ) ( 15,581 ) Balance at September 30, 2019 98,367,184 $ 10 $ 782,549 $ ( 53 ) $ ( 646,550 ) $ 135,956 Accumulated Additional Other Common Stock Paid-in Comprehensive Accumulated Nine Months Ended September 30, 2019 Shares Amount Capital Loss Deficit Total Balance at December 31, 2018 79,087,734 $ 8 $ 741,246 $ ( 267 ) $ ( 594,981 ) $ 146,006 Stock-based compensation expense — — 2,150 — — 2,150 Exercise of warrants 17,589,250 2 35,149 — — 35,151 Exercise of stock options 1,986,300 — 4,070 — — 4,070 Vesting of RSUs 247,601 — — — — — Employee payroll taxes withheld related to vesting of RSUs and exercise of stock options ( 70,115 ) — ( 66 ) — — ( 66 ) Repurchase of common stock ( 473,586 ) — — — ( 501 ) ( 501 ) Cumulative effect of the adoption of the new lease standard — — — — ( 920 ) ( 920 ) Other comprehensive income, net — — — 214 — 214 Net loss — — — — ( 50,148 ) ( 50,148 ) Balance at September 30, 2019 98,367,184 $ 10 $ 782,549 $ ( 53 ) $ ( 646,550 ) $ 135,956 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 NantKwest, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Nine Months Ended September 30, 2020 2019 Operating activities: Net loss $ ( 60,251 ) $ ( 50,148 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,864 6,803 Non-cash lease expense related to operating lease right-of-use assets 2,290 1,925 Stock-based compensation expense 1,472 2,150 Amortization of net premiums and discounts on marketable debt securities 425 ( 11 ) Loss on sales of marketable debt securities 2 5 Non-cash interest items, net ( 288 ) 173 Loss on impairment of fixed assets — 869 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 2,291 ) 9,176 Other assets 116 ( 2,961 ) Accounts payable 4,253 342 Accrued expenses and other liabilities 1,574 ( 11,622 ) Due to related parties 1,091 ( 839 ) Operating lease liabilities ( 2,654 ) ( 2,339 ) Net cash used in operating activities ( 47,397 ) ( 46,477 ) Investing activities: Purchases of property, plant and equipment ( 2,238 ) ( 3,502 ) Purchase of Viracta common stock — ( 3 ) Purchases of marketable debt securities, available-for-sale ( 85,581 ) ( 76,831 ) Maturities of marketable debt securities 54,080 87,100 Sales of marketable debt securities 6,582 2,529 Net cash (used in) provided by investing activities ( 27,157 ) 9,293 Financing activities: Proceeds from equity offering, net of issuance costs paid 86,302 — Proceeds from exercises of stock options 917 4,070 Proceeds from exercises of warrants — 35,151 Repurchase of common stock — ( 501 ) Net share settlement for restricted stock unit vesting ( 485 ) ( 66 ) Net cash provided by financing activities 86,734 38,654 Net increase in cash, cash equivalents, and restricted cash 12,180 1,470 Cash, cash equivalents, and restricted cash, beginning of period 15,687 17,000 Cash, cash equivalents, and restricted cash, end of period $ 27,867 $ 18,470 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 NantKwest, Inc. Condensed Consolidated Statements of Cash Flows (Continued) (in thousands) (Unaudited) Nine Months Ended September 30, 2020 2019 Reconciliation of cash, cash equivalents, and restricted cash at end of period: Cash and cash equivalents $ 27,688 $ 18,291 Restricted cash 179 179 Cash, cash equivalents, and restricted cash, end of period $ 27,867 $ 18,470 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 19 $ 8 Income taxes $ 6 $ 3 Supplemental disclosure of non-cash activities: Property and equipment purchases included in accounts payable, accrued expenses and due to related parties $ 339 $ 188 Cashless exercise of stock options $ 1,233 $ 29 Right-of-use assets obtained in exchange for operating lease liabilities $ 5,164 $ 800 Conversion of Viracta convertible notes and accrued interest into investment in equity securities of Viracta (Note 4) $ — $ 751 Unrealized (losses) gains on marketable debt securities $ ( 12 ) $ 271 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 NantKwest, Inc. Notes to Unaudited Condensed Consolidated Financial Statements 1. Description of Business Organization NantKwest, Inc., or NantKwest, was incorporated in Illinois on October 7, 2002 under the name ZelleRx Corporation. On January 22, 2010, the company changed its name to Conkwest, Inc., and on July 10, 2015, the company changed its name to NantKwest, Inc. In March 2014, the company redomesticated from the State of Illinois to the State of Delaware and the Illinois company ceased to exist. We are a pioneering clinical-stage immunotherapy biotechnology company headquartered in San Diego, California with certain operations in Culver City and El Segundo, California and Woburn, Massachusetts. In these notes, the terms “we,” “our,” “the company” and “us” refer to NantKwest. We are focused on harnessing the power of the innate immune system by using our natural killer cells, or NK cells, to treat cancer and viral infectious diseases. A critical aspect of our strategy is to invest significantly in innovating new therapeutic candidates, based upon our proprietary activated NK, or aNK, cell platform, and conducting clinical testing and scale manufacturing of our most promising biologic product candidates. We hold the exclusive right to commercialize aNK cells, a commercially viable NK cell line, and a wide range of genetically modified derivatives capable of killing cancer and virally infected cells. We own corresponding United States, or U.S., and foreign composition and methods-of-use patents and applications covering the cells, improvements, methods of expansion and manufacture and use of aNK cells and their improvements as therapeutics to treat a spectrum of clinical conditions. We also license exclusive commercial rights to a high-affinity CD16 receptor expressing enhancement of our aNK cell platform, covered in a portfolio of U.S. and foreign composition and methods-of-use patents and applications covering both the clinical use as a therapeutic to treat cancers in combination with antibody products, as well as the non-clinical use in laboratory testing of monoclonal antibodies. 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. Liquidity 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 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 of approximately $ 4.4 million. 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. We are currently focused primarily on the development of immunotherapeutic treatments for cancers and debilitating viral infections using targeted cancer and viral killing cell lines, and we believe such activities will result in the company’s continued incurrence of significant research and development and other expenses related to those programs. If the clinical trials for any of the company’s product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if the company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. We intend to cover our future operating expenses through cash and cash equivalents and marketable debt securities on hand and through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances, and licensing arrangements. 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. 8 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. If we raise additional funds from the issuance of equity securities, substantial dilution to existing stockholders may result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations , as well as covenants and specific financial ratios that may restrict our ability to operate our business. 2. Summary of Significant Accounting Policies There have been no material changes in our significant accounting policies other than the adoption of accounting pronouncements described below under Application of New or Revised Accounting Standards – Adopted , as compared to the significant accounting policies described in our Annual Report on Form 10‑K for the year ended December 31, 2019. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. 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. We believe our existing cash, cash equivalents, and investments in marketable debt securities, will be sufficient to fund operations through at least the next 12 months following the issuance date of the financial statements. We may also seek to sell additional equity, through one or more follow-on public offerings, or in separate financings, or obtain a credit facility. However, we may not be able to secure such financing in a timely manner or on favorable terms. Without additional funds, we may choose to delay or reduce our operating or investment expenditures. Further, because of the risk and uncertainties associated with the commercialization of the company’s product candidates in development, we may need additional funds to meet our needs sooner than planned. Principles of Consolidation and Equity Investments The condensed consolidated financial statements include the accounts of NantKwest and its wholly owned subsidiaries. All intercompany amounts have been eliminated. We apply the variable interest model under Accounting Standards Codification, or ASC, Topic 810, Consolidation , to any entity in which we hold an equity investment or to which we have the power to direct the entity's most significant economic activities and the ability to participate in the entity's economics. If the entity is within the scope of the variable interest model and meets the definition of a variable interest entity, or VIE, we consider whether we must consolidate the VIE or provide additional disclosures regarding our involvement with the VIE. If we determine that we are the primary beneficiary of the VIE, we will consolidate the VIE. This analysis is performed at the initial investment in the entity or upon any reconsideration event. For entities we hold as an equity investment that are not consolidated under the VIE model, we consider whether our investment constitutes ownership of a majority of the voting interests in the entity and therefore should be considered for consolidation under the voting interest model. Unconsolidated equity investments in the common stock or in-substance common stock of an entity under which we are able to exercise significant influence, but not control, are accounted for using the equity method. Our ability to exercise significant influence is generally indicated by ownership of 20 to 50 percent interest in the voting securities of the entity. 9 All other unconsolidated equity investments on which we are not able to exercise significant influence will be subsequently measured at fair value with unrealized holding gains and losses included in other income, net , on the condensed consolidated statements of operations. In the instance the equity investment does not have a readily determinable fair value and does not qualify for the practical expedient to estimate fair value in accordance with ASC 820, Fair Value Measurement , or ASC 820, we will apply the measurement alternative under ASC 321, Investments—Equity Securities , or ASC 321 , pursuant to which we will measure the investment at its cost less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer. We own non-marketable equity securities that are accounted for using the measurement alternative under ASC 321 because the preferred stock held by us is not considered in-substance common stock and such preferred stock does not have a readily determinable fair value. All investments are reviewed on a regular basis for possible impairment. If an investment's fair value is determined to be less than its net carrying value, the investment is written down to its fair value. Such an evaluation is judgmental and dependent on specific facts and circumstances. Factors considered in determining whether an impairment indicator is present include: the investees’ earnings performance and clinical trial performance, change in the investees’ industry and geographic area in which it operates, offers to purchase or sell the security for a price less than the cost of the investment, issues that raise concerns about the investee's ability to continue as a going concern, and any other information that we may be aware of related to the investment. Factors considered in determining whether an observable price change has occurred include: the price at which the investee issues equity instruments similar to those of our investment and the rights and preferences of those equity instruments compared to ours. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to 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 ongoing coronavirus pandemic could have on our significant accounting estimates. Actual results could differ from those estimates. Risks and Uncertainties In March 2020, the World Health Organization declared the novel strain of coronavirus disease (SARS‑CoV‑2) outbreak a pandemic. 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. Contingencies We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause a change in the potential amount of the liability recorded or of the range of potential losses disclosed. Moreover, we record gain contingencies only when they are realizable, and the amount is known. Additionally, we record our rights to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and when receipt is deemed probable. This includes instances when our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject us to concentrations of risk consist principally of cash and cash equivalents and marketable debt securities. Our cash and cash equivalents are held by one major financial institution in the U.S. and one in Korea. 10 Product candidates developed by us will require approvals or clearances from the U.S. Food and Drug Administration , or FDA , or international regulatory agencies prior to commercial sales. There can be no assurance that any of our product candidates will receive any of the required approval s or clearance s . If we w ere to be denied approval or clearance or any such approval or clearance w as to be delayed, it would have a material adverse impact on us . Basic and Diluted Net Loss per Share of Common Stock Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted loss per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive. The following table details those securities that have been excluded from the computation of potentially dilutive securities: As of September 30, 2020 2019 Outstanding options 3,648,010 4,506,950 Outstanding RSUs 480,292 1,273,278 Total 4,128,302 5,780,228 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 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. 11 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. GAAP . The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. 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 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 In June 2016, the FASB issued ASU 2016‑13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The FASB subsequently issued amendments to ASU 2016‑13, which have the same effective date and transition dates as described below. The new guidance supersedes existing U.S. GAAP for measuring and recording of credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. For public business entities that meet the definition of a SEC filer, except entities that are eligible to be a smaller reporting company as defined by the SEC, the standard is effective for annual periods beginning after December 15, 2019, and interim periods therein. For all other entities, the standard is effective for annual periods beginning after December 15, 2022, and interim periods therein. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018. With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption. We continue to evaluate the impact that this new standard and its related amendments will have on our consolidated financial statements 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. 3. Financial Statement Details Prepaid expenses and other current assets As of September 30, 2020 and December 31, 2019, prepaid expenses and other current assets were made up of (in thousands): September 30, 2020 December 31, 2019 (Unaudited) Prepaid preclinical and clinical trial services - with related party (Note 9) $ 3,262 $ 1,021 Insurance premium financing asset 2,262 757 Prepaid services 825 440 Prepaid insurance 657 372 Interest receivable - marketable debt securities 510 222 Prepaid rent 422 392 Prepaid supplies - with related party (Note 9) 306 467 Prepaid license fees 216 78 Prepaid equipment maintenance 165 251 Laboratory equipment deposit 162 — Due from related parties 100 47 Insurance claim receivables — 34 Other 90 24 $ 8,977 $ 4,105 12 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, 2020 December 31, 2019 (Unaudited) Leasehold improvements $ 33,665 $ 33,406 Buildings 22,690 22,690 Equipment 22,738 21,434 Software 1,190 1,195 Furniture & fixtures 415 383 80,698 79,108 Accumulated depreciation ( 24,834 ) ( 18,607 ) $ 55,864 $ 60,501 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. Other assets As of September 30, 2020 and December 31, 2019, other assets were made up of (in thousands): September 30, 2020 December 31, 2019 (Unaudited) Prepaid preclinical and clinical trial services - with related party (Note 9) $ 1,570 $ 4,075 Restricted cash 179 179 Prepaid software license fees 118 — Security deposit 113 113 Other 49 19 $ 2,029 $ 4,386 Restricted cash is comprised of a certificate of deposit that serves as collateral for a letter of credit required by our landlord as a security deposit related to our facility in San Diego, California. Accrued expenses As of September 30, 2020 and December 31, 2019, accrued expenses were made up of (in thousands): September 30, 2020 December 31, 2019 (Unaudited) Accrued bonus $ 1,838 $ 2,002 Accrued compensation 1,113 1,064 Accrued professional and service fees 829 975 Accrued laboratory equipment, supplies and related services 635 640 Accrued preclinical and clinical trial costs 627 281 Accrued franchise and sales/use taxes 217 200 Accrued construction costs 164 — Other 74 181 $ 5,497 $ 5,343 13 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, 2020 December 31, 2019 (Unaudited) Financing obligation - current portion $ 2,262 $ 757 Other 37 18 $ 2,299 $ 775 Investment income, net 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, 2020 2019 2020 2019 (Unaudited) (Unaudited) Interest income $ 449 $ 424 $ 795 $ 1,325 Investment (amortization expense) accretion income, net ( 381 ) 13 ( 474 ) 15 Net realized losses on investments ( 2 ) ( 4 ) ( 2 ) ( 4 ) $ 66 $ 433 $ 319 $ 1,336 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 nine months ended September 30, 2020 and 2019. 4. Viracta Investment In March 2017, we participated in a Series B convertible preferred stock financing and invested $ 8.5 million in Viracta Therapeutics, Inc., or Viracta, a clinical stage drug development company. 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 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. In June 2018, Viracta executed a 2018 Note and Warrant Purchase Agreement with existing and new investors, including us. The initial closing under the Purchase Agreement occurred in June 2018, at which point we purchased a convertible note for $ 0.4 million, which under certain circumstances was convertible into preferred stock of Viracta, and a warrant to purchase Viracta’s common shares. The convertible note accrued interest at 8 % and had a one-year maturity date. In September 2018, a milestone closing under the Purchase Agreement occurred, at which point we purchased an additional convertible note for $ 0.4 million, which under certain circumstances was convertible into preferred stock of Viracta, and a warrant to purchase Viracta’s common shares. The convertible note accrued interest at 8 % and had a one-year maturity date. We classified the convertible notes as held-to-maturity notes receivable on the consolidated balance sheets. Effective January 31, 2019, the notes, together with accrued interest then outstanding, were converted to Series B preferred stock resulting in an increase to our investment in Viracta’s Series B convertible preferred stock of $ 0.8 million. In May 2019, we exercised warrants to acquire 253,120 shares of Viracta common stock. At December 31, 2019, our investment in Viracta totaled $ 9.3 million. Based on the level of equity investment at risk, Viracta is not a VIE and therefore is not consolidated under the VIE model. In addition, we do not hold a controlling financial interest in Viracta and therefore we do not consolidate Viracta under the voting interest model. As the preferred stock is not considered in-substance common stock, the investment is not within the scope of accounting for the investment under the equity method. 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 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. 14 5. Financial Instruments – Investments in Marketable Debt Securities 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 (Unaudited) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Current: Corporate debt securities $ 57,367 $ 3 $ ( 16 ) $ 57,354 Commercial paper 3,998 1 — 3,999 Current portion 61,365 4 ( 16 ) 61,353 Noncurrent: Corporate debt securities 769 — — 769 Noncurrent portion 769 — — 769 Total $ 62,134 $ 4 $ ( 16 ) $ 62,122 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): December 31, 2019 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Current: Corporate debt securities $ 32,382 $ 10 $ ( 3 ) $ 32,389 Foreign government bonds 1,007 — — 1,007 Government sponsored securities 2,752 — ( 4 ) 2,748 Current portion 36,141 10 ( 7 ) 36,144 Noncurrent: Corporate debt securities 1,501 — ( 4 ) 1,497 Noncurrent portion 1,501 — ( 4 ) 1,497 Total $ 37,642 $ 10 $ ( 11 ) $ 37,641 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 (Unaudited) Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Corporate debt securities $ 33,238 $ ( 16 ) $ — $ — Total $ 33,238 $ ( 16 ) $ — $ — December 31, 2019 Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Corporate debt securities $ 11,021 $ ( 3 ) $ 1,497 $ ( 4 ) Government sponsored securities — — 2,748 ( 4 ) Total $ 11,021 $ ( 3 ) $ 4,245 $ ( 8 ) 15 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 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. 6. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on our principal or, in absence of a principal, most advantageous market for the specific asset or liability. We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows: • Level 1— Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Our Level 1 assets consist of bank deposits and money market funds. • Level 2— Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities. Our Level 2 assets consist of corporate debt securities including commercial paper, government sponsored securities and corporate bonds, as well as foreign municipal securities. • Level 3— Valuations based on inputs that are unobservable and significant to the overall fair value measurement. During the periods presented, no transfers were made into or out of the Level 1, 2 or 3 categories. We will continue to review the fair value inputs on quarterly basis. We utilize a third-party pricing service to assist in obtaining fair value pricing for our investments in marketable debt securities. Inputs are documented in accordance with the fair value disclosure hierarchy. Recurring Valuations 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 (Unaudited) Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 27,688 $ 17,100 $ 10,588 $ — Corporate debt securities 57,354 — 57,354 — Commercial paper 3,999 — 3,999 — Noncurrent: Corporate debt securities 769 — 769 — Total assets measured at fair value $ 89,810 $ 17,100 $ 72,710 $ — 16 Fair Value Measurements at December 31, 2019 Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 15,508 $ 15,508 $ — $ — Corporate debt securities 32,389 — 32,389 — Foreign government bonds 1,007 — 1,007 — Government sponsored securities 2,748 — 2,748 — Noncurrent: Corporate debt securities 1,497 — 1,497 — Total assets measured at fair value $ 53,149 $ 15,508 $ 37,641 $ — Non-recurring Valuations Non-financial assets and liabilities are recognized at fair value subsequent to initial recognition when they are deemed to be other-than-temporarily impaired. There were no material non-financial assets and liabilities deemed to be other-than-temporarily impaired and measured at fair value on a non-recurring basis for the three months ended September 30, 2020. 7. Collaboration and License Agreements Collaborative Arrangements A collaborative arrangement is a contractual arrangement that involves a joint operating activity. These arrangements involve two or more parties who are (i) active participants in the activity, and (ii) exposed to significant risks and rewards dependent on the commercial success of the activity. We have entered into the following collaborative arrangements with ImmunityBio, Inc., ImmunityBio, and/or its subsidiaries as described below. ImmunityBio is a related party, as it is an affiliate of NantWorks (Note 9). 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. 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. 17 Cost Sharing Agreement 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. 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. 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 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: 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 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 In August 2016, we entered into an exclusive Co‑Development Agreement, or the Co‑Development Agreement, with Altor BioScience, LLC, or Altor. Altor is a related party, as it is a wholly owned subsidiary of ImmunityBio (Note 9). Under the Co‑Development Agreement, the parties agreed to exclusively collaborate on the development of certain therapeutic applications combining our proprietary NK cells with Altor's N‑801 and/or N‑803 products with respect to certain technologies and intellectual property rights as may be agreed between the parties for the purpose of jointly developing therapeutic applications of certain effector cell lines. 18 We are the lead developer for each product developed by the parties pursuant to the Co‑Development Agreement unless otherwise agreed to under a given project plan. Under the terms of the Co‑Development Agreement, both parties granted a co-exclusive, royalty free, fully paid-up, worldwide license, with the right to sublicense (only to a third-party contractor assisting with research and development activities under this Co‑Development Agreement and subject to prior consent, not to be unreasonably withheld), under the intellectual property, or IP, including the parties interest in the joint IP, solely to conduct any development activities agreed to by the steering committee as set forth in any development plan. Unless otherwise mutually agreed by the parties in the development plan for a project, we are responsible for all costs and expenses incurred by either party related to conducting clinical trials and other activities under each development program, including costs associated with patient enrollment, materials and supplies, third-party staffing and regulatory filings. Altor supplies free of charge, sufficient amounts of Altor products for all pre-clinical requirements and certain clinical requirements for up to 400 patients in phase I and/or phase II clinical trials, as required under the development plan for a project per the Co‑Development Agreement. Each company owns an undivided interest in and to all rights, title and interest in and to the joint product rights. The Co‑Development Agreement expires upon the fifth anniversary of the effective date. 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 nine months ended September 30, 2020 and 2019. 8. Commitments and Contingencies Contingencies We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause a change in the potential amount of the liability recorded or of the range of potential losses disclosed. Moreover, we record gain contingencies only when they are realizable, and the amount is known. Additionally, we record our rights to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and when receipt is deemed probable. This includes instances 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. Securities Litigation In March 2016, a putative securities class action complaint captioned Sudunagunta v. NantKwest, Inc., et al. , No. 16‑cv‑01947 was filed in federal district court for the Central District of California related to the company’s restatement of certain interim financial statements for the periods ended June 30, 2015 and September 30, 2015. A number of similar putative class actions were filed in federal and state court in California. The actions originally filed in state court were removed to federal court, and the various related actions were consolidated. Plaintiffs asserted causes of action for alleged violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b‑5 promulgated thereunder. Plaintiffs sought unspecified damages, costs and attorneys’ fees, and equitable/injunctive or other relief on behalf of putative classes of persons who purchased or acquired the company’s securities during various time periods from July 28, 2015 through March 11, 2016. In September 2017, the court denied defendants' motion to dismiss the third amended consolidated complaint. On August 13, 2018, the district court granted plaintiffs’ motions for class certification and to strike plaintiffs’ claims under the Securities Exchange Act of 1934 and Rule 10b‑5. On August 24, 2018, at the district court’s direction, plaintiffs filed a fourth amended consolidated complaint. On August 27, 2018, defendants petitioned the U.S. Court of Appeals for the Ninth Circuit to authorize interlocutory appeal of the class certification order. On September 7, 2018, defendants answered the fourth amended consolidated complaint. On September 21, 2018, the parties informed the Ninth Circuit that they had reached a settlement in principle, and the parties moved to stay appellate proceedings. On September 24, 2018, the parties notified the district court that they had reached a settlement in principle. On November 9, 2018, the plaintiffs filed an unopposed motion for preliminary approval of the settlement and notice to class members. On January 9, 2019, the district court granted the motion for preliminary approval. A final approval hearing was held on April 29, 2019, and the district court granted final approval and entered judgment on May 31, 2019. Under the terms of the settlement, we paid $ 12.0 million to the plaintiffs as full and complete settlement of the litigation. We were responsible for $ 1.2 million of the settlement amount, which was recognized in selling, general and administrative expense during 2018, while the remaining $ 10.8 million was fully funded by our insurance carriers under our directors’ and officers’ insurance policy. We and the insurance carriers paid the settlement amount into a settlement fund in January 2019. Subsequent to receiving final approval of the settlement on May 31, 2019, the aforementioned settlement accrual, associated insurance claim receivable and restricted cash were released and are no longer reflected on the accompanying condensed consolidated balance sheets. 19 Stipulation of Settlement In early April 2019, following board approval, we entered into a settlement agreement, or the Stipulation of Settlement, with three stockholders of the company, each of whom had submitted a stockholder demand for the board to take action to remedy purported harm to the company resulting from certain alleged wrongful conduct concerning, among other things, disclosures about Dr. Soon-Shiong’s compensation and a related-party lease agreement. The Stipulation of Settlement called for us to adopt certain governance changes, and for the three stockholders to file a stockholder derivative action in the Superior Court of the State of California, County of San Diego, followed by an application for court approval of the Stipulation of Settlement. On May 31, 2019, the court entered an order preliminarily approving the Stipulation of Settlement and scheduling the final settlement hearing for August 9, 2019. Pursuant to the Stipulation of Settlement, we have provided stockholders with notice of the settlement and the final settlement hearing. Under the terms of the Stipulation of Settlement, which received final approval by the court on August 9, 2019, we paid an attorney’s fee of $ 0.5 million to the plaintiffs as part of the settlement. Of that amount, we were responsible for half, which was recognized in selling, general and administrative expense on the condensed consolidated statements of operations during the first quarter of 2019, while the other half was funded by our insurance carrier. We and the insurance carrier paid the settlement amount into a settlement fund in June 2019. Subsequent to receiving final approval of the settlement on August 9, 2019, the aforementioned settlement accrual, associated insurance claim receivable and restricted cash were released and are no longer reflected on the accompanying condensed consolidated balance sheets. Insurance Recoveries We have reflected our right to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and receipt is deemed probable. This includes instances where our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund. 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 Substantially all of our operating lease right-of-use assets and operating lease liabilities relate to facilities leases. We lease: (i) a research facility and office space in San Diego, California; (ii) a research and manufacturing space in Culver City, California, from a related party; (iii) research and manufacturing facilities in El Segundo, California, also from related parties; (iv) a research facility in Torrance, California; and (v) a research facility in Woburn, Massachusetts. See Note 9 – Related Party Agreements for further information. 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. 20 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: Operating Leases (a) 2020 (excluding the nine months ended September 30, 2020) $ 1,625 2021 6,563 2022 5,607 2023 2,545 2024 1,083 Thereafter 1,729 Total future minimum lease payments 19,152 Less: Interest 2,551 Present value of operating lease liabilities $ 16,601 (a) 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. 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. In September 2016, we entered into a lease agreement with 605 Doug St, LLC, a related party (Note 9), for approximately 24,250 square feet in El Segundo, California, which has been converted to a research and development laboratory and a current good manufacturing practice, or cGMP, manufacturing facility. The lease runs from July 2016 through July 2023. We have the option to extend the lease for an additional three year term through July 2026. The monthly rent is $ 0.1 million with annual increases of 3 % beginning in July 2017 . In March 2016, we entered into a lease agreement for an approximately 7,893 square foot facility in Woburn, Massachusetts, for a research and development laboratory, related office and other related uses. The initial lease term ran for 48 months from April 29, 2016 through May 31, 2020. In June 2016, the lease was amended to add 260 square feet, for a total of 8,153 square feet. Base rent for the initial term of the lease was $ 19,000 per month with a $ 1 per square foot annual increase on each anniversary date. In August 2019, we exercised our right pursuant to the lease agreement to extend the term of the lease for an additional two years through May 31, 2022 . Consequently, during the third quarter of 2019 we recognized an increase of $ 0.6 million in both operating lease right-of-use assets and operating lease liabilities on the condensed consolidated balance sheets. Base rent for the extended term of the lease is $ 25,800 per month with an annual increase of 3 % on June 1, 2021. 21 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 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. The term of the lease extends for seven years commencing on August 1, 2016. The base rent is $ 0.2 million per month with 3 % annual increases on each anniversary date. Commitments 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. 9. Related Party Agreements 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. NantWorks 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 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 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. 22 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. 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 (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 (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. 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. 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. 23 ImmunityBio ImmunityBio, Inc., or ImmunityBio, is a related party, as it is an affiliate of NantWorks. 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. 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. 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 . 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 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 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. We also have the right to purchase reagents and consumables associated with such equipment from ImmunityBio. When an upfront payment is made, it is included in prepaid expenses on the condensed consolidated balance sheets until the product is received. The agreement has an initial term of five years and renews automatically for successive one-year periods unless terminated earlier. 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. 24 605 Doug St. LLC 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. We have the option to extend the lease for an additional three-year term through July 2026. 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 $ 0.7 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. NantBio In March 2016, NantBio and the National Cancer Institute entered into a cooperative research and development agreement. The initial five year agreement covers NantBio and its affiliates, including us. Under the agreement, the parties are collaborating on the preclinical and clinical development of proprietary recombinant natural killer cells and monoclonal antibodies in monotherapy and in combination immunotherapies. We benefited from the preclinical and clinical research conducted during the first four years under this agreement. 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. 10. 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 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 of approximately $ 4.4 million. 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. The timing and amounts of any purchases were and will continue to be based on market conditions and other factors, including price, regulatory requirements and other corporate considerations. The 2015 Share Repurchase Program does not require the purchase of any minimum number of shares and may be suspended, modified, or discontinued at any time without prior notice. We have financed, and expect to continue to finance, the purchases with existing cash balances. 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. The shares are formally retired through board approval upon repurchase. In July 2015, the company's board of directors adopted and the company’s stockholders approved the 2015 Equity Incentive Plan, or the 2015 Plan. The 2015 Plan is the only equity plan of the company available for grant of equity awards to employees, directors and consultants of the company. In April 2019, the company’s board of directors adopted, and in June 2019 the company’s stockholders approved, a first amendment to the 2015 Plan to reserve a further 3,000,000 shares of common stock for issuance pursuant to the 2015 Plan. 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. 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. 25 11. 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) Stock-based compensation expense: Employee stock options $ 545 $ 103 $ 842 $ 1,204 Employee RSUs 143 79 516 642 Non-employee RSUs 23 95 114 304 $ 711 $ 277 $ 1,472 $ 2,150 Stock-based compensation expense in operating expenses: Research and development $ 76 $ 98 $ 149 $ 359 Selling, general and administrative 635 179 1,323 1,791 $ 711 $ 277 $ 1,472 $ 2,150 Stock Options The following table summarizes stock option activity under all equity incentive plans for the nine months ended September 30, 2020: Number of Shares Weighted- Average Exercise Price Aggregate Intrinsic Value (in thousands) Weighted- Average Remaining Contractual Life (in years) Outstanding at December 31, 2019 4,506,950 $ 9.37 $ 5,710 5.8 Options granted 400,000 $ 6.21 Options exercised ( 1,142,273 ) $ 1.88 Options forfeited ( 116,667 ) $ 3.07 Outstanding at September 30, 2020 3,648,010 $ 11.57 $ 9,374 5.7 Vested and Exercisable at September 30, 2020 2,960,508 $ 13.12 $ 7,973 4.9 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. GAAP. 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 nine months ended September 30, 2020 (Unaudited): Expected term (in years) 5.5 Risk-free interest rate 0.4 % Expected volatility 96.8 % Dividend yield 0.0 % Weighted-average grant date fair value $ 4.64 26 The expected term was estimated using the average of the contractual term and the weighted-average vesting term of the options. The risk-free interest rate assumption was based on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award s being valued. E xpected volatility was estimated based on the historical volatility of our c ommon stock. The assumed dividend yield was based on the company’s expectation of not paying divide nds for the foreseeable future. Restricted Stock Units The following table summarizes the restricted stock units, or RSUs, activity under the 2015 Plan for the nine months ended September 30, 2020: Number of Shares Weighted- Average Grant Date Fair Value Unvested balance at December 31, 2019 1,139,428 $ 2.23 Granted 33,500 $ 6.43 Vested ( 642,236 ) $ 2.04 Forfeited ( 50,400 ) $ 4.77 Unvested balance at September 30, 2020 480,292 $ 2.52 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. Warrants 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. 12. Income Taxes 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. Prior to the adoption of ASU 2019‑12 in the first quarter of 2020, as described in Note 2, intraperiod tax allocation rules required us to allocate the provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income. In periods in which we had a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, we had to allocate the tax provision to the other categories of earnings. We then recorded a related tax benefit in continuing operations. 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 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 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. and file Korean statutory tax returns. Income tax expense consists of U.S. federal, state, and Korean income taxes. To date, we have not been required to pay U.S. federal and state income taxes because of current and accumulated net operating losses. 27 On March 27, 2020, the U . S . enacted the Coronavirus Aid, Relief and Economic Security Act , or the C ARES Act. The C ARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U . S . economy and fund a nationwide effort to curtail the effect of 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. We currently have significant federal and state deferred tax assets attributed to prior net operating losses and research and experimentation tax credits. These deferred taxes are fully reserved. As we have never generated taxable income, the CARES Act feature allowing net operating losses originating in 2018, 2019 or 2020 to be carried back five years is not expected to have a significant impact. 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. 28